Mango - all you need to know about it (threads merged)
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IMHO SAA getting involved in a low cost airline is offsides. Every time they make a loss the tax payer picks up the tab. And please dont tell me they made a profit last year ...In the real world they would still be paying off their huge forex loss.
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SAA to start low-cost airline
SAA to start low-cost airline
April 10, 2006
SAA would start a low-cost airline, which would be under separate management, using some of its existing fleet, chief executive Khaya Ngqula said on Friday.
The date had yet to be decided. He said the fact that low-cost airlines now had a 25 percent share of the domestic airline market, and that the market had grown by 50 percent, showed that they were "what a lot of people want".
April 10, 2006
SAA would start a low-cost airline, which would be under separate management, using some of its existing fleet, chief executive Khaya Ngqula said on Friday.
The date had yet to be decided. He said the fact that low-cost airlines now had a 25 percent share of the domestic airline market, and that the market had grown by 50 percent, showed that they were "what a lot of people want".
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11 April 2006:
Business Day
SAA’s low-cost plans hit turbulence from rivals
Khulu Phasiwe
Kulula, 1time take dim view of Ngqula’s bid for low-end share
NATIONAL carrier South African Airways’ (SAA’s) move to launch a low-cost airline — announced yesterday — has met a turbulent reception from the domestic aviation industry, which says SA cannot afford a third government-owned airline.
Government, through its wholly owned transport and logistics company Transnet, already owns 95% of SAA and 100% of regional carrier SA Express.
SAA CEO Khaya Ngqula said yesterday the parastatal was “definitely going to launch its low-cost carrier before the end of this year”.
Speaking at the formal acceptance of SAA as the 18th member of the global airline group, Star Alliance, Ngqula said the planned airline would have its own management team and would operate at “arm’s length” from SAA.
The planned new entrant would compete with no-frills operators kulula.com and 1time for the growing low-end domestic flight market.
Ngqula said the domestic market had grown about 30% since the first low-cost carrier took off five years ago.
He said SAA had managed to capture only 5% of that market and this had prompted his executive team to change its business strategy.
But not everybody welcomed SAA’s plan.
Kulula.com said government needed to focus on deregulating the domestic aviation market, and leave the operation of airlines to the private sector.
Executive director Gidon Novick said governments in other parts of the world were relinquishing their ownership in the airline industry and SA should consider that option.
“I would be surprised if the South African taxpayers have an appetite to subsidise a third state-owned airline,” he said.
Novick said the cost base of kulula was half that of SAA’s and SAA’s proposed new low-cost airline would have to match that to compete.
Marketing and operations director at 1time Rodney James said the airline welcomed competition as long as it was based on the principle of fairness.
“Unfortunately, when competition comes from SAA, it won’t be fair because the taxpayers will be paying for it,” he said.
SAA had previously said that it had no intentions to launch a low-cost, no-frills airline.
It had said its customers were mostly discerning business people who valued flight frequency, convenience, punctuality and reliability.
In 2004 the national flag-carrier’s CEO said SAA would compete with SA’s low-cost carriers by reducing its prices from time to time. He said at the time that the airline would offer “all the frills at no-frill prices”.
But SAA admitted in its 2004-05 financial report that direct competition with budget airlines had negatively affected its bottom line.
The parastatal said it had lost 1,8% of its average yields due to its attempt to match the air- fares offered by the budget airlines.
Analysts said these losses and the cannibalisation of its market share by low-cost carriers had forced SAA to revise its strategy.
Khulu Phasiwe
Kulula, 1time take dim view of Ngqula’s bid for low-end share
NATIONAL carrier South African Airways’ (SAA’s) move to launch a low-cost airline — announced yesterday — has met a turbulent reception from the domestic aviation industry, which says SA cannot afford a third government-owned airline.
Government, through its wholly owned transport and logistics company Transnet, already owns 95% of SAA and 100% of regional carrier SA Express.
SAA CEO Khaya Ngqula said yesterday the parastatal was “definitely going to launch its low-cost carrier before the end of this year”.
