South African Airways Plans To Shrink Their Way Into Profitability

South African Airways has been in a horrible financial situation for a long time. The airline has been losing money for years, and their losses keep getting bigger, with no signs of that changing. The airline has an inefficient fleet, an inefficient route network, and there are also reports of a lot of corruption. The airline has gone through seven CEOs in the past five years, which gives you a sense of the situation they’re in.

The airline has missed several payments to creditors, and South Africa’s deputy finance spokesperson last year said that “essentially they are insolvent and should have filed for liquidation.” Ouch.

So the airline has been looking for investors, but not surprisingly there hasn’t been much interest. In 2017 the airline lost 473 million USD, which is a loss that’s three times bigger than what they had in the previous year.

The airline has now revealed their plan to break even within three years. We’ll have to wait and see if they’re successful, though it’s more of a strategy than they’ve had in years. The airline is hoping to shrink their way into profitability. Per Bloomberg, here’s what SAA’s CEO had to say:

“We now have a clear strategy and clear path to profitability defined by the board,” said Jarana, who became SAA’s first permanent CEO in three years when he started work in November. “We are looking at a three-year window to get to a break-even point. We continue to revise the strategy as we see more opportunities.”

What does this turnaround plan look like? It consists of two main concepts.

First of all, the airline plans to reduce the number of money-losing routes they operate. They haven’t provided specific examples of what this will look like going forward, though they note that last month they halved frequencies to Heathrow, and in 2017 they reduced flights to some African capitals.

The other part of their plan is that South African Airways intends to transfer some of their unneeded planes to Mango Airlines, which is their low cost subsidiary that makes money.

While SAA was previously relying on new investors, SAA’s new CEO says that he is putting that on hold until they’re in a better financial situation. Instead they’re talking to the National Treasury in hopes of getting further funding from them, now that they have a clear plan:

A fund-raising plan laid out by Jarana last year to sell a stake to an equity partner will have to be shelved until the balance sheet has been repaired, the CEO said. A new investor would “most likely be attracted to an SAA that’s actually dealt with its own challenges and restructured,” he said in a phone interview Monday.

“We are busy talking to the National Treasury about how to fund the new plan,” Jarana said. “We are quite clear that the new plan is solid and we are very aggressive about implementing it.”

Only time will tell if South African Airways succeeds with their new strategy.


South African Airways’ A340 business class

Bottom line

It sounds to me like SAA has a clearer strategy than they’ve otherwise had in the past decade, not that this is saying a whole lot. At least based on the quotes, I’m impressed by SAA’s new CEO, so here’s to hoping he can actually make the airline more sustainable. It’s sad when an airline has to make the tough decision of shrinking their way out of losses, though it seems like the only option the airline has.

(Tip of the hat to Simon)

Comments

  1. They definitely need to do much more than that! I as a South African used them only once or twice in my life.. Their prices are way too high, and over the years a lot of other carriers have dominated the market. Emirates have 4 flights a day from Johannesburg to Dubai. Qatar have 3 a day to Doha.. etc On top of that, there’s a lot of free flights that are given to pilots families etc (Even retired pilots) Honestly, Good luck to them but I do NOT see them profitable anytime soon..

  2. @ Ben — They can shrink to zero for all I care. Very disappointing experience with them in business JFK-JNB last week. The A340 we flew was a POS. The only redeeming quality was the friendly crew that had little to work with.

  3. I used to work for SAA, they should start by shrinking the idiots that work for them. That may take a while thou as there are a lot…

  4. My very first long-haul business class flight was on SAA (MUC-JNB). The lie-flat seats (as shown in the photo) were new at the time and I remember thinking that the combination of lie-flat seats, large pillows and duvet were amazing. I remember the service feeling very warm too with the FA’s always smiling and saying “my pleasure” to a request. A few years later I took the same flight, except this time it was operated by an ex-Iberia A340. The seats and duvet were roughly the same, but the food was worse and the plane seemed much dirtier. By then, airlines had started introducing more lie-flat seats including herringbones and SAA just seemed much less impressive. Nowadays, I won’t deliberately avoid SAA when going to SA per se, but will usually opt for a European or Gulf carrier which tend to be the same price or cheaper, have newer planes and nicer hard and soft products.

  5. They’re too poorly located to really connect people anywhere other than SA. They should follow Malaysia and partner with ME3 and provide local connecting traffic.

  6. One of my main reasons for choosing a gulf carrier over SAA is to avoid hubbing through JNB. Had a box of chocolate bars stolen out of my luggage while transiting through JNB once and hear lots of complaints about baggage theft from there. I’m usually heading to Durban, so the Emirates non-stop DXB-DUR really is more convenient and avoids any risk of the JNB hub.

  7. It’s really a shame, as I love South Africa (and am returning this year on my fourth trip in five years) but the flight options on Qatar and Emirates, as other posters have pointed-out, are far more convenient.

    I did enjoy an SAA A340-600 luncheon flight from Cape Town to Jo’Burg a few years ago. As a 340 fan, South African’s big Airbus was on my bucket list. Usually however, I travel within the country on more-affordable Mango or Kulula.

