A Message from the Chief Executive
7 November 2008
Dear Valued SAA Employee,
SAA’s Future Growth Plans, and Getting the Facts Right
This week, SAA held its Corporate Planning Conference, aimed at plotting a path forward for the airline.
As you know, our deep and fundamental restructuring programme comes to an end in March 2009. While we need to remain vigilant about ensuring that we keep costs firmly under control, particularly in this turbulent economic environment, the time has come to start planning for our future.
Our focus for growth remains firmly on Africa in line with the vision of being an African airline with global reach. Apart from increasing frequencies on existing routes and opening new routes where opportunities exist, we are investigating strategic partnerships on the continent.
Internationally, we will continue to concentrate on the major gateways into each continent, with strong support from Star Alliance partners for feeder traffic. We will build on existing networks in North and South America, Europe and Asia. Domestically, we are working to strengthen our partnerships and will continue to focus on the Golden Triangle of Johannesburg, Cape Town and Durban.
In addressing the conference this week, I made it clear that if we hope to achieve our future goals, we need to ensure that we continue to improve efficiencies, keep costs under control, streamline the business and ensure that we are all accountable for keeping within our budgets. For the coming five months, the emphasis on improving our customer service, our operational performance and our revenue management will continue. This is a critical element of our restructuring programme.
But for now, we are able to look ahead with hope because of the hard work and dedication of all our employees. There was a time not so long ago when we feared for our survival. Today, thanks to your efforts, we are planning for our future. SAA has emerged as one of the Top 20 airlines in the world, and we are determined to stay there.
Getting the Facts Right
It is also important to put the facts straight, particularly in light of the misleading comments made by our competitors, amongst others, on the recent Carte Blanche programme:
Mango
Mango has done very well, and it is on track to achieve its business plan goals. Mango recently carried its 2, 5-millionth passenger and its lean cost structure means it’s well positioned to withstand any shocks to the system, including the volatility of the oil price.
The claimed loss of R400-million is completely incorrect. The facts are that SAA invested a total of R336-million as share capital in Mango. So, for example, it’s like buying a house – the cost of the house is an investment and not a loss.
In fact, during its first full year of operation in 2007/08, Mango made a loss of just R1-million. This is an incredible performance, particularly in light of the fiercely competitive environment within which Mango operates.
Mango has become a well recognised brand in just two years of operating, and its business is going from strength to strength. Congratulations to Nico Bezuidenhout and his team for their perseverance and determination during difficult times.
Hedging
Along with airlines around the world, SAA does have a hedging policy in place which acts as an “insurance policy” against the volatility of the fuel price. It is too early to talk about profits or losses on hedging because the situation changes all the time, and we will only have a clear picture at the end of the current financial year.
However, it is important to note that SAA is conservative in its approach to jet fuel hedging, with the approved target range being between 40% and 80% of our forecast uplift volume over a 12 month rolling period. We are now within the lower end of this target range.
The hedges are managed against the policy parameters, and are reported to the Chief Financial Officer and the Chief Risk Officer every day. The risks are also monitored daily and reported on daily. The Financial Risk Sub Committee meets every two weeks and the Forex and Jet Fuel hedges are discussed at these meetings. The Board’s Financial Risk Investment Committee is also appraised monthly.
Recapitalisation
Again, there have been many misleading statements about this in recent months. The fact is that we have received a total of R653-million in cash from the fiscus since 2005/06. This was ring-fenced and allocated only for Voluntary Severance Packages under the restructuring programme. Government has issued guarantees totalling R2, 86-billion during this period, against which SAA raised funding in the financial markets on which we pay interest. We are asking government to convert the guarantees into equity in order to strengthen our balance sheet and allow us to grow into the future.
Rushj Lehutso
Former SAA commercial General Manager, Rushj Lehutso, was dismissed from SAA on 12 September 2008 after repeatedly failing to appear before a second disciplinary hearing to answer charges of financial mismanagement and improper conduct. Mr Lehutso made an urgent application to the High Court asking for his dismissal to be declared invalid. The court dismissed this application with costs on an attorney and client scale. Mr Lehutso has referred the dispute to the CCMA where a hearing on the matter is pending.
Financial Results
There are many wild and inaccurate figures about our financial results, ranging between losses of R20-billion and R15-billion, in recent years. It is no secret that SAA lost money in 2002 and 2003 as a result of the hedging losses. The total loss for these two years was R14, 5-billion.
However, since 2004, there has been a significant improvement in our financial health. We made a loss in only one year and that was in 2006/07 when the loss of R883-million made it clear that we needed to fundamentally restructure. So in 2007 we launched the restructuring and this has been highly successful. We reduced costs by R1-billion in 2007/08 and made a profit of R123-million (excluding restructuring costs) that year.
SAA has a great future ahead of it, and I would like to thank each and every one of you for building our airline into one of the top airlines in the world. Together, we will go from strength to strength.
Regards
Khaya