Speaking at the formal acceptance of SAA as the 18th member of the global airline group, Star Alliance, Ngqula said the planned airline would have its own management team and would operate at “arm’s length” from SAA.
The planned new entrant would compete with no-frills operators kulula.com and 1time for the growing low-end domestic flight market.
Ngqula said the domestic market had grown about 30% since the first low-cost carrier took off five years ago.
He said SAA had managed to capture only 5% of that market and this had prompted his executive team to change its business strategy.
But not everybody welcomed SAA’s plan.
Kulula.com said government needed to focus on deregulating the domestic aviation market, and leave the operation of airlines to the private sector.
Executive director Gidon Novick said governments in other parts of the world were relinquishing their ownership in the airline industry and SA should consider that option.
“I would be surprised if the South African taxpayers have an appetite to subsidise a third state-owned airline,” he said.
Novick said the cost base of kulula was half that of SAA’s and SAA’s proposed new low-cost airline would have to match that to compete.
Marketing and operations director at 1time Rodney James said the airline welcomed competition as long as it was based on the principle of fairness.
“Unfortunately, when competition comes from SAA, it won’t be fair because the taxpayers will be paying for it,” he said.
SAA had previously said that it had no intentions to launch a low-cost, no-frills airline.
It had said its customers were mostly discerning business people who valued flight frequency, convenience, punctuality and reliability.
In 2004 the national flag-carrier’s CEO said SAA would compete with SA’s low-cost carriers by reducing its prices from time to time. He said at the time that the airline would offer “all the frills at no-frill prices”.
But SAA admitted in its 2004-05 financial report that direct competition with budget airlines had negatively affected its bottom line.
The parastatal said it had lost 1,8% of its average yields due to its attempt to match the air- fares offered by the budget airlines.
Analysts said these losses and the cannibalisation of its market share by low-cost carriers had forced SAA to revise its strategy.
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This is a standard response from an 'old' carrier. They have all tried it - right across the world. If they DO get the venture off the ground, it's chances of success are few. The reasons for that are self evident but let's start with the fact that they are starting from the wrong end of the idea.
But, to an outsider, SAA have made the first big mistake in thinking that there is a segment of the market that they can take/retake! There are, probably, already TOO MANY carriers in ZA (old or new) and the next move will be consolidation, not expansion. So, I suggest that this idea will not get off the ground but will absorb lots of lovely time, resources and money before it is laid to rest under mutual congratulations of a project well researched.
But, to an outsider, SAA have made the first big mistake in thinking that there is a segment of the market that they can take/retake! There are, probably, already TOO MANY carriers in ZA (old or new) and the next move will be consolidation, not expansion. So, I suggest that this idea will not get off the ground but will absorb lots of lovely time, resources and money before it is laid to rest under mutual congratulations of a project well researched.
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“I would be surprised if the South African taxpayers have an appetite to subsidise a third state-owned airline,” he said.
“Unfortunately, when competition comes from SAA, it won’t be fair because the taxpayers will be paying for it,” he said.
Novick said the cost base of kulula was half that of SAA’s and SAA’s proposed new low-cost airline would have to match that to compete.
QED
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I have a funny feeling we are going to see Afriaviation's gripes and moans manifest in reality. Wonder if that is how SAA is planning to accelerate their previously "dis"advantaged group.........
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Somehow I dont think so- this project has some seriously experienced people working on it, think old Afri is going to be a tad dissapointed in the way flight deck recruitment will be handled
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More taxpayers money for SAA to waste
So now we are going to start a low fares airline. What a joke- they are already competing against the "real" low fares companies -just go to the SAA website.
I cannot believe that this can be allowed given the track record of this money losing institution.
Just remember the money hedging billionsthat were lost, Colemen's handout, losses on the Tanzanian experiment, Sun Air..................................the list is endless.
The fickle public are also to blame as they have short memories as to what they used to pay before Kulula and 1time came onto the scene.
Not to mention the ridiculous salaries that we, the taxpayers, subsidize to a largely under utilized and poorly run airline.
Let me go and work..........at least I don't have a conscience about where my salary comes from.....................
