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No More SAA Flights to China, Says Treasury

From May this year, there will be no more direct flights to China by South African Airways, Finance Minister Nhlanhla Nene said on Friday.

This is part of a strategy to turn around the finances of SAA and part of the cost-saving measures that include cancelling loss making routes with China being one of them.

“Indeed we have approved the cancelation of the China route as government because we have a certain obligation. Part of the implementation of the strategy was the closure of loss making routes,” said the Minister.

He was responding to a question at a South African Airways (SAA) media briefing on its 2013/14 financial results. This after the airline held its Annual General Meeting (AGM).

Acting SAA chief executive officer Nico Bezuidenhout revealed that close to R1 billion has been lost on the Beijing route in a three year period since SAA introduced the route in 2012.

Bezuidenhout said SAA will stop operating flights to China in April.

Air China will take over the route in May with SAA placing a code on flights to China.

This comes as the National Treasury announced this week that the airline is to receive R6.488 billion guarantee.

The guarantees to SAA amount to R14.4 billion against which SAA has thus far utilised R8.345 billion.

“We had to put SAA on a business rescue but with the Long Term Turnaround Strategy (LTTS) on the table together with the 90 Day action plan we had to be convinced that we would now be able to see an improvement in SAA’s financial situation,” Minister Nene said.

He explained that some of the drastic steps that had to be taken included the route closures, adding that was what other airlines were doing to save costs.

“It’s not just about closing the routes but also finding ways of still reaching that destination in a much more cost effective way including code sharing and that is part of the strategy.”

The move comes as part of the airline’s 90 Day Action Plan which was launched in December.

Bezuidenhout described the strategy as a living document.

“We had to continuously amend, adjust not radically change,” he said.

Treasury is also working with the national carrier in revising and refining the existing LTTS which will have the primary mandate of returning the airline to financial sustainability.

Minister Nene said that the focus will be on the 90 Day action plan which is based on the LTTS but with an emphasis on executing quick wins including route closures.

He emphasised that it will take time for the benefits to show on SAA’s bottom line adding that the guarantee was issued on the basis that the 90 Day Action Plan is robust and provides firm deliverables.

“The work for SAA will not be over and there will still be other tough measures that they will have to take in order to get the airline back on track,” said the Minister.

The airline had to be self-sustaining as no recapitalisation will be forthcoming from the shareholder, Minister Nene said. The National Treasury recently took over SAA after the airline was transferred from the Public Enterprises Department.

The financial results on Friday showed that operating loss before interest, taxes, depreciation and amortization narrowed to R374 million for the year from R425 million reported 12 months earlier.

Cost containment during the 2013/14 financial year yielded savings of R453 million. The SAA group achieved growth in revenues by 12% (from R27.1 billion to R30.3 billion).

Source: All Africa


 

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Africa wants its own air transport market by 2017

African Ministers of Transport have declared their full support for the African Union Commission’s proposal for the establishment of a single African air transport market by 2017. The South African government has also identified transport as one of its economic pillars and as a major deterrent to the triple scourge of unemployment, inequality and poverty.

This emerged on Wednesday as South Africa’s Transport Minister Dipuo Peters hosted the meeting of the African ministerial working group on the establishment of a single air transport market in Africa. The working group includes members of the current Bureau of the Conference of the African Ministers of Transport.

Screen Shot 2015-01-29 at 8.58.03 AMPeters said air travel was essential to the prosperity of Africa, as it opened up opportunities that did not exist before.

“Fostering the African aviation industry may be one of the driving forces of regional integration on the continent. Better connected African countries and regions, through a viable air transport industry, could be the catalyst that can boost intra-African business, trade, tourism as well as cultural exchanges,” she said.

In the case of South Africa, national carrier South African Airways (SAA) belongs to the largest global alliance in terms of market share – Star Alliance.

The alliance enjoys 27% of the international air traffic market, ahead of Sky Team (19%.) Airlines outside these alliances still command the biggest share at 38% of the global market.

However, the performance of the African aviation industry still lags behind the rest of the world. The demand for air transport has increased steadily over the few years, with passenger numbers and freight traffic growing by 45% and 80% respectively.

Minister Peters said this trend is expected to continue in the coming years due to a number of factors such as robust economic growth, demographic boom, increasing urbanisation and the emergence of the middle class.

“Air transportation contributes directly to economic growth through the creation of direct and indirect jobs in the industry. It also contributes positively to other auxiliary sectors such as tourism.

“The expansion in air transport also creates market opportunities for local entrepreneurs by creating regional and global economic centres,” she said.

Unlocking growth potential

In Africa, the industry is being hampered by constraints such as a poor record of safety and security, lack of adequate resources and infrastructure, distance and limited connectivity, lack of regulation and government actions.

Minister Peters said these constraints add to the competition and high operating costs. Addressing these challenges could significantly unlock the industry’s potential for future growth.

“Other constraints to note in the African air transport industry are poor airport infrastructure, lack of physical and human resources, limited connectivity and lack of transit facilities.

“Despite the growing awareness of the role that the aviation industry could play in the development of the continent, the industry is still not a priority of most African governments,” she said.

Minister Peters said African countries are reluctant, despite increased liberalisation of the African aviation industry, with some African governments still hesitant to open their skies amongst each other but yet are open to non-African countries through the Open Skies and Horizontal Agreements.

“African countries must first link with their own African neighbouring countries before they can forge links with other countries. The fear of competition amongst African counties undercuts national airlines’ [abilities] to enhance their commercial viability,” she said.

The Minister said the challenge requires African governments to enhance the regulation of aerospace management, consumer protection and the safety of airlines.

The AUC Commissioner for Infrastructure and Energy, Dr Elham Ibrahim, said, “We are fully supportive of the realisation of Africa’s long-term vision.

“Now is the time to end the marginalisation of Africa in the air transport market. Establishing a single air transport market will create an extra 155 000 job opportunities in the key markets which are South Africa, Equatorial Guinea, Sudan, Guinea, Namibia, Tunisia, Chad, Kenya, Nigeria, Senegal and Angola.

“Five million passengers are denied the chance to travel between these markets because of unnecessary restrictions on establishing air routes.”

Source: Cape Business News


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