SAA Braces Itself for R600m Loss
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SAA Braces Itself for R600m Loss
From today's Sunday Times:
[b]Falling rand costs SAA dearly as airline braces itself for R600m loss
Aviation
By Roger Makings
SAA's losses for the year to March are expected to be around R600-million.
However, it is believed that the airline also has strong cash reserves, totalling more than R3-billion, and very little debt.
According to a source within SAA, the results are not that surprising.
"If the cash from sale of assets was stripped out of last year's much-vaunted R349-million profit, as announced by [former CEO] Coleman Andrews, the airline would have recorded a loss of about R50-million," said the source.
Besides the sale of Airbus aircraft, the proceeds of which went towards payment for the new fleet, the sale and leaseback of older Boeing 737-200s and the newer 747-400s brought in about R1-billion.
The primary reasons for the unexpectedly big loss for the current year - recent media speculation has varied between R100-million and R250-million - are the rocketing price of fuel, which, despite hedging, cost SAA at least R500-million more than expected, and the free fall of the rand against the dollar, which is increasing operating costs, more than 50% of which are dollar-based.
However, other unexpected costs involved the problematic implementation of a new fleet of 16 Boeing 737-800s acquired last year, loss of passengers due to an inferior long-haul product, and inconsistent service, which saw the airline lose passengers to its more competitive opposition.
Also, the aborted offshore e-commerce travel venture Veer.com, set up during Andrews's stewardship, cost the airline another R100-million.
"And all that excludes his more than R100-million termination-of-contract settlement," said the source.
Particularly vexatious are the new Boeings. Not only did they arrive without business-class seats, but a huge pilot conversion backlog developed, forcing the airline to wetlease other aircraft as well as bring in Argentinian crews to cover for SAA pilots while they converted to the new aircraft.
The Boeings have not generated the expected revenue.
On the plus side, however, SAA appears to have improved passenger revenue by about 15%. This is due largely to improved networks through its foreign alliances.
Another boost to its coffers has come in the form of some R200-million from tickets sold forward over the years but never used by passengers.
Additional income, close on R100-million, has been generated by the restructuring of leases.
Sources say SAA's way forward is clear.
"We need to improve levels of customer service through staff development, offer an improved and competitive product, tighten
our cost-reduction programme and address the problems we are having with our long-haul fleet."
The results do not bode well for Swissair exercising its option to buy a further 10% in SAA - it already holds 20% - a decision which is due in December. But certainly they have put paid to any talk of an IPO next year.
The results also call into question how much sustainable values Andrews actually brought to the airline.
It is expected that the long-delayed results will be announced within the next two weeks.
"There has been much media speculation about SAA's financial results. This will come out in the wash when the results are announced shortly," said Victor Nosi, SAA's executive vice-president of marketing and communications.
Aviation
By Roger Makings
SAA's losses for the year to March are expected to be around R600-million.
However, it is believed that the airline also has strong cash reserves, totalling more than R3-billion, and very little debt.
According to a source within SAA, the results are not that surprising.
"If the cash from sale of assets was stripped out of last year's much-vaunted R349-million profit, as announced by [former CEO] Coleman Andrews, the airline would have recorded a loss of about R50-million," said the source.
Besides the sale of Airbus aircraft, the proceeds of which went towards payment for the new fleet, the sale and leaseback of older Boeing 737-200s and the newer 747-400s brought in about R1-billion.
The primary reasons for the unexpectedly big loss for the current year - recent media speculation has varied between R100-million and R250-million - are the rocketing price of fuel, which, despite hedging, cost SAA at least R500-million more than expected, and the free fall of the rand against the dollar, which is increasing operating costs, more than 50% of which are dollar-based.
However, other unexpected costs involved the problematic implementation of a new fleet of 16 Boeing 737-800s acquired last year, loss of passengers due to an inferior long-haul product, and inconsistent service, which saw the airline lose passengers to its more competitive opposition.
Also, the aborted offshore e-commerce travel venture Veer.com, set up during Andrews's stewardship, cost the airline another R100-million.
"And all that excludes his more than R100-million termination-of-contract settlement," said the source.
Particularly vexatious are the new Boeings. Not only did they arrive without business-class seats, but a huge pilot conversion backlog developed, forcing the airline to wetlease other aircraft as well as bring in Argentinian crews to cover for SAA pilots while they converted to the new aircraft.
The Boeings have not generated the expected revenue.
On the plus side, however, SAA appears to have improved passenger revenue by about 15%. This is due largely to improved networks through its foreign alliances.
Another boost to its coffers has come in the form of some R200-million from tickets sold forward over the years but never used by passengers.
Additional income, close on R100-million, has been generated by the restructuring of leases.
Sources say SAA's way forward is clear.
"We need to improve levels of customer service through staff development, offer an improved and competitive product, tighten
our cost-reduction programme and address the problems we are having with our long-haul fleet."
The results do not bode well for Swissair exercising its option to buy a further 10% in SAA - it already holds 20% - a decision which is due in December. But certainly they have put paid to any talk of an IPO next year.
The results also call into question how much sustainable values Andrews actually brought to the airline.
It is expected that the long-delayed results will be announced within the next two weeks.
"There has been much media speculation about SAA's financial results. This will come out in the wash when the results are announced shortly," said Victor Nosi, SAA's executive vice-president of marketing and communications.