  8. Might be a start if they got some leadership who know something about the airline industry. Would be a refreshing change from all the political hacks and cronies they’ve had lately. During the “bad old days” (pre-1994), South Africa might have been a political pariah but its airline was professionally run and highly regarded. Sadly most of its skilled staff had a politically unappealing skin color.

    Like just about every other industry (or facet of life) in SA, the “new management” is more interested in lining its pockets than doing things efficiently and intelligently. Pity as the airline and the country were so forward-looking in the 1990s.

  9. SAA’s service levels are remarkably lackluster, and have been for years and years. I have had precisely one good flight with them ever. I don’t know anyone who lives in South Africa who flies them – they all use European or Middle Eastern carriers for long-haul, and anyone but SAA for short-haul. SAA management will need to address this as well if they’re to become profitable. Just shrinking alone isn’t going to solve the problem.

    Furthermore, it’s difficult for SAA to compete with the LCCs in southern Africa.

    And then there are the unions that will likely push back hard against any reduction in workforce. I’m not looking to create yet another debate on unions and the advantages/disadvantages of them, but it’s another stakeholder that will create more challenges.

    Personally, I’ll only fly Comair/British Airways intra-SA and within southern Africa. They’re usually a bit more expensive than SAA, but the service is consistently decent.

    I really want SAA to succeed, but they’ll have to address multiple issues/hurdles, not just network efficiency and size.

  10. My son still has 8000 SAA-miles they gave him just for turning eight years old, in some sort of stupid campaign as I vaguely recall it (I wish they would rather give me 45000 miles for turning 45). But, I guess it’s more of the same of equally ridiculous decisions, that has brought SAA on the brink of bankruptcy.

  11. A couple people have hit the nail on the head… the hacks and cronies put in charge of SAA since the ANC came into power couldn’t even run a meeting, let alone an airline. They’ve stolen so much money for personal gain there’s none left to run the airline. SA taxpayers have been bailing the airline out for years

  12. Maybe Etihad should buy another airline? Another airline in need of a handout not a hand up.

    Pre 1993 the airline was working but just but struggling. The board is a board of cronies. Nothing positive can happen until the corruption ends. ( “Friends fly free!”)

  13. Just completed a flight from JNB to HKG on their A340. Was the best ever on SAA – food was delicious and service attentive!

    Hope they survive.

    Our follow-up flights were on EVA and I have never been so disappointed in my life given all the hype I have read!

    Once they get their new A330 they might have a chance.

  14. Flight crew are good. Ground staff at JNB especially are among the most uninterested and ignorant people I have experienced in 45 years of flying. Same as the country. Running full speed to bankruptcy. Assume Zuma and the Gupta brothers had their finger in the pie. Heading for Trump’s “shit hole” status. May SAA be allowed to disappear as an act of mercy.

  15. Good. Maybe QR could take them over, C’mon Al, take over mate. Flick most of those lazy-arse South African flight attendants and deliver the airline into profit with good service, good fares and hot young flight attendants. And some planes that look like they are from the 21st century.

    My god, those flight attendants are lazy-arses and most of them have gigantic arses too. They would not be leading me to safety in the event of an incident, more like roll, roll, roll yourself gently down the aisle. They would crush you to death with their substantial obesity before saving you.

    Good riddance. The airline is crap and I blame the lazy-arses on-board and the corruption rife throughout the management.

  16. Ben you constantly talk about airlines that are going out of business or in trouble. (thanks for keeping us informed).
    Do you have any knowledge about the maintenance programs of the troubled airlines?
    for example, many of the African airlines have a well deserved, terrible maintenance and crash record
    What about all the other airlines that get into financial trouble. Is maintenance the first to go and does that affect reliability?

  17. I am an ex SAA manager and left voluntarily years ago, before the rot started.(Coleman era)
    SAA had a window of opportunity to become one of the worlds top airlines, post 1994.
    There are however a number reasons for the airlines present state:
    1) Do a calculation on Flight Crew (pilots) vs Cabin Crew on SAA (The ratio is 1 to 3!)
    The wages of SAA pilots is the equivalent of 35% to 40% of the total airline wage budget.
    Is this in line with profitable airlines?
    2) The airline management structure is top heavy, many are appointed due to political connections, and there is no accountability.
    3) The schedule / Flight routes are not based on the normal ROI principles.
    4) Purchasing is open to corruption.
    5) The variety of aircraft operated by SAA reduces synergy of operations and results in a ‘wastage’ of labor. Pilots only operate one aircraft type and this impacts on schedule flexibility. With the lease of every new aircraft type there is a related impact re. training of pilots and maintenance/ support crew.
    6) Sad as it is, but SAA should have closed it s doors years ago if it was not for the Taxpayer. I can not vouch for this, but I was told that if you divide the Annual loss by the number of passengers flown the loss or rather “Subsidy ” per passenger comes to over $200 per passenger! It would therefore be better for the Taxpayer if the airline shuts down.
    7) It also did not help that the previous chair-lady was a close friend of Mr. Zuma!

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