International airlines flying high as SAA struggles
International airlines are making handsome profits, which makes SAA’s failure even harder to understand
One of the many strange things about SA Airways’ travails is that, internationally, the trend of airline profits is, well, reaching for the sky.
At the start of 2018, the International Air Transport Association (Iata) forecast that net profit for the global industry would rise to $38.4bn in 2018 — up from the record $34.5bn net profit expected in 2017. This was revised downwards in June to $33.4bn. In 2010 global profitability was $10bn and it has risen every year since then.
The industry was for decades regarded as a strange example of a business incapable of making a profit.
Between 2002 and 2011, the three big legacy airlines in the US — American Airlines, United and Delta — all filed for bankruptcy. All three of them merged with another large carrier — US Airways, Continental and Northwest respectively. The reason given was the high price of fuel.
But since then they have avoided major crises, and the trio are by far the most profitable airlines in the world, at least in terms of most profit earned. And this was the key. Airlines have managed to claw their way into larger profit mainly by flying more.
Iata figures show that between 2005 and 2010, the number of flights was more or less flat at around 26-million. That has been gradually rising and this year is expected to reach 40-million.
The airlines also managed to keep costs under control: they rose from $538bn in 2010 to $788bn this year. But revenue rose faster, from $564bn to $834bn, partly because the amount they earned per passenger rose steadily from 2012 to 2016, falling back a bit after that.
Delivering these numbers, Iata CEO Alexandre de Juniac sounded ebullient. "More people than ever are travelling. The demand for air cargo is at its strongest level in over a decade. Employment is growing. More routes are being opened. Airlines are achieving sustainable levels of profitability."
Compare this to SAA. At exactly the time the global industry started to turn around, SAA started losing money. It has lost money since 2011 and total losses since 2014 are R18bn. In the past two years, it received R10bn in bailouts and is still dependent on a R19bn state guarantee to keep it flying.
Public enterprises minister Pravin Gordhan is happy to give the airline a last chance. If international airlines were making huge losses, that would be understandable. But they are flying high, which makes SAA’s predicament even more incongruous.