#197 South African Airways: Do actions speak louder than plans?

LESSONS FROM QATAR: Dominate the horizontal and vertical spheres of the aviation domain and the margins may be tight, but the returns will be great. QATAR Airways has taken its business model toward securing scale economies: reducing the costs of producing every single unit of service they provide. This has made them attractive on a network level. SAA might not be in a position to do this, but it may need to take action, instead of planning to.

There are two difficult narratives around the reform process at South African Airways (SAA). First is the view from the labour unions who among many other themes, have a view that there is collusion between the Business Rescue Practitioners ( the Practitioners), the executive management team and the government shareholder. Their concern is the potential and inevitable impact that route cutting would in principle result into loosing more people within the organisation. Without a business rescue plan, it may be legal for the Practitioners to act as the executives of the business– but it is not legitimate without an agreed plan.

The second line of argument is that the government shareholder (the shareholder) might need to retain its narrative position which is (a) to ensure a stable employment environment; and (b) to develop a structured reform process. With some key international, regional and domestic routes retained, many have been cut off. This is a shift in the operational strategy of the airline– the question is whether this is tied to a service strategy that articulates what Dr Vermooten calls “the development mandate” embedded in SAA.

Possible directions

Domestic services may naturally be taken up by Mango, and it may serve a new strategic role in line with the global trend where “low-cost” carriers offer an “Economy-Plus” package. Especially with the increased fleet, and improving operational performance– as far as I know– there is room for Mango, Kulula.com and FlySAFair to play tango. Developmentally, this may open up some important room for the financial viability of domestic airlines, if not encourage a new airline to enter the market as consumer demand for air travel in Africa is set to rise.

Economy-Plus is really better seating, a little bit more service than the no-frills philosophy of the traditional economy seat. It further diversifies the revenue and service offering of a low-cost carrier. Stefane Waldak, from Traveller wrote about Economy Plus in January, she says: what sets these seats apart from the rest is a few extra inches of legroom, priority boarding, a better location at the front of the cabin, free alcoholic beverages, and free meal service, depending on your specific airline. This is a whole new segment in air travel, plus Premium Economy and these extra-Long-Haul flights (that’s for another day). It might be a service that is shared between SAA and Mango, but Mango might benefit from adding a new cabin class on some domestic routes.

Economic principles in SA

There are two main points worth driving with regard to South African Airways (SAA). First, is the ‘economic principle’ that markets should operate freely. Second, is the ‘equal treatment principle’ that argues that all actors in the market need to be treated fairly. These two principles have largely been ignored over the years and it has lead to both preferential treatment and market distortions which Comair Limited (parent of Kulula and British Airways) went all out to fight against. The market dominance of SAA has been a crucial issue in South African skies, and due to the bail-outs this dominance was retained artificially and thus not equitable– or market related. The economic principle states that competition and user choice needs to be encouraged and the market need not be distorted by government intervention. In equal treatment, every airline needs to operate on a fair ground. That is if one receives a bail-out, then 1Time should be flying high till today. Reducing SAA’s market footprint is one way to right size and create a fair competitive environment– but this requires an understanding of why and what kind of organisational framework is being developed.

No plan in public, all action in public

The prerequisite for a clear direction involves ensuring that both labour, suppliers and the shareholder are presented with a plan which outlines the coordinated direction of the reform. Without this offering, it may be unclear if: (1) appropriate scenarios are tested; (2) the kind of criteria that are used to make the decisions is appropriate (and uses the right assumptions– recall the tension around the assumptions of the InterVISTAS study during the inquiry recently) ; and if forecasts associated with the effects of decisions were made appropriately. The practitioners need to be weary of the fact that they are not grappling with a private company with private shareholders. They are grappling with a Schedule 2 entity with various interests throughout its political and economic value chain. Nevertheless, future actions from the Practitioners will give an indication of their plan in action. Is it much better than the perpetual loop of planning we’re so comfortable with in SA?

Thank you for reading in, next stop passenger rail and the underlying narrative. Till the next one.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s