South African Airways Defying Both Gravity and Logic
The last few months have proven just how challenging the aviation industry can be; an industry expecting some US$313 Billion less revenue than last year is in trouble. The last decade has been one of the most successful periods ever for the airline industry; record profits, rapid growth and emergent markets. Exciting times before the dramatic decline.
When Lufthansa are losing over US1 million an hour, easyJet stop flying for two months, IAG and their airlines start talking about 12,000 plus redundancies, and Ryanair announce 3,000 staff being cut, times are hard. With Virgin Australia, Air Mauritius and perhaps this week Norwegian ceasing operation aviation is in a bad place. And yet….South African Airlines look like they will get another roll of the dice. It could be a Phoenix rising or a case of Phoenix Nights.
South African Airways (SAA) are a basket case. No other words can describe the airline and its history, failures, missed opportunities and strategic mistakes and yet they get another chance. Is that fair or reasonable? Before COVID-19 there were 103 airlines based in Africa and SAA were second only to Ethiopian Airlines; that’s probably where the comparisons end. In the last three years, as reported by CAPA, the airline lost nearly US$1 Billion during a time when the rest of the aviation industry was extremely profitable. That takes some doing!
Perhaps strong competition in the domestic market hasn’t helped but some poor network choices and a fleet strategy that until recently saw the airline stranded with fourteen A340’s when the rest of the world’s airlines couldn’t offload them quickly enough didn’t help. Talk of inappropriate management behaviour, failure to deliver on key projects and non-delivery of required cost savings have been written about by others; there is no need to go over old ground.
Currently in a form of chapter eleven and with the market closed as part of the Government COVID-19 response, the airline and Government published a rallying cry of support around the establishment of a new SAA and a new way forward. Does that sound familiar? But, does South Africa really need SAA? I think not.
Fundamentally the South African market is solid. It has strong domestic demand, an international market the envy of many African countries and a good mix of business and leisure traffic. It also has a huge amount of competition, perhaps too much competition for the new aviation world. The domestic market has competition in all sectors and very low yields that make profitability almost impossible. Very strong international competition in the major markets is supplemented by some of the most aggressive 6th Freedom carriers with outstanding product that beats the SAA product into the ground. So how on earth does a new SAA even begin to compete and become profitable? Simply put, it doesn’t.
In the last few months every Government has had to prop their economy up, providing levels of support that we have not seen before and changing social patterns as never before. Surely supporting local economies and needs comes before the ego of a national airline? It’s all about priorities.
In earlier times other national airlines have failed and not been saved, Alitalia being a notable exception with their continual card of divine intervention. In some of those instances, Governments and other stakeholders have rather chosen to invest in protecting air access by working with both other local and inbound carriers to recover that lost capacity. Surely in today’s forever changed world saving SAA at the expense of other more pressing priorities seems crazy when other more sensible options exist.
But then again who said anything in South African aviation was sensible!
-John Grant