South Africa: SAA Must Cut Costs Even More - CEO

Business Day (Johannesburg)
6 March 2008

Chantelle Benjamin
Johannesburg

SOUTH African Airways (SAA), which is in the middle of a radical cost-cutting process, is set to trim down even further in a fresh bid to boost its bottom line.

SAA CEO Khaya Ngqula said yesterday that increased fuel prices were forcing it to review its cost-cutting plans and to ensure that increases were not transferred to the consumer.

This has implications for the national carrier's restructuring plans and its efforts to achieve its projected profit margin of 7,5%.

In the six months to September last year SAA had an R80m net profit, after restructuring charges. This was after losses of R650m in the previous comparable period.

Ngqula said when initial costs were calculated for the present financial year, oil cost $65 a barrel. It is now $102.

He said SAA was not considering hiking ticket prices to cover the shortfall.

"It's a challenge," he said. "We need to go back to the cost structure and look at ways to trim it down as soon as possible. It's a tough balancing act, all we can do is try to recover all increases from within the company. We do not want to discourage people from flying so we cannot transfer those costs to the consumer."

The comments were made at a news conference held by SAA and Star Alliance yesterday to announce their intention to expand services into the rest of Africa, which Jason Krause, SAA head of network fleet management and alliances, said was the world's fastest-growing market.

Ngqula said two challenges facing SAA's plans to focus their expansion on Africa, and the west coast in particular, were rising fuel prices and obtaining government approval for access to some African countries.

"In the absence of an open sky policy, SAA has to negotiate with governments to get more flights, which can delay process," said Ngqula. "It's difficult sometimes to find a synergy and to get everyone on board."

SAA, which was previously Star Alliance's only African carrier, will be joined by EgyptAir by the end of the year, something which Star Alliance CEO Jaan Albrecht said would give other international carriers access to an extensive route network throughout Africa.

Star Alliance also pledged to feed traffic though OR Tambo International Airport as the key hub on the continent. Albrecht said this would increase benefits for customers of Star Alliance members, which now have access to 897 destinations in 160 countries.

Eleven alliance members now serve Africa as part of their route network. Of these, SAA has the strongest presence.

SAA plans to introduce two new flights weekly to Dar es Salaam, Tanzania, an additional flight to Luanda, Angola, daily flights to Entebbe, Uganda, and to increase flights to Mauritius and Livingstone in Zambia.

Three new destinations are to be added in the next 12 months pending the approval of the governments concerned.

Albrecht said supply and demand was the best way of keeping ticket prices down.

"Connectivity affects how we do our costing, and by increasing flights to airports such as Lagos, ticket prices for flights in Africa can be reduced."

Krause said SAA hoped to attract the business traveller by increasing flights to selected destinations. "Flying to African countries once a week will not attract the business traveller, we need to have more flights to these destinations," he said.

SAA spokeswoman Robyn Chalmers said the national carrier's restructuring plans included cost cutting, revenue growth and a review of business processes within SAA.

Restructuring has included the grounding of six fuel guzzling Boeing 747s, which was expected to save the airline about R600m, wage freezes for employees which will save another R638m over an 18-month period, and voluntary retrenchments.

Call me skeptical but i seriously doubt they will succeed in "not passing this on to the passenger."

I'd say that with the current cost of airfare on SAA airways that a considerable amount has already been passed to the consumer. They're just worried that any further increases will price out a large part of their market. I really doubt their concern is for us.

When corporations, particularly African corporations start pumping out stuff like that, it's time to raise the

Their concern for the paying customer just overwhelms me. I traveled with them 2 years ago and had a small catastrophe when we lost our tickets (Atlanta to Joburg). We told the agent and they solved the problem by selling us the same seats again for another $5,700. That took a gouge out of my trophy budget. Not to worry though, they said I could apply for a refund when I got back from Africa. And within a couple of months after my return I did get refunded for the original tickets.
It may not have been their fault that I lost the tickets but their concern for my prediciment caused me to book with Delta for my trip this year.