I cannot believe that this can be allowed given the track record of this money losing institution.
Just remember the money hedging billionsthat were lost, Colemen's handout, losses on the Tanzanian experiment, Sun Air..................................the list is endless.
The fickle public are also to blame as they have short memories as to what they used to pay before Kulula and 1time came onto the scene.
Not to mention the ridiculous salaries that we, the taxpayers, subsidize to a largely under utilized and poorly run airline.
Let me go and work..........at least I don't have a conscience about where my salary comes from.....................
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So ZERO3L, you have some strong views, what would happen if you were offered a position in the National Carrier flying nice shiney new airbuses, would you turn it down because your conscience wouldnt be able to handle it?
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This is not about a new low cost carrier getting back market share that SAA has lost. Check out the Australian section and see what is going on between Jetstar and Qantas. Its about management getting a lower cost base and using it as leverage to reduce conditions of mainline.
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As much as Im sure top management at SAA would like to blame the pilots for their current predicament, the facts are that the airlines business model is the problem- you cant sell seats for R1000 return to CPT if your costs ensure you wont breakeven- even on a 100% load factor. What needs to be done is align the offering with what is charged- thats the objective. SAA's top corporates are currently paying 50% less for the same service and getting all the benefits.
SAA pilots are protected by numerous collective agreements that are as close to bullet proof as an agreement can get- the mere mention of a pilot strike last year immediately caused a 40% drop in forward bookings for the period the strike was supposed to happen over- an experience management will not want to repeat soon.
Its important to remember that the biggest cost SAA faces is poor utilization of the fleet- the new business model will address this- irrespective of whatever schedule the "new" carrier undertakes SAA will maintain, at least, its current schedule commitments. This will mean that more pilots will be needed- either at SAA or at the new company depending on what is finally negotiated with the pilots.
SAA pilots are protected by numerous collective agreements that are as close to bullet proof as an agreement can get- the mere mention of a pilot strike last year immediately caused a 40% drop in forward bookings for the period the strike was supposed to happen over- an experience management will not want to repeat soon.
Its important to remember that the biggest cost SAA faces is poor utilization of the fleet- the new business model will address this- irrespective of whatever schedule the "new" carrier undertakes SAA will maintain, at least, its current schedule commitments. This will mean that more pilots will be needed- either at SAA or at the new company depending on what is finally negotiated with the pilots.
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I think the crux of the debate focuses on the morality as to whether a state run enterprise should be allowed to what is being proposed.
I recall that British Airways faced a very lengthy legal battle when it launched its own LCC in the late 90's GO which ironically was sold off to easyJet, as Rod Edington didn't think an LCC suited BA's business model.
I personally believe that SAA and SAX should be privatised immediately, and any form of state subsidy should end, and then they should be free to set up whatever brand they wish. I believe that way would be the best future for SAA but the problem would be that politically the cost would be unacceptable because short-term pain of job losses and restructuring would not be traded for long term gain.
I'd also be inclined to rebuild the SAA brand.....just what on earth are we to think of an airline who's main tv advert shows two blokes groping for a glass of water
On the face of it SAA has the perfect kit for an LCC - nice new a/c either 738 or the 319 which I bet offer far lower seak km costs than an old DC-9 for instance. With oil prices of 70$ per barrel the DC9s are surely going to start drinking away the profits.
Any how I wouldn't be surprised to see SAA taken to court over this, given previous rulings about anti-competitive behaviour.
I recall that British Airways faced a very lengthy legal battle when it launched its own LCC in the late 90's GO which ironically was sold off to easyJet, as Rod Edington didn't think an LCC suited BA's business model.
I personally believe that SAA and SAX should be privatised immediately, and any form of state subsidy should end, and then they should be free to set up whatever brand they wish. I believe that way would be the best future for SAA but the problem would be that politically the cost would be unacceptable because short-term pain of job losses and restructuring would not be traded for long term gain.
