What was SAA thinking with Mango?
SAA has run to the government again to get it out of its financial trouble — but it's time the airline stood on its own two feet, started to manage itself properly and stopped retrenching skilled workers, says SA Flyer's publisher. Not to even mention the Mango issue...
Bruce Whitfield:
Well revelations in Parliament this week that SAA is finding it impossible to dig itself out of its financial quagmire, it needs more funding. Public Enterprises Minister, Alec Erwin, not disclosing numbers in Parliament yesterday, but saying the airline has had a tough financial year, surprise, surprise, considering, in the Transnet results, of course, they neatly tucked away the R650-odd-million attributable loss for the first half of last year.
So no wonder SAA needs more money. But who should be bailing them out? Guy Leitch is the publisher of SA Flyer and Guy, should government be bailing out SAA once again? What is the industry view on that?
Guy Leitch:
Well clearly they should not. The SAA needs to be able to stand on its own feet. Certainly, if it is not to be perceived as an unfair competitor to the other airlines, which are obviously commercially run, then it cannot continue to hold out its hand to government for a bailout.
And it has been doing this ever since, or for the last 20 years in various guises, either as pure lump sum bailouts for its pension fund or the losses it has made on its fuel hedging book or even on guarantees and the thing about guarantees is that they give the airline access to cheap capital which again, makes for unfair competition. So the obvious answer has to be no, they have to draw a line and say this far and no further.
Bruce Whitfield:
And at the same time, government is concerned that we need a national airline, a strategic interest; is that an argument? Increasingly around the world, governments are relinquishing control of airlines.
Guy Leitch:
Well of course, who ever says that you really need a flag carrier and certainly, does the flag carrier have to be that expensive? The answer again in today’s age has to be a resounding no to that sort of cost.
No country can afford to make losses that airliners can make and airliners can make huge losses very quickly and I think this is really the problem with SAA. It does not really know how to manage itself properly.
Bruce Whitfield:
And it has been a perpetual problem for many years, and it is not necessarily the fault of the current management team. There are many, many legacy issues in place there as well.
Guy Leitch:
I don’t think that is entirely true, unless of course there are legacy issues. But the problem is that SAA is having a torrid time keeping and getting good management. It has obviously been, as a parastatal of one kind or another, it has been particularly vulnerable to the pressures of BEE and it has had to make a lot of empowerment employment decisions which have not necessarily been good for the bottom line.
It takes a long time to skill people up to run an airline. An airline is not something that you can run with experience with experience from running an insurance company like Norwich or IBM. It takes a vast amount of skill to run an airline efficiently because it is so sensitive to the margin and in my opinion, it retrenched 200 managers of great experience recently and has replaced them with people who don't have the necessary skills and the skills transfer is not happening at any good rate.
Bruce Whitfield:
So certainly, many of the concerns that have been established now are as a result of current management decisions, there are not excuses on that front?
Guy Leitch:
I just think that there is not the depth of skill within SAA to make it competitive and profitable at this stage, particularly compared to its competitors. And it is making some very off decisions. One cannot but wonder really what was going through its mind with Mango. It is competing against itself. You can now get SAA seats cheaper than Mango seats — that cannot be good for a national flag carrier airliner.
Bruce Whitfield:
But certainly other countries have seen the national carrier launch its own low cost carrier and I am assuming that those carriers have been in a better financial shape than SAA has been at the time of this launch?
Guy Leitch:
Indeed and in fact, not only that, but there is increasing evidence around the world that the flag carriers are quite keen to divest themselves of the domestic routes, leave them to the smaller airliners or airlines which can compete with cheaper airliners and leave the actual flag carrying as it were, to the international routes, where they really are very much better protected and therefore much more profitable.
Bruce Whitfield:
Guy Leitch thanks for your contribution this evening, the publisher of SA Flyer, some strong thoughts on why SAA is failing and why it needs a bailout when private equity players are coming into the market, they are buying out international airlines.
I saw on the internet this morning, Alitalia for example, drawing something like 11 bids, and so there is hunger for airline assets worldwide. We will talk to the Brait Director Eduardo Garcia, they have launched the biggest private equity fund in South Africa todate. Are airlines something that they might be interested in? Is that perhaps the future of SAA?
