STRATEGIC OPTIONS FOR SOUTH AFRICAN AIRWAYS

For more than 20 years the fate of South African Airways has been a matter for regular discussion, and as time goes by, the debt mounts, the results deteriorate, and the problems become deeper. World airline competitiveness is constantly improving, and in spite of fuel price and aircraft purchase price increases, major carriers do still manage to make profit, albeit relatively little compared to the associated risks. IATA recently documented that the overall global profit per airline passenger was less than 3% of the ticket price.

With each change of management a new 10 year plan is invented, usually accompanied by a major aircraft investment. It is not unlikely that the aircraft manufacturers play a significant role in generating each version of the SAA strategy. It must be noted that the so-called "fuel guzzling" aircraft used by South African Airways are also used by a number of profitable airlines, and that SAA in fact has one of the youngest fleets in its class, just over 10 years according to airfleet.net, whereas some of the major competitors flying into Johannesburg have fleet ages in excess of 15 years.

The strategic variables that need to be considered are:

• ownership
• capitalisation
• network

and none of these can be considered in isolation.

At a time when the Middle East airlines are on the acquisition trail, and are already active in Africa, it seems fairly likely to me that some form of ownership deal with one of the Middle East carriers is a serious option. It is the Middle East carriers who are eroding the profitability of a large portion of long-haul flights due to their own growth and yield strategies. There would be some tricky discussions around the current debt book, but considering that Etihad is in advanced discussions with Alitalia, the Italian national carrier, I would assume that the SAA problem is somewhat smaller by comparison, and could be resolved. According to the New York Times - "The largest sticking point to a deal remains Alitalia’s debt of nearly €1 billion. The airline’s lenders, who now also happen to be among its largest shareholders, have so far refused to restructure, according to a person familiar with the discussions who requested anonymity because the talks are confidential."

Such an arrangement with a foreign airline would necessarily require a radical revision of the SAA network, and it would possibly take the form of the significant reduction in long-haul, or intercontinental, flights. This would eventually suggest that SAA and SA Express (the regional feeder airline) become a single entity. It would also result in a different aircraft  fleet composition.

The South African government has two vested interests in SAA, if we cast aside the financial burden, as it has been ignored for many years now. These interests are national presence (brand), and employment targets. If we follow the "do-nothing" strategy, these objectives will in any case dissolve.

What is clear to me, and most South Africans, is that major change is necessary, before the monolith simply implodes under the weight of debt and job creation.