Will the coronavirus spell the end of SAA?

SAA
SAA

Because South African Airways is already in the process of curtailing its operations and balancing its cost base significantly towards a much lower scale, the impact of the coronavirus  pandemic alone on the embattled state-owned airline will likely not lead to its end, aviation economist Joachim Vermooten told Fin24 on Thursday.

However, analysts warn, while SAA might even see some unexpected benefits, the impact on other airlines will be significant. 

"As long as a balance of the production of seat capacity to demand - in order to achieve reasonable load factors - is kept in check, the impact of the coronavirus on SAA will be much less than on airlines which were in a process of expansion and not going through a process of scaling down operations," said Vermooten.

"As a result, I do not think the coronavirus would in isolation mean the end of SAA.

"The critical issue is whether SAA can be restructured rapidly enough, combined with flexibility on booking and tariff rules, to retain its clientele."

'Worse for air travel than 9/11'

In the view of Roelof Botha, an economic advisor to the Optimum Investment Group, the impact of the coronavirus pandemic on the airline industry - including on SAA - will likely strengthen the hand of the airline's business rescue practitioners (BRPs).

"International air travel is already taking a heavy beating due to the impact of the coronavirus.

"The impact on the air travel industry is this time round is probably even worse than when the Twin Towers went down in New York on 9/11, and worse than the impact on the air travel industry with the 2008 global financial crisis, when tourists at least continued travelling," Botha told Fin24 on Thursday.

For him the impact of the coronavirus consequences could, therefore, be one among the most significant from a commercial aviation perspective.

Not only does it impact the tourism industry, but also the air freight industry in which SAA operates.

Negotiating with unions

"The biggest challenge for SAA remains dealing with the trade unions. Restructuring the labour force at SAA was probably first on the agenda as, to my knowledge, the ratio between the number of employees compared to the number of paid for seats at SAA is one of the worst in the world," says Botha.

"There are, therefore, likely too many 'bodies' around not necessarily adding value to the equivalent of their salaries and that is something that can be quantified and probably what the BRPs are doing."

Unexpected benefits

Some of the unexpected benefits of the coronavirus pandemic for SAA, however, could come from the lower oil price, which will lead to lower costs for jet fuel, according to the SAA BRPs.

The impact of the pandemic on the global aviation industry might also make it easier for SAA when re-negotiating aircraft leasing terms, in their view.

Whether the end of SAA is actually in sight, therefore, remains to be seen.

"If you listened to what Minister of Public Enterprises Pravin Gordhan said ahead of the National Budget, for instance, it does not seem that government wants to see SAA go under. It is about the pride of having a national carrier," said Botha.

"But government should let business sense and economics prevail. I fear there may still be some leaders in government that will try to resist, but hopefully the BRPs will be allowed to do their jobs and not allow SAA to remain the same. [Restructuring] SAA will be good for every single South African taxpayer."

SAA spokesperson Tlali Tlali told Fin24 on Thursday that the airline acknowledged the impact of the coronavirus crisis as a factor affecting all airlines across the aviation industry.

"We are not downplaying the impact, but that does not mean we should suggest closing up shop. It is just one of the challenges we must overcome to remain in business," said Tlali.

"Our emphasis is on recognising its impact and seeking to collaborate with all the stakeholders in our value chain to mitigate the impact and contain it in line with prescribed protocols. SAA remains in business and continues to provide a service."

According to Tlali, SAA will continue to share information with the travelling community regarding any measures it employs in relation to the coronavirus pandemic.

A reliable source with knowledge of SAA's financial and operational situation, whose identity is known to Fin24 but who commented on condition of anonymity, said the coronavirus pandemic would likely not exacerbate the airline's predicament since the severity of its situation was already worsened by the strike in November last year, as well as when it went into business rescue in December.

"It can't get worse than this [for] SAA's international business. Their focus should be on building customer confidence in the domestic and regional market and ready[ing] themselves for a post-coronavirus international business," suggests the source.

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