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An airline must not be a political football: Ex- SAA acting CEO

Nov 09 2017 12:31
Carin Smith

Cape Town - If an airline ends up being used as a political football instead of being operated on business merits, that can be one of its biggest stumbling blocks, Nico Bezuidenhout, CEO of fastjet recently told Fin24.

fastjet is listed on the London Stock Exchange - the only African airline listed there. According to Bezuidenhout that means it has access to capital for funding purposes. The top 5 shareholders have about £500bn under management. It also means the airline operates on European safety standards.

He started at the helm of the low-cost African airline in August 2016 after twice being acting CEO of South African Airways (SAA) and CEO of its low-cost subsidiary Mango.

During his time at Mango, Bezuidenhout grew the airline's market share to 25% of the SA domestic air travel market.

Speaking of airlines in general, regardless of whether an airline is state-owned or privately owned, it is very important to have a distinction between management and ownership, according to Bezuidenhout.

"The management of an airline must have a clear mandate, objectives and measurement in place. Management must also be appropriately capacitated by the shareholders," Bezuidenhout recently told Fin24.

"In any business you will get what you pursue. For instance, if the business pursues capitalistic profit motives, it will get those types of outcomes. If a business pursues social motives, it will get that, but then not necessarily make profits."

Capital deployed inefficiently

Generally speaking, there is in his view too much capital being deployed inefficiently on the African continent. For instance, both private and public airlines are allowed to survive when there is "no right to survival, because revenue does not exceed cost".

He said a lot of the cracks already identified at SAA in its turnaround strategy of 2012/13 are still at play. If he had carte blanche at SAA he would, for instance, fix the aircraft equipment to make sure the aircraft are fit for the job. He would use the airline's assets effectively, including on the human resource side.

Efficiency is also essential regarding supplies to the airline.

"Often state-owned companies don't get the best bang for their buck. One just needs normal negotiation skills. We negotiated the best prices for Mango. Just because it is state-owned does not mean one must not get the best prices," he explained.

In his view, it will always be difficult for a flag carrier airline at the southern tip of Africa.

"This does not mean it cannot be resilient. It just means one has to take that variable into account when designing a flag carrier, for instance, how big it can be," explained Bezuidenhout.

"Just because one cannot sustain trying to have one of the biggest flag carriers in the world, it does not mean you cannot have a sustainable flag carrier in southern Africa. The only dictate should be that owners should be owners and managers should be managers and both should be good at what they do or they should not be there."

fastjet

When Bezuidenhout started at fastjet the airline was in severe financial distress. Over the past 12 months a turnaround plan was implemented. It entailed changes to the route network, fleet and human resource component.

The headquarters was also changed from the UK to Johannesburg, reducing overhead costs by 40%. Furthermore, there was a moved to smaller aircraft. Overall costs were reduced by 46% and unit revenue for the first half of the year is up 30%, while losses over the same period was down by 56%.

Tanzania is still the airline's biggest market, where fastjet has a more than 80% market share on routes it operates. On the Johannesburg/Harare route the airline has about 20% to 30% market share.

"A lot of what we did last year was about stabilising the business. Now we are on track to have cash flow break even for the last quarter of 2017 and we can look at growing," said Bezuidenhout.

Its latest venture was launched in Mozambique last week. It also has an agreement with private airline Federal Air by which the fastjet brand will be introduced into SA.

African aviation

Fin24 asked Bezuidenhout why investors would choose African aviation. He explained that the continent has all the ingredients for growth in the aviation industry. The continent has about 30% of the mineral resources of the world, about 20% of the global land mass, about 15% of the world's population, yet only 3% of the global aviation industry.

"Poor road and rail infrastructure on the continent means it lends itself to aviation. There is no denying the correlation between aviation growth and economic growth in any economy. The International Air Transport Association (Iata) also says some of the fastest growing aviation economies are in Africa," said Bezuidenhout.

Challenges holding growth in the aviation industry back on the continent include the regulatory environment, too many inefficient suppliers and bilateral constraints.                     

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