I'd also be inclined to rebuild the SAA brand.....just what on earth are we to think of an airline who's main tv advert shows two blokes groping for a glass of water
On the face of it SAA has the perfect kit for an LCC - nice new a/c either 738 or the 319 which I bet offer far lower seak km costs than an old DC-9 for instance. With oil prices of 70$ per barrel the DC9s are surely going to start drinking away the profits.
Any how I wouldn't be surprised to see SAA taken to court over this, given previous rulings about anti-competitive behaviour.
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I recall that British Airways faced a very lengthy legal battle when it launched its own LCC in the late 90's GO which ironically was sold off to easyJet, as Rod Edington didn't think an LCC suited BA's business model.
BA started 'GO' and it did very well, competing with easyJet and RyanAir. After some changes at Mainline, they decided to sell it off. GO was bought by an investment company led by '3i'. The airline prospered to the point that '3i' decided to realise their investment in a purely financial manner. That is to say that they were financial people and were not interested in the airline business as such. 3i sold to easyJet which irritated a few people.
So we had some old fashioned market consolidation in the uK, which is why I said earlier in the thread, that I expect something similar will happen in ZA in due course. If SAA think that they can find a way to a cheaper cost base by using an LCC, then the experience of carriers across the globe is that it is an extremely difficult trick to pull off. Most do not succeed.
The best way to reduce your cost base is the Swiss and Sabena method.
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What we must remember here is that SAA is an instrument of the state- they pull the strings and therefore pay the bill when the people they appointed cant shape up. In terms of privatising SAA who would honestly want to buy it? Not because there isn’t potential to make money, because there really is, but simply because the aviation sector is too volatile. The only companies who value stakes in other carriers are other airlines- that’s been tried before (Swiss) and found to be totally unworkable.
The Sabena option is also very risky for the economy of South Africa- SAA is vital to the transport infrastructure of the country- look what happened during the strike last year- imagine that going on for weeks on end. SAA transports over 50% of the passengers who fly domestically. The other carriers simply do not have the capacity fill that void initially (everyone's load factors- including SAA's are quite good at the moment)- they could in time move into the space but it would take time for them to meet the demand- expansion is capital intensive and some of the domestic operators pockets are just not that deep. Some have problems raising capital and have to borrow at near loan shark rates- rapid expansion in this environment would probably cause more pain than good. The only clear winner of this type of situation would be Comair, who have the cash and the know how to make it work- only they tend to be very conservative and I don’t see them adding 20 new aircraft to their fleet in one shot- which is really the only way you are going to fill the void. CE will not be able to cope with this type of dramatic market swing- the way the company is run will preclude this.
So its a case of careful what you wish for- the reality may not be what you anticipated. Prices are at an all time low- things could not be better for the travelling public- if any one of the players depart the market, prices will go up. History shows this has happened every time an airline has gone bust in this country.
The Sabena option is also very risky for the economy of South Africa- SAA is vital to the transport infrastructure of the country- look what happened during the strike last year- imagine that going on for weeks on end. SAA transports over 50% of the passengers who fly domestically. The other carriers simply do not have the capacity fill that void initially (everyone's load factors- including SAA's are quite good at the moment)- they could in time move into the space but it would take time for them to meet the demand- expansion is capital intensive and some of the domestic operators pockets are just not that deep. Some have problems raising capital and have to borrow at near loan shark rates- rapid expansion in this environment would probably cause more pain than good. The only clear winner of this type of situation would be Comair, who have the cash and the know how to make it work- only they tend to be very conservative and I don’t see them adding 20 new aircraft to their fleet in one shot- which is really the only way you are going to fill the void. CE will not be able to cope with this type of dramatic market swing- the way the company is run will preclude this.
So its a case of careful what you wish for- the reality may not be what you anticipated. Prices are at an all time low- things could not be better for the travelling public- if any one of the players depart the market, prices will go up. History shows this has happened every time an airline has gone bust in this country.
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Originally Posted by Deskjocky
What we must remember here is that SAA is an instrument of the state- they pull the strings and therefore pay the bill when the people they appointed cant shape up.
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Correct.
Unfortunately, the general perception among the populace of SA is that the state has lots of money. The fact that it has to come from somewhere is not apparent.
