SAA needs more support to return to profitability – CEO

2014-02-06 10:05

The government was not only expecting South African Airways (SAA) to be profitable, but also to play a developmental role. However, to do that the airline needed support from the authorities.

Monwabisi Kalawe, the new chief executive of SAA, said people in some circles think it is not as important for SAA to be commercially successful, as long as the airline delivers the trade and tourists that the country’s economy needed. The carrier’s board is however unwavering in its demand that SAA return to profitability.

Kalawe spoke last night about his first 100 days at the helm of SAA. He was the guest speaker at the launch of the alliance of Talent Africa, a local human resources group, with the listed American group Korn Ferry.

Kalawe explained that the carrier’s local services, as well as the regional routes in Africa, were profitable, but that the intercontinental routes were suffering huge losses.

To turn that situation around it was essential to terminate services on some of the biggest loss-making routes, such as Buenos Aires and Beijing, which cost the airline in the order of R300 million a year each.

The government agreed to terminate the service to Buenos Aires in March, but not the Beijing route because of China’s importance as a world economic power and South Africa’s involvement in the Brics – Brazil, Russia, India, China and South Africa – grouping.

“To continue with such loss-making routes it is important that a system is devised for treasury transfers to subsidise those services. Discussions about such a possibility are currently taking place.

He said although most of the proposed turnaround plan for SAA was drafted before his appointment as chief executive, he would have proposed the same solutions in 95% of the cases.

The plan was a joint effort by senior executives and board members who contributed many hours of their time without getting paid for it. In an effort to get this plan off the ground, a turnaround office was established.

One of the most urgent matters that had to be addressed was to fill important vacancies in the executive committees, which had left a big void in the carrier’s management. All these positions were now filled with top class people, according to Kalawe.

He said contrary to perceptions, SAA did have excellent, hard-working staff who were serious about their work. The carrier’s excellent safety record was evidence of that.

Staff morale was however seriously dented by constant changes at board and executive level, and much work had to be done to put that right. Productivity could also be improved in an effort to cut costs, but sustainable savings of about R1 billion a year had been identified and implemented.

One of Kalawe’s goals was to improve customer service. “Although SA was voted the best airline into Africa once again by the travel industry, this does not mean that we cannot improve our service drastically.

“Airlines have become a service industry. All the airlines offer the same seats and routes, and it is often small things like Wi-Fi or friendly service when there is a problem, that differentiates between the airlines.”

He warned that SAA’s poor balance sheet would always be a stumbling block until there was a capital injection from the shareholder. “Current discussions with the authorities are about how big such an injection should be, and not if it is needed.”

Kalawe said SAA was also pushing hard for more fuel efficient aircraft, because fuel was the biggest cost item.

He said rand weakness also created major problems, as 60% of SAA’s cost and only 40% of its income was dollar denominated, but hedging was for now not the solution to currency volatility.

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