SAA versus Air New Zealand – some telling, revealing comparisons | Fin24
 
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SAA versus Air New Zealand – some telling, revealing comparisons

Jan 03 2017 19:43

For those who thought that perhaps, just perhaps, some of SAA CEO Dudu Myeni’s excuses for our national airline’s putrid performance might be valid – here’s a comparison with New Zealand’s smaller, remotely situated airline, that blows that possibility into the stratosphere. Guy Leitch, who has a Masters Degree in Development Finance and is a pilot with night and multi-engine ratings, is well placed to make these comparisons. His former qualification diminishes any accusation that he’s subjectively coming to the defence of his politically-beleaguered fellow pilots at SAA, the majority of whom posted a no-confidence vote in Myeni.

What follows is a rational, logical, factual comparison that leaves the greedy, lurching turnstile SAA senior management executives groping for rebuttals, however thin. Just how thin we all know after Myeni blamed SAA’s pilot salaries for our airline’s financial woes. That was followed up with the non-pilot SAA union accusing their colleagues of having plotted to down an aircraft with a black pilot at the controls. The Hawks are actually investigating.

Meanwhile John Harty, a former chair of the SAA Pilot’s Association, has just won R450 000 in damages after the same in-house union used social media to accuse him of willy-nilly diverting flights he captained for his own selfish and/or spurious, unjustified reasons. We need say no more, except to share what Leitch has to say here – and remind readers that Myeni is joined at the hip with Zuma. For all but the most myopic, ideology-spewing fantasist, it’s surely case-closed now? – Chris Bateman.

By Guy Leitch*

I am often asked if I think SAA can ever be profitable. All too often I’m tempted to be pessimistic and reply no, it just cannot compete against the Gulf three ’super-connector’ airlines internationally. Furthermore, regionally, the great African renaissance to which it had pinned so much of its hopes of ‘Bringing the world to Africa and taking Africa to the world’ has proved to be largely imaginary, or at best overdue.

Yet compared to Air New Zealand, SAA has some significant advantages and should do better.

SAA’s Johannesburg hub serves the whole of Sub-Saharan Africa. By itself, South Africa has 53 million people, many of whom are an emerging middle class who can now travel to visit friends and relatives (VFR) by plane instead of bus or train. At $350 billion, South Africa’s GDP is twice New Zealand’s $185 billion. New Zealand has just 4.5 million people, is not a natural hub, is surrounded by water and lives in the shadow of its nearest neighbour – Australia. Yet, even more than the All Blacks wiping the floor with the Springboks, Air New Zealand makes SAA look wretched.

Coffers may be running low but SAA has already received R14bn in taxpayer funded bailouts. More magic available at www.jerm.co.za.

ANZ has a fleet of 57 aircraft, SAA 53. ANZ has 11,000 employees, SAA has 11,500 (which gives some comfort that SAA is not as overstaffed as is often claimed). SAA flies to 42 destinations – ANZ 51.

The point is, ANZ is just far better managed. There are no excuses in New Zealand about the state airline having to fulfil a developmental role or having to deal with high fuel prices. The key results are in the all-important bottom line.  For 2016, ANZ made an EBIT profit of NZ$833 million (R8 Billion) compared to SAA’s loss of R1.5 billion. This in a period when the world’s airlines are having their best financial years ever, making unprecedented profits, thanks partly to cheap oil.

How can SAA be so bad? No doubt a large part of the difference is that there is little or no political interference at ANZ. This is probably because a large chunk of the airline is privately owned. 47% of ANZ is listed on the New Zealand Stock Exchange and the stock pays a dividend yield of 5%, making it popular with risk adverse investors such as pensioners.

Private investors have very little patience with managers who try use an airline for self-enrichment, cronyism or political favours. It’s impossible to imagine ANZ’s Chairman, Tony Carter, being allowed for one nano-second to indulge in what are locally called ‘shenanigans’ such as Dudu Myeni’s purge of senior managers – from the CEO and CFO downwards – to appoint cronies into a stupidly expensive, and all but impossible, Airbus local lease deal.

The point is, ANZ is a very useful role model for what can be done with SAA. It too was one of the many bankrupt state owned airlines. After acquiring Ansett Australia, ANZ was essentially bankrupt in 2001. The airline was bailed out by the government, recapitalising it by buying a 75% stake. The New Zealand government invested NZD885 million ($761 million) in 2001. Good management was put in place and the state bailout was only needed once. So far the New Zealand government has received more than NZD500 million ($430 million) in dividends. The government is steadily reducing its share, so it has more than handsomely recouped its $761 million investment bailout.

What is ANZ doing right? Quite simply it is just better managed, without the burden of incompetent appointments. Two key measures reveal how ANZ runs rings around SAA. While SAA flies 23 million revenue producing kilometres, ANZ manages 28 million. And not only does ANZ fly more, despite having essentially the same number of aircraft, it beats SAA hands down in that all important metric – load factor. SAA manages a reasonable 75%, but ANZ manages to fill 84% of its seats.

These are important performance indicators, but the key is margins and costs. SAA’s competitors, particularly Comair, complain that SAA does its best to drive them out of business by selling seats at a loss. They were supported by the Competition Board who found SAA guilty of unfair competition in the demise of Sun Air and Nationwide and in Comair’s ongoing struggle to survive against a competitor with apparently limitless taxpayer funds.

So compared to ANZ, it’s probably safe to assume that SAA is selling seats at an unreasonably low price – and yet still manages only a 75% load factor.

And then of course there is the basic business management requirement to control overheads. It needs consistent management to keep a lid on expenses, yet SAA has an appalling record of turning over CEOs and appointing often wholly unsuitable candidates. It would be absurd to think that Air New Zealand could only appoint a Maori or some other ‘First Nation’ as CEO.

Perhaps ANZ has a geographical advantage in that the other major airlines think New Zealand is too far and too small to bother with, whereas they are all eyeing Africa as the big growth story in the light of Europe’s troubles.

ANZ CEO Luxon (who looks like he should be an All Black forward) notes that his airline’s long run of profits has been achieved despite external forces such as economic shocks in the European, US and Asian markets, volatile oil prices, and fluctuating exchange rates.

Meanwhile SAA is watching its lunch being eaten by the Gulf Three, particularly Emirates, and made faltering steps to partner first with Etihad and now Emirates. For ANZ the threat is from an influx of Chinese airlines, with the big three either increasing or planning to launch services to New Zealand. ANZ is, however, not worried its small size will make it a junior partner. It’s partnering with Air China on flights from Beijing.

Other threats to ANZ are the impending expansion of Australia’s Jetstar to New Zealand regional routes, and the prospect of American Airlines or Qantas entering the US-New Zealand market.

Despite these moves by its competitors, ANZ is growing aggressively. The carrier’s robust financial results are supporting a fleet growth and re-placement programme. Thanks to its success, ANZ has been able to build a young fleet. It has received five of its order of 12 787s, and is due to receive another in the next few months.

I can only hope that South Africa’s government will mature past corruption and cronyism and set its airline free to follow ANZ’s example. Then we will have a flag carrier to be proud of.

  • Guy Leitch is editor/publisher of SA Flyer magazine.

* For more in-depth business news, visit biznews.com or simply sign up for the daily newsletter.

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