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SAA hits headwinds with R990m loss

Cape Town - For an airline that is intent on cutting costs, South African Airways (SAA) has a strange way of showing it.

The airline has just reported a loss of R990m for the 2012/13 financial year, an improvement from a loss of R1.3bn in the prior year.

It is suffering from a decade of losses totalling more than R15bn and is implementing a turnaround plan that was tabled in parliament in February last year.

This turnaround strategy has never been fully disclosed to the public and benchmarks and milestones are unknown, which makes it impossible to judge if it is actually working.

One way to measure if a business is going to turn around is for it to keep an eye on staff numbers, and at SAA this is not happening.

The airline keeps employing people, and Minister of Public Enterprises Malusi Gigaba has made it clear that no one will be fired.

The problem then is why are more and more people being hired?

Headcount in the 2013 year reflects a 4% increase in staff numbers to 11 500 people.

This resulted in employee costs rising by 3% to R4.8bn from R4.7bn.

The airline has completely destroyed the work done by former CEO Khaya Ngqula, who reduced the staff complement by about 20% in 2008 in a fundamental restructuring excercise that cost the airline R400m that year.

At that stage, SAA ended up with around 8 000 staff.

Today it's back to 11 500.

The airline's indicators are scary. It has no equity on its balance sheet and fuel costs in the year under review rose by 15%. Fuel remains the single biggest cost item to SAA, having risen from 34% to 35% of operating costs. This is sure to go up in the current financial year as the rand weakens against the dollar.

The airline has shown cost savings in excess of R1bn and a 14% increase in total income (primarily due to higher ticket costs).

The financial results were released on Wednesday, following the airline’s annual general meeting held at at OR Tambo International Airport.

The airline reported total revenue of R27.1bn in the year under review, against the previous financial year’s R23.9bn.

SAA chief financial officer Wolf Meyer however said operating costs over the past five years have remained well contained.

And SAA CEO Monwabisi Kalawe said the airline remains confident that it will be able to turn the business around. "We have our turnaround strategy, Gaining Altitude, in place and we will give a focused attention on the critical items such as fleet renewal."

No mention was made about the airline's low-cost affiliate Mango.

 - Fin24

*Follow James-Brent Styan on Twitter at @jamesstyan. Views expressed are his own.

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