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SAA - the cat with nine lives

21 February 2013, 12:00
There are surely few companies that are as embarrassing to the South African public, and indeed the owner, the South African government, as South African Airways.

This week, its acting CEO, Nico Bezuidenhout, announced yet another restructuring effort at the airline, in the wake of another triumvirate of cataclysms at Airways Park. First, it needed cash to stay afloat during the peak December period, second, it requested an additional bailout in January, and third, its acting CEO was suspended.

Let's be jolly brutal here. Leadership at SAA has simply not existed for years. Going back almost ten years, we had Kaya Ngqula. He treated SAA as his personal fiefdom and petty cash box, before being placed on special leave in 2009. Special leave is ANC-speak for 'keeping him out of the building after we caught him stealing, but we know we can't fire him, because it's impossible to fire someone in South Africa, so we'll just wait until his contract runs out'.

In his place, SAA appointed Chris Smyth as an acting CEO. Whoah! An actual real live pilot, with a wealth of business and more importantly, operational knowledge. Unfortunately, Smyth is white, and that simply didn't wash in Jacob Zuma's South Africa.
Following an arduous search, SAA found a capable replacement. Right next door in fact, at SA Express. That it took them over a year to do so speaks volumes of the competence of the SAA HR department. Welcome to SAA, Siza Mzimela.

Unfortunately, Ms Mzimela, board chair Cheryl Carolus, and seven directors, found the working relationship with the shareholder representative, the national Department of Public Enterprises, untenable, and they all resigned en masse.

(Incidentally, Cheryl Carolus is very an ANC person. She has handled several high profile jobs on behalf of the SA government, including a diplomatic stint in the UK, head of SA Tourism, and chair of the board of Sanparks. If she couldn't handle working with the DPE, what does that tell you?)

Hence the appointment of Mr Bez. I hope Mr Bez's retirement annuities are all sorted, because it would appear that a leadership position at SAA is a short-term occupation.

Going back in time...

Sorry to have to do this, but at this point it is valuable to examine the pre-Kaya days, as they are instructive in determining why SAA is in the dwang (again), and the state of play in the airline industry today.

After the departure of Coleman Andrews (remember him?) in 2001, SAA appointed COO, Andre Viljoen, to the top job. For the next three years, Viljoen did his very best to ruin the airline, through a R6-billion hedging scandal, and a number of run-ins with the competition authorities, for trying to beat down on the smaller players in the market.

The aphorism is this... if SAA is the sole player in the market, it can charge what it bloody well likes for airline tickets, and will stay afloat, come hell or high water.

The corollary is just as true... if it is not the sole player in the market, it is forced to behave like a competitive business, which it has shown it is simply incapable of doing.

Mango

An SAA middle-manager from the technical department, subsequently emigrated to the UK, once confided in me that it was SAA's express aim that there should be two main airlines operating in South Africa, SAA and British Airways / Comair, both offering full service flights and a split cabin. These would be supplemented by regional carriers, Airlink and SA Express.

The South African airline market was seen as not sufficiently sophisticated to support low-cost carriers, according to SAA. This was supposedly evidenced by the failure of a succession of low-cost carriers since the early 90s.

Except there was Kulula. This revolutionary little upstart, formed from within Comair, and run lean and mean by the innovative joint-CEOs Novick and Venter, was giving SAA a bloody nose. SAA was making loss after loss, implementing turnaround strat after turnaround strat, getting bailout after bailout. And Comair remained listed, paying dividends to shareholders.

What to do as SAA? Easy, devolve the business strategy to another level. Form our own low-cost airline to compete with Kulula (and 1-Time). Except we'll lease them their fleet, we'll maintain their fleet, we'll provide and train their pilots and trolley dollies, we'll run their for-sale catering. All at ridiculous transfer pricing. At the same time, Mango prices will be similar to Kulula's.
 
All of this will make Mango unprofitable and unsustainable.

But that doesn't make sense? But of course it does!!! If Mango is taking huge hits, we, SAA, the concerned parent company, will bail them out! But that still doesn't make sense?

It does... IF WE NEVER ACTUALLY PUBLISH THE FINANCIALS OF MANGO! That's right folks, the extent to which SAA subsidises Mango is not known, because Mango's results are never published. SAA says Mango is profitable. Prove it...

So essentially, because SAA is a hugely inefficient business, and because Mango has been set up to be the fall guy, in the hope of, excuse the terminology, shooting down Kulula, we the taxpayers are funding Restructuring Number Ten at SAA.

There is also concern within the industry that SAA does not ring-fence its local and international operations, and uses international fares (particularly first and business class) to subsidise its local operations. But that is a debate for another day.

At the end of the day, Kulula deserves praise for sticking it out under the most abominably unfair trading conditions. 1-Time has already succumbed to SAA's bullying, and it's no secret that some months, it's touch and go for the Comair peeps.
Right-thinking South Africans should be boycotting SAA. Because it's a great big bully.

Flying SAA because they're a great airline

Someone the other day said, but they're a great airline.

No, they're not. They're perfectly competent, particularly when compared with second-rate carriers plying the trade around Africa.

But seriously, if you think they're great, you need to get out more. To the east, Cathay, Singapore and Thai are all better. Emirates is fantastic, even if onward connections require a stopover in Dubai. The same for Etihad. Flying to Europe, I'd far rather travel with Air France / KLM, or indeed BA. Within Africa, the Kenyan and Ethiopian flag carriers offer better services, on good equipment (Ethiopian is buying A380s), profitably.

South African patriots... it's time to say no to SAA and its continued bungling. If we get enough passengers to ditch the ranje-blanje-blou, perhaps the DPE will sit up, take notice, and demand some proper action. Or they'll sell up.

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