The FM asked former Comair CEO Erik Venter whether the airline can and should be saved
South Africans are rapidly losing patience with their tax-guzzling national carrier. The FM asked former Comair CEO Erik Venter whether the airline can and should be saved.
I think there are two issues to look at here. The first is the state of SAA in terms of skills sets, IT systems, aircraft age and financial processes, and so on, and that’s what most people seem to be focusing on: just getting the fundamentals of running a business right.
But what I think is more critical is whether SAA is still relevant in the global aviation context these days.
In my view, it’s a bit like running a VHS video rental store now — it doesn’t matter how efficiently you run it, you’re not going to have a good Christmas. It really doesn’t matter what is done with it in terms of efficiency, SAA is just completely out of date with the global business model of aviation.
But could it become relevant?
No. The world’s changed. In the international markets, SAA was very much the establishment of apartheid sanction-busting, and it did well in that environment. But since then, we’ve had the growth of all the Middle Eastern carriers, like Turkish, Emirates and Qatar, which are enormous. And they’ve only really been established in the past 15 years — they were around on a tiny scale prior to that but [since then] they’ve taken over the world.
It isn’t just an SAA issue; this is facing many airlines around the world. These [Middle Eastern] carriers are positioned in ideal locations for a global network. And it doesn’t matter how much you’d like to compete with them, if you’re not sitting in that sort of longitude it doesn’t matter. So being on the southern tip of Africa, SAA is no longer relevant. What’s the logic of anyone elsewhere in Africa flying south to Johannesburg to fly back into the rest of the world?
That brings one to the regional issue — whereas a few years ago it was still enormously lucrative to fly to places like Rwanda and Dar es Salaam, the kind of revenue that used to come from those destinations just isn’t there anymore.
All the multinationals now fly directly via Istanbul or Dubai. SAA just doesn’t have the route network of these megacarriers.
What about locally?
On the domestic side, it’s just inefficient; it wouldn’t survive on a purely domestic operation anyway.
The world has moved on.
So it’s not even the case of comparing SAA to African Bank, say, and isolating the "good bank" from the "bad bank" and focusing on its good assets to make it work?
Well, to use that analogy, Africa still needs banking, but you don’t need an airline [to be based] anywhere in Africa, to be honest. SAA has been shrinking — its market share is now down to about 20% — so if it disappeared tomorrow it wouldn’t have any real impact. That capacity would be taken up instantly by some of the big international carriers. And in the domestic market, there’s already overcapacity of about 25%. So it would hardly be noticed if SAA disappeared.
There’s speculation that your previous employer, Comair, would do really well from an SAA implosion. Is that an erroneous assumption?
Look, it would; and the domestic airlines have been doing quite badly over the past few years because of the overcapacity. The market does require a correction to bring the industry back to proper profitability. There’s no question that the other airlines would benefit from it, and it wouldn’t cause a shortage of capacity. But there wouldn’t be the ability to operate irrationally and still survive. [The industry] would be operating on a purely rational basis, with rational pricing and schedules, and on a survival basis; there would always be the threat of bankruptcy. You wouldn’t have one competitor that was never threatened by it.
Would it cause a price crisis?
I imagine that some of the very bottom-end prices, the cheap deals of "R399 to Cape Town"-type of thing, which is economically completely unviable, would disappear out of the market. But on the normal pricing, I don’t expect there’d be much change. If SAA were 50% of the market, yes, there would be a huge correction, but it’s now only about 17% in the domestic market.
How would you have dealt with the unions?
The decision had to be taken prior to the union issue as to whether to continue or not — and that’s the real issue.
If [the authorities] had taken the hard decision and said there is no rational reason to continue, the union issue would become a completely moot point. If they’re going to cave in to the unions it means they’re adamant that they’re going to continue running SAA, and if they’re going to continue, the losses are going to keep growing.