Article from http://business.iafrica.com/
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Bruce Whitfield:
Well revelations in Parliament this week that SAA is finding it impossible to dig itself out of its financial quagmire, it needs more funding. Public Enterprises Minister, Alec Erwin, not disclosing numbers in Parliament yesterday, but saying the airline has had a tough financial year, surprise, surprise, considering, in the Transnet results, of course, they neatly tucked away the R650-odd-million attributable loss for the first half of last year.
So no wonder SAA needs more money. But who should be bailing them out? Guy Leitch is the publisher of SA Flyer and Guy, should government be bailing out SAA once again? What is the industry view on that?
Guy Leitch:
Well clearly they should not. The SAA needs to be able to stand on its own feet. Certainly, if it is not to be perceived as an unfair competitor to the other airlines, which are obviously commercially run, then it cannot continue to hold out its hand to government for a bailout.
And it has been doing this ever since, or for the last 20 years in various guises, either as pure lump sum bailouts for its pension fund or the losses it has made on its fuel hedging book or even on guarantees and the thing about guarantees is that they give the airline access to cheap capital which again, makes for unfair competition. So the obvious answer has to be no, they have to draw a line and say this far and no further.
Bruce Whitfield:
And at the same time, government is concerned that we need a national airline, a strategic interest; is that an argument? Increasingly around the world, governments are relinquishing control of airlines.
Guy Leitch:
Well of course, who ever says that you really need a flag carrier and certainly, does the flag carrier have to be that expensive? The answer again in today’s age has to be a resounding no to that sort of cost.
No country can afford to make losses that airliners can make and airliners can make huge losses very quickly and I think this is really the problem with SAA. It does not really know how to manage itself properly.
Bruce Whitfield:
And it has been a perpetual problem for many years, and it is not necessarily the fault of the current management team. There are many, many legacy issues in place there as well.
Guy Leitch:
I don’t think that is entirely true, unless of course there are legacy issues. But the problem is that SAA is having a torrid time keeping and getting good management. It has obviously been, as a parastatal of one kind or another, it has been particularly vulnerable to the pressures of BEE and it has had to make a lot of empowerment employment decisions which have not necessarily been good for the bottom line.
It takes a long time to skill people up to run an airline. An airline is not something that you can run with experience with experience from running an insurance company like Norwich or IBM. It takes a vast amount of skill to run an airline efficiently because it is so sensitive to the margin and in my opinion, it retrenched 200 managers of great experience recently and has replaced them with people who don't have the necessary skills and the skills transfer is not happening at any good rate.
Bruce Whitfield:
So certainly, many of the concerns that have been established now are as a result of current management decisions, there are not excuses on that front?
Guy Leitch:
I just think that there is not the depth of skill within SAA to make it competitive and profitable at this stage, particularly compared to its competitors. And it is making some very off decisions. One cannot but wonder really what was going through its mind with Mango. It is competing against itself. You can now get SAA seats cheaper than Mango seats — that cannot be good for a national flag carrier airliner.
Bruce Whitfield:
But certainly other countries have seen the national carrier launch its own low cost carrier and I am assuming that those carriers have been in a better financial shape than SAA has been at the time of this launch?
Guy Leitch:
Indeed and in fact, not only that, but there is increasing evidence around the world that the flag carriers are quite keen to divest themselves of the domestic routes, leave them to the smaller airliners or airlines which can compete with cheaper airliners and leave the actual flag carrying as it were, to the international routes, where they really are very much better protected and therefore much more profitable.
Bruce Whitfield:
Guy Leitch thanks for your contribution this evening, the publisher of SA Flyer, some strong thoughts on why SAA is failing and why it needs a bailout when private equity players are coming into the market, they are buying out international airlines.
I saw on the internet this morning, Alitalia for example, drawing something like 11 bids, and so there is hunger for airline assets worldwide. We will talk to the Brait Director Eduardo Garcia, they have launched the biggest private equity fund in South Africa todate. Are airlines something that they might be interested in? Is that perhaps the future of SAA?
Article from http://business.iafrica.com/
SouthAfrica-CarHire does not have issues - small enough to personilize, large enough to supply - visit www.southafrica-carhire.com/
Labels: South Africa - Airlines
