South African Airways (SA) has at long last, released its financial report for the Financial Year 2011/2012 ending 31 March 2012. In its brief, signed off by the airline's previous board, the carrier reported an operating loss of USD163.2million (ZAR1.3billion) despite its total revenue being up six percent on the previous year. Overall, the group posted a ZAR32million Total comprehensive loss. |
| South African Airways' Africa Route Network (GreatCircleMapper) |
South African Airways Commercial
SAA said its the South African economy's sluggish economic recovery and Eurozone crisis were contributing factors to the airline's loss along with persistently high fuel prices . The Group recorded an operating loss of ZAR1.3 billion (2011 restated profit: ZAR1 billion).
The report went on to say that the South African domestic market is substantially over-traded and the economy is experiencing a prolonged period of relatively low growth.
Business class passenger numbers and revenue grew strongly as a result of sales and marketing initiatives, together with stronger pricing and revenue management systems and discipline, supported by the airline’s voyager customer base.
Economy class passenger numbers declined overall, although the successful code-share with Mango on the Durban-cape town route was enhanced by an additional code-share with Mango on its new Lanseria - Cape Town route.
Strong growth in Africa but protectionism still a hindrance
SAA this last year launched four new regional routes from its Johannesburg hub to Ndola (Zambia), Pointe Noire (Republic of the Congo), Bujumbura (Burundi) and Kigali (Rwanda). These routes are performing according to expectations, except for Bujumbura-Kigali due to unfavourable slot times at Kigali International Airport. The connecting revenue from these new routes complements the broader SAA route network strategy.
SAA withdrew from one unprofitable route, Johannesburg-Gaborone (Botswana) in August 2011. With all these changes, Africa capacity was still static, due to other schedule and aircraft gauge changes. However, there was an 11% increase in total passenger numbers: 17% in Business class, and 10% in economy class. This resulted in a 7% jump in overall load factors to over 68%. This is attributed to SAA’s strength on the African continent, and the growing demand in Africa for air services in the mining and infrastructure development sectors.
SAA is seeing good results from its African routes; Southern African routes such as Harare (Zimbabwe), Maputo (Mozambique), Lilongwe and Blantyre (Malawi) continue to perform well. Accra (Ghana), Luanda (Angola), Dar es salaam (Tanzania) and Lagos (Nigeria) are extremely important routes strategically and also continue to perform well. Ideally, SAA would like to operate far more flights into its regional network, however the market is only liberalising slowly and obtaining improved Bilateral Air Service Agreement rights continues to be a major challenge for South Africa and SAA.
International capacity static as Middle Eastern Carriers take their toll
SAA’s overall (non-african) international capacity was largely unchanged, although major improvements were made in fleet and product with the final deliveries of the six new Airbus A330s. The only new international route launched was a direct flight to Beijing (China) in January. SAA continued to see robust revenue streams from its Business class product, and saw passenger numbers in this market segment grow almost 5%. Economy class passenger numbers dropped by 2%, primarily caused by aggressive price discounting by Middle eastern airlines and over-capacity to and from South Africa, which is still a relatively small market by global standards.
LCC Mango
Mango’s financial performance was significantly influenced by the continued adverse effects of global uncertainty and a recessionary hangover coupled to rocketing fuel prices, currency instability and sharp increases in regulatory Airport Company of South Africa charges.
Increasing marketplace competition, notably in the form of a new entrant to the low-cost carrier sector, simultaneously further increased market supply in an already saturated market, negatively impacting fare and/or occupancy levels, resulting in the majority of the local industry reporting year-on-year revenue declines and deep losses.
During the period in review, Mango saw an increase of 12.9% in the number of passengers flown while recording revenue growth of 22.2%. This gain in revenue was achieved while maintaining the company’s cost leadership position through continued excellence in capital productivity (human and aircraft) and governance (including supply-chain management and procurement discipline). Though the business operated at a loss for the full year, Mango, subsequent to bearing route start-up losses associated with the Lanseria port launch earlier in the fiscal year, returned to profitability in the final quarter.
