South African Airways’ new outward focus

South African Airways (SAA) has no immediate plans to increase its domestic routes or frequencies. Its current focus is on where it can have a comparative advantage and competitive edge with the right aircraft, namely on profitable regional intra-African routes and certain intercontinental routes. Such routes are more profitable for SAA than domestic routes. This is according to the state-owned airline's interim chair, Derek Hanekom, who spoke to AirInsight on Sunday. In his view, domestic routes in South Africa are currently well served by other local airlines, especially FlySafair. For the peak summer season in South Africa, SAA will again wet-leasing planes from Turkish airline SunExpress. "It does not mean SAA can't do [more] domestic routes. We just do not have the right planes for it. Yet, we have a good relationship with the other domestic airlines as they help us with feeder routes, and we have, for example, a codeshare with Emirates," said Hanekom. He added that SAA's management chooses regional and intercontinental routes carefully and conservatively, keeping in mind profitability and conducting due diligence. At the same time, while some intercontinental routes would be profitable—like London, for example—they are just not possible given SAA's current circumstances. "SAA simply cannot afford to go for high-risk options," said Hanekom. He is pleased that SAA's current intercontinental flights - to Sao Paulo from Johannesburg and Cape Town, and between Johannesburg and Perth - are profitable “beyond expectations,” the airline might consider increasing its frequencies to these destinations. SAA is also looking at potentially increasing its intra-Africa routes and frequencies, with the latest addition being flights between Johannesburg and Dar es Salaam, to be launched in January 2025. Earlier this year, SAA announced additional frequencies to Harare, Lusaka, Lagos, Accra, Mauritius, Kinshasa, and Perth. The national flag carrier also introduced a new route to Lubumbashi, a second destination in the Democratic Republic of Congo. Furthermore, SAA is at an advanced stage of negotiating with a Chinese airline about a potential partnership, including starting a direct flight to China in 2025. "The partnership will be of a nature where the onus for the capital required for the aircraft will not be on SAA. If SAA had the capital, we would do it ourselves," said Hanekom. While he did not want to provide more information at this stage, he did say that the partnership model could include SAA leasing planes from the Chinese company. "We would not be having such discussions at this point if we were not quite sure that it will have positive returns from day one. SAA can't go for months of incurred losses." In March this year, a proposed strategic equity partnership between SAA and the Takatso Consortium collapsed when minority shareholders could not comply with stipulations set by South Africa's Competition Tribunal. The aim was for Takatso to provide a cash injection for SAA so that the airline would not need further government assistance. Hanekom said SAA is still open to finding a new strategic equity partner, but such a go-ahead would have to come from the government as an airline stakeholder. The government is open to the idea of trying to find a new strategic equity partner; however, this time, a majority stake will not be on offer. "Compared to where SAA was a year ago, there is now a lot more interest in the airline, and it is being approached by other airlines, which was not the case before. Of course, there will be advantages if the strategic equity partner could be another airline, but that does not mean we would not consider other forms of investment. And definitely only for a minority stake in order to retain SAA as the national carrier," said Hanekom. He said SAA is also in "tentative discussions" to assist privately-owned domestic airline FlySafair should its flights potentially be grounded by the South African Air Services Licensing Council, which has ruled that FlySafair has contravened foreign ownership legislation related to domestic airlines. FlySafair has turned to the court to try to prevent a potential grounding. "All things are going well. FlySafair will get through [this challenge], maybe with certain limitations placed on it. All we are saying at the moment is 'let's work together' and Flysafair's management is very keen for SAA [to assist]. They do not treat themselves as competition of SAA, especially on routes where they do not fly. If they have to discontinue certain routes, there might be some type of cooperation - not a joint venture or joint company - but discussions are open-ended," said Hanekom. SAA was in business rescue (a form of Chapter 11) from December 2019 to April 2021 and restarted operations in September 2021. The airline recently released its results for the financial year 2022/2023. The airline and its subsidiaries, SAA Technical and Air Chefs posted a net profit of R252 million. Total revenue increased by 183%, from R2.0 billion the prior year to R5.7 billion. The financial year 2022/23. SAA's airline operations turned a negative EBITDA of R1.0 billion last year into a positive R277 million. SAA operated between six and eight aircraft during the financial year, serving only up to nine destinations. Since then, a prudent fleet expansion plan has doubled the number of operated aircraft and seven more aircraft leased for delivery during the financial year 2025/26. According to an Oxford Economics Africa Report released this week, SAA's gross value added to South Africa’s GDP in the 2023/24 financial year was R9.1 billion. The report was commissioned by the SAA Group and found that the group could boost the country's economy by R32 billion by 2029/2030. The study examined the SAA Group’s core economic contribution by analyzing the impact of direct activity generated by SAA on tourism and South Africa’s international trade, the indirect activity stimulated by its procurement spending, and the induced impact that the wages of its workers and those in its supply chain support in the consumer economy.

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