Congratulations are certainly due to the management of SA Airways (SAA) for steering the airline to a small profit for the first time since 2012.
SAA and its owners — the government — find themselves in a fleeting moment of great opportunity that is ripe for the squandering. It’s a pity, then, that the state-owned enterprise’s (SOE’s) instincts of opaque communications and misleading messaging seem to live on.
It is true that the 2022/23 ebitda profit of about R252m is a good thing and gives a view of operational improvements, but with SAA things are never simple. I have little confidence that “the shareholder”, as the government likes to call itself when it wants to sound like it understands business, sees SAA in the same way as those of us who have paid for it.
On the surface things look OK. Beyond a move into the black, the airline has managed to grow revenue 183%. It has settled the last of its debt and it has done all this while growing its fleet, and its headcount by 50%, from about 800 people to 1,200. This does ostensibly mean it is possible the airline is on a path to recovery.
However, SAA spokesperson Vimla Maistry gave important insight into the mentality at the heart of the company, leaning heavily on the “challenging global aviation environment” in presenting its results. She spoke of “tough economic times for air transport worldwide, with the pressures of post-Covid-19 recovery, persistently high interest rates, the war in Ukraine and the high oil (and therefore jet fuel) prices impacting airlines’ sustainability”.
This is a revealing filter on the global picture. In fact, the aviation industry has experienced a vigorous rebound in demand for both passenger and cargo operations, as any reader who has tried to buy a ticket over the past year will attest.
SAA has cost us, and cost us big. It has contributed to the evisceration of SA aviation and to the sluggish response the industry has mustered to a surge in demand.
Some of the highlights include Delta reporting a net income of $1.5bn in the third quarter of 2023, and United reporting a profit of $1.1bn for the same period. International Airlines Group, which owns British Airways, reported a profit of €1.2bn for the first half of 2023. Lufthansa reported profit of €1.5bn and Air France-KLM €1.1bn in the same period.
All airlines report surging demand for leisure travel and cargo and, to editorialise, the return to fashion of “capacity discipline” for those with scale, which means keeping a lid on inventory so that prices remain high. Investors love it, even if customers don’t.
Maistry’s desire to focus our attention on headwinds is an important window into the organisation and an attempt to distract us from certain realities. SAA doesn’t have the capacity to be disciplined with the strong prices in the market, but has benefited from these, as have all other airlines. Economists will tell you that the cure for high prices is high prices, but regular travellers are tired of waiting for this cure to take effect.
SAA’s incapacity resulting from its history of being a shambolic and corrupt basket case that has hollowed out the private sector industry means two things — its incapacity leaves it unable to have much impact on domestic prices and renders it a lingering distortion in the local aviation economy.
Since it last turned a profit in 2012 SAA has received a stream of bailouts from the government worth almost R51bn. In spite of this, from 2018-22 irregular expenditure doubled and fruitless and wasteful expenditure hit the afterburners, growing from R24.8m to R207.3m. As my colleague Luyolo Mkentane reported, it received disclaimed audit opinions from the auditor-general from 2018/19 to 2021/22.
At the same time, the opportunity cost represented by SAA kicked in. While the flag-carrier was burning tax rand like a Concorde at Mach 2, the aviation sector was being hollowed out. Nationwide died in 2008. 1Time fizzled out in 2012, Skywise followed in 2015 and, partially because the sheer cost of competing with the fiscus had left it in a weaker state going into Covid, Comair — which operated Kulula and British Airways in SA and was a globally regarded aviation company — hit the wall in 2022.
Comair’s collapse yanked 45% of seat capacity from the market overnight, and those seats took more than a year to return, illustrating how little capacity there was left in the market after years of competing with SAA and its bottomless supply of cash.
SAA has cost us, and cost us big. It has contributed to the evisceration of SA aviation and to the sluggish response the industry has mustered to a surge in demand. With FlySafair now comprising 65% of the market, there just aren’t enough players to enter the fray at any pace. This creates friction in travel and entrenches inequality of opportunity.
So, excuse me while I fail to stand for the ovation. SAA owes us considerably more than the handful of loose change it showed us last week, and the risk assessment is still poor. Nothing has changed to make it sensible for the government to own an airline, and talk of developmental priorities is infuriating. If it really wants a daily flight to Shanghai, then put it out to tender. Any number of well-run airlines will do it at a fraction of the cost.
The government’s historical thuggery and largesse in the aviation market has wrought serious harm and bought today’s SAA a 9% market share behind Airlink (16%) and Safair (65%). The temptation will be to say that it will be different this time, but the market is already rolling its eyes. There is raging competition for new and leased aircraft as the global industry tools up to meet demand.
According to the Centre for Aviation, at the end of last year the order backlog for new aircraft was almost 16,000 and McKinsey reported that it will take 13 years to fill. Lessors and sellers have their pick of customers, and word on the runway is that SAA is regarded so poorly that it is struggling to get its hands on any aircraft.
This would change the moment if it had a different owner. It is time to sell SAA to people who understand aviation, no matter their nationality (a silly distraction that need not interfere with BEE imperatives). The government has shown it has no business owning an airline. To save SAA, and to get South Africans flying, it is going to need to let it go.
• Parker is Business Day editor-in-chief.
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