THE FANTASY OF FLIGHT FOR SAA V2?

IN THE FINALISATION of the business rescue plan for South African Airways the Business Rescue Practitioners presented a business plan for the next 5 years. This business plan was the stepping stone to a new – viable and, in the long term profitable airline – or so they claimed.

Creditors of the “old” airline had to swallow their losses – staff lost their jobs and assets had been returned to their owners or lessors – but it was all done to save the airline, with the new promise of a bright future was it not?

The airline has proudly announced it is taking off again on the 23rd September. So the question must be asked, how viable is this newly created business – and will it fly?

Let's have a look at some of the presented figures and hold them against the light of reality: In the Business Rescue plan the collective loss in the first 3 years of operations is estimated at R6.3 Billion – and there were some fancifully optimistic assumptions made.

On revenue of R1.4 Billion the projected loss is R3.2 Billion in the first year, then a loss of R2.2 Billion in the second year and a final loss of almost R1 Billion in the third year. How realistic is this? The original plan states that 6,204 flights will be made in the first year transporting 270,543 passengers, resulting in a total passenger revenue of R1.43 Billion. Let's take a closer look at this flight of fancy: The total of 270,543 passengers on 6,204 flights is an average of 43 passengers per flight.

The total amount of flights would have a revenue of 1.43 Billion / 6,204 flights = R231,015 average revenue per flight required. And that revenue of R1.43 Billion / 270,543 passengers equals R5,297 average per passenger per single flight. So it would appear they are expecting passengers to pay over R5000 average per one way flight on SAA aircraft that have over 70% empty seats?

A revenue of R1.43 Billion against a loss of R3.2 Billion implies that for every R1000 of revenue - more than double that amount would be lost.

How did anyone ever approve the plan for a business going forward and receiving financing (taxpayers funds) again?

This week the new business presented their long awaited re-start flight schedule: They are going to fly to 6 destinations with 8 aircraft (5 narrow body / 3 wide body aircraft). Counting the frequency of the flights gives a total of 4,888 flights per annum. If we divide the same expected revenue: R1.43 Billion / 4,888 flights = we need R293,211 per flight average yield.

If we divide the same passenger load 270,543 over the 4,888 flights – we have an average of 55 passengers per flight. That would lead to an average revenue per flight of R293,211 / 55 pax = 5.331 Rand per paying passenger per one way required on average!

If we take into account that the labour cost (wages bill) for SAA in the first year with 1212 Employees is estimated at R1.475 Billion, (that is over R1.2 million per employee average) - you do not need a lot of insight to realize that everything else – Fuel – Maintenance – and all other Operational costs will lead to an accumulation of the losses. Even an anticipated (yet unrealistic) revenue of R600 million in freight will not make much difference. It would seem the R3 Billion losses in the first year is optimistic.

We can look at the second and third year – but the improbability only gets worse.

It does not take much imagination to realise what has happened here. SAA was to be kept alive and the figures were massaged and manipulated until an “acceptable” solution (on paper that is) was found. The reality of the market in South Africa is somewhat different though and we are bound to see SAA needing cash inputs or bail-outs again within a short time frame.

Who will pay the bill next time?

You as the tax-payer? Or a creative investment club “managing” your pension funds in the name of “infrastructure investments?” One wonders how much money will be syphoned into SAA again – and how long it will take before the realisation that it is a pipe dream with a political motivation will come to the surface. When will they finally realize that the airline should have been liquidated a long time ago? HJK