South African Airways Bites Bullet for Economic Streamlining
PHOTO: South African Airways’ acting CEO Nico Bezuidenhout speaks at Indaba. (Photo by David Cogswell)
South African Airways’ acting CEO Nico Bezuidenhout told a gathering of the airline’s business partners and media at Indaba, the African travel trade show in the International Conference Center in Durban, South Africa, May 9-11, that the business is “in a state of flux, but on an upward curve.”
The national carrier of South Africa is focused on cost compression, said Bezuidenhout, who was appointed as acting CEO of South African Airways last November, after leading SAA’s low-price carrier Mango since 2006.
Cost compression in the airline, however, “is not easy,” said Bezuidenahout. The airline is now looking closely at its supply chain for cost cutting opportunities, but is doing it “in the most humane way possible.”
Recently renegotiated agreements have yielded 6 million rand in savings, Bezuidenhout said. But that is “only a drop in the ocean.”
With current conversion rates at 12 rand to the dollar, 6 million rand is only half a million U.S. dollars. With the rand nearing its historic low of 12.45 per dollar in December 2001, prices are great for Americans visiting South Africa, but it’s a challenge for the airline fiscal integrity.
The downgrading of South Africa’s debt rating in recent years also stiffened financial demands on the airline.
SAA is feeling the bite of the rise of the Middle Eastern carriers as much as are airlines in the U.S. and Europe. With increasing competitive pressure in international airline markets, SAA is focusing on building its intra-African routes.
“There’s a lot of scope and potential in Africa,” he said.
SAA has partnership agreements with both Emirates and Etihad airlines, said Bezuidenhout, preferring “not to compete head-on.”
Meanwhile, while the rest of the world is fighting over international routes, SAA will use its head start in Africa to consolidate its intra-African superiority there as rapidly as possible.
“We have a short window to establish a foothold in Africa,” he said.
The airline is also suffering from a bit of a “World Cup hangover,” he said.However, while the airline did recently curtail flights to Beijing and Mumbai, Bezuidenhout said most international routes that are now “on the menu will stay on the menu.”
SAA’s top five priorities for the next six months are as follows:
• To continue the implementation of its 90-Day Action Plan, a program of sifting out inefficiencies that have accumulated over time.
• Revenue gain: including tighter revenue management and the implementation of a new distribution strategy that will rely increasingly on leveraging travel agent relationships.
• Cost compression, seeking to maximize efficiencies without compromising quality and reliability, including labor cost management and supply chain re-engineering.
• Strengthening of governance, risk management and optimization of the group structure, that is, maximizing synergistic interactions between the airlines in the group: SAA, SAA Airlink, SA Express and Mango.
• A drive toward performance excellence, concentrating on training employees for improved service in customer interactions and reliability and efficiency in technical fields.
In spite of economic troubles based on shifting world events, the airline does have the support of the South African government, its sole shareholder.
The government recognizes that the stresses on the airline are based on conditions outside of its control, and also the importance of the carrier in creating the transportation network that is essential in enabling the country to strengthen economic growth.
Essentially, the government’s position is “Before I give you more capital, can you show me you’re not going to waste it?” said Bezuidenhout. “That’s the process we’re going through now."
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