Mango also secured an international scheduled and charter operation licence, and is well positioned to expand its operations beyond South Africa’s borders.
SAA Cargo
SAA Cargo revenue was 4% above budget and 14% above the previous year. Actual tonnage rose by 10%, after rising 8.4% from 2010, which continued SAA Cargo’s rowth record under the strengthened management team. This was part of the ongoing drive to increase yields and tonnages, which was rewarded with an annual profit 7% above budget. Load factors remained in line with the previous year
New cargo routes are developed as saa grows its passenger network – principally in the year under review to four other African States and China – and as SAA increases the utilisation of its four freighters. Africa faces infrastructure challenges in road and rail transport, and SAA Cargo sees considerable opportunity for further airfreight market growth.
SAA Technical
Suppressed market conditions as a result of high oil prices saw SAA Technical experience a slight drop in its maintenance activities from both its anchor customer, SAA, and its third-party businesses. Growth in the MRO business aspect was limited largely as a result of effective capacity management in the airline sector. The industry was able to adjust to changing market conditions more swiftly than maintenance repair operations. This resulted in idle capacity that could not be adjusted quickly enough to match the declining demand. Thus, the impact of changing market circumstances was felt most severely at shop-floor level
In the year ending 31 March 2012, SAA Technical achieved total comprehensive income of ZAR1.025 billion – reflecting a realised operating profit of ZAR161million (up from a restated operating profit of ZAR40 million in the previous financial year).
An in-depth operational, financial and organisational assessment completed during the financial year to March 2011 confirmed that saa technical’s quality and technical work are well regarded from both a quantitative and qualitative perspective, but indicated that improvements in certain areas were needed if long-term sustainability was to be assured.
Air Chefs
Air Chefs generated a loss of ZAR70.4 million in the year under review, compared to a loss of ZAR2 million the previous year. Year on year, revenue increased by ZAR49 million (13%) to ZAR426 million. Material costs increased by ZAR60million (29%) due to significant increases in food inflation and pricing discounts granted to SAA on all domestic meal offerings. The resultant gross profit of ZAR164 million compares to ZAR175 million for the prior year, a decrease of ZAR11million (6.3 percent).
The overall figures:
Brent crude averaged USD114 a barrel in the year under review, compared to us$84 the previous year – a 34 percent increase. Consequently, fuel accounted for 33% of Group SAA’s operating expenditure, up from 28% in the previous financial year (a ZAR2.2billion increase). Aircraft maintenance costs were also higher than target. revenue increased from ZAR22.6billion to ZAR23.8billion (up 6%).
However, operating costs went up from ZAR21.6billion to ZAR25.1billion (17%). The group thus recorded an operating loss of ZAR1.3billion. after the recognition of a deferred tax asset of ZAR514 million and a net revaluation gain of ZAR823million, the group was able to record a total comprehensive income of ZAR60million for the financial year (ZAR747million in 2011). The revenue increase was predominantly a result of the 16% increase in fuel levy recoveries driven by the increase in fuel expenses.
Passenger revenue increased by 3% whereas Voyager income recorded a significant increase of 48%. Regulatory costs, which includes navigation, landing and parking fees increased by 18%, while maintenance costs increased by 32%. Excluding the uncontrollable energy, regulatory and maintenance costs, the group’s operating costs increased by 5% – underlining the tight control maintained over controllable costs.
SAA’s capital and reserves are currently at ZAR443 million (9% lower than the restated ZAR475 million of the previous financial year).
- Passenger load factor: 72%, (+2%)
- Passengers flown: 8.1million (+0.4%)
- Passenger Revenue: ZAR15.907million (+3.0%)
- Cargo Revenue: ZAR1.388billion (+8.0%)
- SAA Technical: ZAR522million (-6.3%)
- Air Chefs: ZAR426million (+13%)
- Voyager: ZAR419 million (+47.5%)
- Total Group SAA Revenue: ZAR23.861billion (+5.54%)
- Total Group SAA Operating costs: ZAR25.176billion (+16.5%)
- Operating Loss: ZAR1.315billion
- Net Loss: ZAR32million