Johannesburg, South Africa: SAA (South African Airways) this week completes 60 days of the 90 Day Action Plan commenced last year. The plan, a roadmap to return the carrier to relative stability, was developed to return the business to full implementation of its broader turnaround plan, the Long-Term Turnaround Strategy.
A further State guarantee was received from the airline’s Shareholding Ministry, National Treasury, to ensure the airline’s continued financial stability.
“While it is business unusual at SAA,” says Acting SAA Chief Executive Officer Mr. Nico Bezuidenhout, “the implementation of the 90 Day Action Plan has seen immediate beneficial commercial decision making on the one end while cost-compression measures have been substantially tightened to ensure that the business returns to relative stability. This is the objective of the Board and the management of South African Airways and we are intent on returning the business to commercially sound competitive activity in the market.”
• Recent and planned network configurations stand to positively impact SAA in the region of R600 million per annum; the genesis being the culling of loss making direct flights between Johannesburg and Beijing and Johannesburg and Mumbai sans sacrificing connectivity through deepened commercial relationships with a number of Gulf-state and other carriers. SAA launches its first direct flight between Johannesburg and the Middle-East on 29 March that will enable further network growth through end-point code-sharing with Gulf carriers, particularly to China and India. SAA has also, during the past two months, grown its sub-Saharan African network due to strong commercial demand with frequency additions between Johannesburg and Maputo, Harare and Mauritius among others. “SAA will announce further network reconfigurations in the coming months as well as new, commercially attractive destinations,” says Mr. Bezuidenhout. “It’s an exciting time and we are seeing commercially sound network decisions receive full backing from our Board and Shareholder”.
• SAA has completed approximately 40% of identified contract renegotiations, which forms part of a strengthening of Governance controls within the procurement area and re-focus on cost compression. This has thus far resulted in annualised savings of R 91 million.
• A key component of the 90 Day Action Plan is a revalidation of the Long-Term Turnaround Strategy (LTTS), which is currently re-evaluating underlying macro-economic and capital structure assumptions and their impact on SAA’s strategy. When the LTTS was developed in 2013, the Rand was 40% stronger than it is today and oil cost more than double the current and forecast trading price of Brent crude today. This fundamentally impacts on aircraft economics and demand patterns. Thus a review of SAA’s overall response is required, culminating in amendments to SAA’s network structure, fleet solution and financial forecasting and planning.
• SAA has also renegotiated fleet lease re-extensions of 3 of its A340 aircraft, already representing a positive impact of R 112 million annually. Further five aircraft lease extensions and renegotiations are expected to yield additional savings in excess of R 150 million later in the year.
• SAA expects to improve operating performance by approximately R 1.25 billion through the implementation of the 90 Day Action Plan, in the financial year ending March 2016.
“The strong implementation progress that is being made on the 90 Day Action Plan has seen tangible steps taken to fundamentally change SAA in financially quantifiable ways,” says Mr. Bezuidenhout. “Governance is being strengthened substantially and effort is being applied under trying circumstances to change the public reputation of the business. This focus continues to drive South African Airways toward relative stability at the end of the 90 days in March.”
“In its role as flag carrier, SAA serves as an economic enabler with direct and indirect benefits across a wide range of economic activity as well the catalytic impact on both in and outbound tourism.” South Africa’s geographic end of hemisphere position further emphasises the need for such air services as well as key partnerships with other carriers to maximise connectivity and optimise commercial opportunity. “SAA is open for business, however it is business unusual and intends competing commercially in all markets that the airline currently operates in as well as opening up new markets in time to come; either through extended code share agreements or direct own-metal flights where commercially sustainable.”
SAA connects South Africa to its major trade and tourism partners, in so doing supporting 33,000 jobs in South Africa, and contributing R10bn (US$ 900m), or approximately 0.3%, to the country’s GDP every year. Approximately 40% of all passengers and more than 50% of all air cargo within and to South Africa last year was carried by the SAA Group or under the SAA code. No South African airline trains more pilots and technicians, procures more from local suppliers or have taken more steps to protect the environment than SAA.