Another taxpayer funded cock up is not going to make things better for the already beleaguered bloke who has to bail them out every time.
My objection is to their opposition having to budget carefully and make a profit while SAA has free rein to squander the money their opposition have to pay as tax.
Unfortunately, the general perception among the populace of SA is that the state has lots of money. The fact that it has to come from somewhere is not apparent.
Another taxpayer funded cock up is not going to make things better for the already beleaguered bloke who has to bail them out every time.
My objection is to their opposition having to budget carefully and make a profit while SAA has free rein to squander the money their opposition have to pay as tax.
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No one disputes the "unfairness" of the state subsidising a company in competition with other smaller private companies. Clearly the state feels its justified in doing so. Here is some food for thought:
Companies like SAA, Telkom, the SABC all state owned and with the exception of Telkom (until recently) have had their industries deregulated to allow private sector competition. These private companies now use the infrastructure that was paid for by the state- to support the state owned enterprise, to support their current operations.
A good example of this is how SAA sold (for literally a song) Comair its first 3 B737's ZS-SBN/SBR/SBO SAA even provided the pilots for the first year- the deal included full maintenance (which still continues for some of their fleet today) for the fleet- without this help things would have been much more expensive for Comair to get into the market in the first place- Comair benefited form the infrastructure paid for by the tax payer. Comair used this SAA connection to gain credibility among the travelling public when all it had were a few F27's and an old DC3. The deal also included use of SAA's sims- which Nationwide also still use to this day, why, because it’s cheaper than going elsewhere as well as being convenient.
These are just small examples of how private industry has benefited from state investment. Even 1Time benefit form taxpayers money- they are handled by Equity aviation- 50% owned by the state, why do they offer such cheap handling prices to 1Time? Because SAA (by definition the taxpayer) has over the years paid for all of the ground handling equipment they use today (Equity- Previously called Apron Services was part of SAA for decades until it was unbundled form the Airline in the 90’s) Equity even check-in 1Time in some outstations – again offering cheap prices because the staff and ground handling equipment are at that station to service SAA in any even event. This allows 1Time to open up shop in a city for no infrastructural costs at all- effectively at the taxpayers’ expense. Kulula also make use of Equity at some stations that CHS do not operate from.
This issue is not as cut and dried as you may think
Companies like SAA, Telkom, the SABC all state owned and with the exception of Telkom (until recently) have had their industries deregulated to allow private sector competition. These private companies now use the infrastructure that was paid for by the state- to support the state owned enterprise, to support their current operations.
A good example of this is how SAA sold (for literally a song) Comair its first 3 B737's ZS-SBN/SBR/SBO SAA even provided the pilots for the first year- the deal included full maintenance (which still continues for some of their fleet today) for the fleet- without this help things would have been much more expensive for Comair to get into the market in the first place- Comair benefited form the infrastructure paid for by the tax payer. Comair used this SAA connection to gain credibility among the travelling public when all it had were a few F27's and an old DC3. The deal also included use of SAA's sims- which Nationwide also still use to this day, why, because it’s cheaper than going elsewhere as well as being convenient.
These are just small examples of how private industry has benefited from state investment. Even 1Time benefit form taxpayers money- they are handled by Equity aviation- 50% owned by the state, why do they offer such cheap handling prices to 1Time? Because SAA (by definition the taxpayer) has over the years paid for all of the ground handling equipment they use today (Equity- Previously called Apron Services was part of SAA for decades until it was unbundled form the Airline in the 90’s) Equity even check-in 1Time in some outstations – again offering cheap prices because the staff and ground handling equipment are at that station to service SAA in any even event. This allows 1Time to open up shop in a city for no infrastructural costs at all- effectively at the taxpayers’ expense. Kulula also make use of Equity at some stations that CHS do not operate from.
This issue is not as cut and dried as you may think
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Originally Posted by Bart Simson
This is not about a new low cost carrier getting back market share that SAA has lost. Check out the Australian section and see what is going on between Jetstar and Qantas. Its about management getting a lower cost base and using it as leverage to reduce conditions of mainline.
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