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SAA – loss-making routes face the axe
Following the revelation by Finance Minister, Pravin Gordhan, in Parliament on 13 September that SAA had recorded a loss of R4,7bn for the year 2014-2015 and R1,8bn for 2015-2016, the airline could find that the conditions attached to the R4bn government guarantee might force it to axe unprofitable routes.
According to a release of the national carrier’s provisional annual financial statements in Parliament last week, SAA reported a loss of R4.67bn for the financial year ending March 31, 2015.
As one of the conditions set by the Minister, SAA needs to scale back operations and close routes that have been making losses for longer than one year. The Minister said some of SAA’s long-haul routes, including Hong Kong, would need to be scrutinised. However, an industry expert told Tourism Update that certain routes, like Hong Kong, although losing money, still added value to the network.
An inside source at SAA, said loss-making routes that could face the axe were Brazzaville, Cotonou and Pointe Noire, while domestically Port Elizabeth and East London also lose money.
The Minister said the board and management at SAA would need to review the routes and see how they could balance the non-profitable routes with the profitable ones.
The total guarantees currently stand at R19bn. He said the R4bn and R5bn loans would come up for payment between the end of September and January next year. SAA will either need to pay these loans or request that the loans be rolled over.
“It is true that if the government removed its guarantees, SAA would currently be insolvent,” the Minister said, adding that the airline only expected to be profitable in 2020-2021. However, he pointed out that the airline was a public asset and that if it did well, would benefit the state and the people.
The first priority, according to the Minister, is for the board to appoint a capable CEO and CFO, who will be able to implement the turnaround strategy. The appointments will be done within the next few months. The Board has also been asked to review all current staff suspension to determine whether they are just and fair and in accordance with the law.
A possible merger between SAA and SAX is also on the cards in a couple of months.
On the issue of privatisation of the airline, the Minister said it was important to first focus on getting the board working, getting a management team in place, having an effective strategy that supported tourism and other objectives. “Then, we can talk about how we get more equity into the airline and make it more profitable.”
Source: tourismupdate.co.za
