Mango sustainability in SA airline arena

[dikkes]

Possibly this?

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Hi everyone…

The political scene in South Africa is hotting up with the ANC breakaway party now committed to contesting the next election. It is still not clear how much support the new party, headed in part by Mosiuoa Lekota and Mbhazima Shilowa, will attract. Several of the other opposition parties have welcomed the new party and indicated that they are likely to form a coalition after the 2009 elections. These developments have altered the political landscape in our country and it will be an interesting and hopefully stable few months in the build up to our 4th democratic election.

Last week we were able to arrange a short meeting with ANC President Jacob Zuma to brief him on the state of the airline industry in our country. In the meeting we made the point that continued subsidisation of SAA/Mango would not only be a huge burden on South African taxpayers but would also threaten the future of the private airline industry in our country. (Carte Blanche uncovered a massive R400 million Mango loss on Sunday night.) Jacob Zuma was very receptive to our case and agreed with us that the Department of Public Enterprises (which looks after SAA and Mango) has been a disaster. He suggested that we continue to engage with government on the issue, which we will do in addition to continuing our public awareness campaign.

We’ve been asked by a few of you about hedging and our approach to taking out hedges. Basically hedging allows us to lock in both the dollar price of oil and the Rand/Dollar exchange rate at a particular point in time. So for example if the oil price is $65 per barrel today and we think it’s going to increase over the next few months, we could take a hedge that would guarantee us a price of say $70. If the price goes above $70 we score, if the price drops, the hedge costs us money. Likewise on the Rand/Dollar side, we could lock in a rate of say R10 to the Dollar for the next few months if we thought the rand was going to weaken further. We would then make a profit on our hedge if the rand weakened but would lose money on the hedge if the rand strengthened. Our approach to hedging this financial year has been to partially cover our oil and currency exposure in order to maintain some level of stability in our cost base.

We will be meeting this week with the broader management team to brief them on the scenarios around the current global financial crisis and the economic slowdown. At this stage we still believe that the worst is still to come and the consumers and businesses are in for tougher times ahead. This will no doubt impact on our business and our drive for a more efficient and focused business is more important than ever. Each and every one of us is responsible for playing our part in looking for ways to save money, look after our customers better and do our business smarter and better so that we assure our long-term survival in the business.

Have a super week

Erik and Gidon

Diaries for the week:

Erik: Presenting the state-of-the-economy at a Comair managers’ meeting
Gidon: Travelling to Cape Town to meet our PR team and travelling to Durban to address the airport team.