SAA secures R1bn savings under 90-day plan
South African Airways has secured savings of more than R1 billion ($85 million) under its 90-day action plan, acting chief executive Nico Bezuidenhout tells Flightglobal, putting the flag carrier on track for a targeted cost reduction of R1.25 billion by the end of March.
Bezuidenhout has been managing a broader turnaround strategy at the airline since November 2014, when incumbent boss Monwabisi Kalawe was suspended.
Outlining the progress made to date under the 90-day plan, the acting chief says the “biggest bulk” of the savings has come from grounding SAA’s heavily loss-making routes to Beijing and Mumbai.
“Our focus in the first 60 days was first and foremost recovering the immediate liquidity needed in terms of solvency issues [by implementing] long-haul route changes,” Bezuidenhout says. “If you stop flying to stupid places, you’ll stop losing money.”
Star Alliance partner Air China will launch a thrice weekly service between Beijing and Johannesburg in late May, he confirms, with SAA codesharing on the new link. Effective 1 April, the flag-carrier’s code will also appear on three Etihad-operated services to China from Abu Dhabi, plus 17 points within India served by Etihad and its local equity partner Jet Airways.
Bezuidenhout is seeking a “re-validation” of the long-term network plan he devised in 2013 during his previous stint as acting chief. That strategy entailed scaling up SAA’s regional African operations, which offer “substantially higher” returns than its domestic network.
The route development programme will include West African expansion, he says, although SAA’s appetite for establishing a subsidiary in the sub-region has waned.
“We’ve moved away from that to looking more at partnering with existing partners and having a virtual-hub approach,” Bezuidenhout says, noting that talks are under way to shift the fifth-freedom stopover on SAA’s Washington DC route from Dakar to Accra. "We're not tripping over cash and we don't have loads of aircraft assets to go re-deploy there, to go start a brand-new airline in those places."
About R100 million in savings has also been secured by renegotiating half of the 180 procurement contracts due for expiry at the flag-carrier, and Bezuidenhout expects another R50 million boost from upcoming renewals.
With the 90-day plan entering its final weeks, his attention is now turning to management performance contracts and possible job cuts. Insisting there are “no sacred cows” at the company, the acting chief says the completion of the emergency plan will “quite possibly” be accompanied by an announcement on staffing levels.
“I do think it’s too high,” he says of the current headcount. “We employ at least 1,000 more people now than SAA did in 2009, and yet the flight activity and passenger volumes are very similar. There is a freeze on employment. We will look at right-sizing management levels.”
Asked about fleet renewal during the next phase of the turnaround strategy, Bezuidenhout says there is no “big bang, $5 billion” announcement on the horizon.
No plans to abandon domestic market: SAA chief
South African Airways (SAA) has flatly denied local media reports that its domestic network will be transferred to low-cost subsidiary Mango.
"That was totally misreported," acting chief executive Nico Bezuidenhout tells Flightglobal, referring to an article published in South Africa's Sunday Times newspaper.
"The process there is no different than what it was from the outset in 2006, when we started Mango. It's very similar to the Qantas-Jetstar business model: if there's a demand for ten daily flights on the full-service side, then SAA will provide that.
"If demand drops down to one daily flight [for SAA] and ten for Mango, then so be that. It's market-led. It's consumer-driven."
The acting CEO concedes that "there will be some scaling back on some of the non-trunk routes" during the next phase of SAA's turnaround plan. This is attributed to rising demand for low-cost travel, as well as the planned cancellation of an order for ten Airbus A320s.
But he insists that SAA performs "very well" on Johannesburg-Cape Town, and will maintain its presence on the trunk route in the face of new competition by start-ups FlySafair and Skywise.
The flag-carrier's paring down of other domestic routes will be offset by parallel growth at Mango, which will this year expand its ten-strong fleet of Boeing 737-800s "by at least two, probably three aircraft. It may be more".