Monday, November 26, 2012

■ SOUTH AFRICA: Group SAA finally releases its 2011/2012 Financials; records USD163.2million operating loss.

SAA logoSouth 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
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

South African AirwaysSAA 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 South Africa LCC
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
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

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
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