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SAA bucks the trend


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2009/09/28 04:19:00 PM Sikonathi Mantshantsha


Johannesburg - In a surprise announcement on Monday, South African Airways (SAA) reported a net profit of nearly R400m for the financial year to end-March 2009.


Acting chief executive Chris Smyth said the R398m net profit was "proof the airline is in excellent operating mode" as a result of the past two years' restructuring.


"We have now fixed up the airline and are concentrating on the future," said Smyth. He was referring to the "deep fundamental" restructuring announced by former chief executive Khaya Ngqula in 2007.


"Every single person at SAA was required to identify areas to cut costs. We have now done the hard part of the restructuring like cutting staff numbers."


The airline has shrunk in every area, said Smyth. "We've cut out the unprofitable parts and cut out the fat." The challenge was now to ensure those changes were sustainable and move to "softer issues" like customer service.


The changes at SAA were "not one-day wonders" but the result of hard and uncomfortable decisions taken in the past, said chairperson Jakes Gerwel. "We had to make tough decision in the past in order to ensure the airline's future."


The major differentiator was SAA charging its customers a fuel levy in order to counter the effect of rapidly rising fuel prices last year. The fuel bill increased to 35% of the airline's cost base, from 28% previously. But Smyth said the total cost base for the airline declined by 8% in real terms over the previous financial year.


While the aviation market declined overall last year, the airline was helped by its dominant position in the rest of Africa. "Africa also shielded us from the drop in the aviation market," said Smyth. That is where the company generates most of its operating profit and revenue. "That is why Africa is so important to us."


Another clinching factor for SAA was reaching a deal with aircraft manufacturer Airbus on a disputed order of 15 aircraft entered into in 2002, but subsequently cancelled by SAA.


Smyth said the issue has now been resolved as Airbus acknowledged receipt of the cancellation notice.


"The deposits we had paid up until 2004 and written off have now been brought back to the balance sheet and are being used as a deposit for the A330 aircraft we'll take delivery of in 2013," said Smyth. SAA would have had to make a provision for the disputed order. The deal was cheaper than what SAA had contracted to in 2002.


- Fin24.com


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