SAA can return to profit in 4 years - CEO


Johannesburg - South African Airways can return to profitability in the next 4 years, CEO Nico Bezuidenhout said on Tuesday.

"SAA can achieve profitability in a 3-year period. At present, we are looking to achieve operating level profitability. The challenge we have as a business [is] mounting interest burden and a debt burden," he told journalists at the company's head office near OR Tambo International Airport.

He said it would take 4 years to return to operating level profitability, if the current financial year was included.

"It would require certain harder decisions on the part of SAA."

The company's annual interest bill 3 years from now expected to be close to R1bn.

"For solvency purposes, I don't know, we still in that process of doing the calculations," he said.

The airline had identified R2.5bn worth of revenue initiatives over the next 3 years. This included route expansion across Africa.

"We are in the process of trying to consolidate our debt profile. SAA's debt profile consists of an array of shorter term facilities. They are trying to consolidate debt and change the currency profile of that debt."

Cost cutting

Competition in the domestic market had increased. The African market had seen more low-cost carrier entrants, while at the same time some of the more traditional African airlines were "not having a fun time".

Internationally, airline alliances were changing, while Middle East carriers were aggressively growing and expanding.

He said the moment the oil price fell, one airline reduced its ticket price, thereby lowering the average price across the industry.

"We have seen that happen on all our route networks, and that's life, that's business. That's why we remain intent on getting all our cost structures down, cutting all the fat that we can," he said.

"Even if we never increased a single bit of the cost bill, it would increase due to the weakening of the rand. Changes in the fleet are afoot and coming, and that does help assist the escalating fuel cost."

Middle Eastern airlines had a number of advantages, one being that they were situated where traffic flew over them.

"It requires a carrier like SAA to be nimble, much more nimble than it has historically been," he said.

"We will be looking in the next couple of months at refreshing our international business class cabin", which was around 14 years old. Now, it's not as fresh. We going through the process trying to see how we can have a better business class cabin... SAA is not a low cost carrier, it is positioned as a premium flag carrier."

No further guarantees

Bezuidenhout said the airline had had mixed success on reaching its target of negotiating a 15% discount on its contracts with suppliers, as part of its long term turnaround strategy.

"In some supply agreements, we've managed to get a 25%, 35% discount. In others, the supplier is still laughing, [and] hasn't gotten back to us," he said.

"I'm happy to say we've achieved some savings, but not enough yet. We need to get SAA away from a consistent cycle of cost reduction programmes to a cost conscious culture."

He did not know how long he would remain acting CEO, saying it was a shareholder matter.

"I'm focused on the job at hand. There is no date," he said, light-heartedly stating his wife would be interested in knowing how long the Treasury intended on keeping him in position.

He said it was highly unlikely SAA would need a financial injection in the medium term.

"The attempt of the current exercise is to avoid that. Liquidity reasons, we won't need any further guarantees. Solvency reasons, we are doing those calculations."

Commercial relationships

He said the most dangerous impact of the new travel regulations was that they stopped people from making bookings at all.

The requirement that parents had to carry their childrens’ unabridged birth certificates when travelling with them came into effect on June 1.

"It is possible the current demand weakness, that some of it, has to do with the transit visa matter and birth certificate requirement, it's quite possible.

"I think we need to talk of hard tangible facts and figures after the first month... the jury is out.”

Bezuidenhout said no such discussions about equity were taking place with Middle Eastern airlines.

"There is no equity discussion with any airline, Gulf or otherwise. None of my shareholders made us aware of either. As far as the Gulf carriers are concerned, we've been partners with Emirates... since 1997. We were Emirates' very first co-share partner.

"We are also the only airline to maintain relationships with Etihad and Emirates."

SAA would continue those relationships as long as there was a commercial benefit for all parties.

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