Bruce Whitfield: SAA must be allowed to die

Business Insider SA

  • National carrier SAA keeps looking for handouts.
  • The new executive team is about the tenth in as many years.
  • Global rivals are supplying a better, more cost effective service anyway.

Watching parents at a restaurant trying to discipline their child is better entertainment than channel-hopping on DStv.

“Crispin, for one last time. Sit down! Really Crispy, this is enough. I am not going to speak again. Stop it. 3-2-1. Now look. Sit down please.”

The levels of exasperation grow as the child flagrantly defies parents' combined best effort. Eventually they capitulate. He is handed a smartphone. 

And you can almost see him thinking: “Boom! Works every time!”

No fewer than ten executive teams at SAA have behaved just like Crispin and have found that the state too will indulge a high-maintenance brat.

The surest sign of insanity is to do the same thing over and over again and expect a different outcome, or so goes the quote broadly but wrongly attributed to Albert Einstein.

For more than a decade SAA has had a virtual revolving door to the National Treasury to gain access to the national piggy bank: R18 billion in bailouts so far, and not a sustainable turnaround in sight.

The case for South Africa to have a state-run national airline gets weaker every day. The time has come to give the current management team under the leadership of ex telecommunications executive Vuyani Jarana a deadline to perform – and to stick to it. Jarana is building a new executive team which includes ex Old Mutual South Africa head turned SA Revenue Service executive Bob Head as CFO for six months. He seems confident they can crack the code to return SAA to profitability.

The reality is SAA costs a fortune and arguments for its existence are increasingly hard to swallow as super-competitive international rivals show it up at every turn.

(Flickr / Alan Wilson)

British Airways announced this week it will re-introduce direct flights to Durban with a three-times-a-week direct flight from Heathrow’s swish Terminal from the end of October. That is in addition to its daily direct flight to Cape Town and double-frequency to Johannesburg, plus regular flights connecting Gatwick and Johannesburg. It adds extra frequencies over the summer season too.

BA and other SAA rivals have the advantage of operating new-generation aircraft – while SAA’s thirsty old long-haul Airbus fuel burners make it much harder to be competitive. International carriers are also better at sweating their assets than SAA has proven able. The new BA routing, for example, will operate on fast turnarounds. The Boeing 787-8 Dreamliner will fly to Durban overnight, and pick up passengers for a day flight to the UK before repeating the cycle again. KLM, and others, operate similarly to prevent their aircraft sitting idle for half a day at a time. 

Politicians will tell you that SAA is a vital cog in the complex network of factors that help drive business in South Africa. Without a national flag carrier, we are told, the world might lose interest in doing business with us and prices would sky-rocket.

Certainly, direct flights to Heathrow are pricey – but in that lies an opportunity and not a risk. Assuming it was able to regain landing slots at Heathrow it has given up in recent years, SAA should be able to compete aggressively out of its home market.

But it has failed dismally to do so.

BA says it has sufficient demand to justify the additional frequencies to Durban, and that its other routes will not be cannibalised, and that its local partner BA Comair (in which it has a 15% stake) will be more than compensated for the loss of current connecting flights with the higher volumes the direct flight will generate.

A colleague is flying Ethiopian to Italy in a couple of weeks. There is a short stop to pick up passengers in Addis Ababa en route to Rome, but for the price of two return economy tickets between Cape Town and Johannesburg, it’s a bargain. Ethiopian is building a solid reputation as a small but reliable alternative to mainstream airlines – again stealing much of SAA’s traditional customer base.

The year after SAA abandoned its Cape Town to Heathrow route rivals, sensing an opportunity, started operating more regular routes. Last year, without a direct international route for SAA out of Cape Town, international arrivals increased 27% year-on-year according to stats from the Western Cape government.

While SAA builds an executive team and leans on taxpayers for yet another bailout – its smarter rivals are outmanoeuvring it at every turn. 

It’s current turnaround plan should be its last. If it can not make it work this time, government should force should simply shut it down. The country has too much at stake to keep funding SAA.

The Long-Term Turnaround Strategy aims for SAA to break even in 2021. As soon as it becomes apparent that deadline will not be met, it is time to cut the cord.

Bruce Whitfield is an award-winning multi-platform financial journalist and broadcaster.

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