#203 South African Airways: Avenues for Reforming a Catalyst

It’s been a few weeks since the last note on South African Airways. Leading up to this piece, I’ve been reading a little bit about market dominance, particularly in SAA and how this has affected the aviation industry. Before discussing that in detail, I’d like to share some thoughts and ideas about how the aviation industry tends to work, where competition comes from and potential avenues for reform. In other words, these are some amicable positions that the Business Rescue Practitioners may take. However, they are not as robust as the catalytic argument I’ve proposed elsewhere.

Focus of the business

Consider the aviation industry as a free market that is highly competitive, but price is not the core focus of the competition. In principle airlines compete within their segments based on the services they offer their customers. Most airline passengers are not only looking at prices, they wonder about things like “buttons or zippers”. Legroom, type of passengers that the airline is perceived to attract, reputation, marketing and everything else all add to the perceived value of the airline. Now, dominance can severely distort a market and discourage fair pricing, and efficiencies one expects from the pressure uncolluded competitors apply on everyone else. With few operators in a market like the aviation space in SA, there is so much room for growth underpinned by the 70 million plus people forecast for 2050; and potentially higher average incomes.

Customer orientation is pivotal for the aviation industry– any transport industry in fact. Sources of competition for the airline will not constitute competition in the traditional sense. Instead, the airline may need to focus on our global footprint and one or two major corridors domestically. In the long run, smaller carriers need to compete for domestic and regional routes— this makes for efficient prices, and appropriate service offerings which are sensitive to each passenger segment over time. For a national carrier, which is a full service network carrier, the priority can not be on the entire network. Instead on key corridors internationally, and all domestic operators feed into its global footprint. This is consistent with the award winning reputation it enjoys, but requires a strong and focused management team, good people at work and equipment that resonates with a global airline. These decisions have already been hinted to by the Business Rescue Practitioners through the actions they have taken.

What else does the airline need to do? Something different from most. Achieving its developmental mandate does not require much technical reform, but rather it needs organizational change. As a point of departure, the airline needs to deepen its SMME framework with an aim to globalize local brands, services and product lines. Essentially building solid Public-Private Partnerships for non-core activities— such as food, maintenance and other services, performance would be more accountable and prudent. Meanwhile, opening itself up as a custodian as an aeronautical launchpad for business and tourism in SA through value capturing partnerships that scale at network and corridor level with local brands.

People might be the key to a new frontier

One way is to manage the labour efficiency trap is through investing in labour, people and culture– it opens a new frontier. Taking it one step further: labour, all employees have a stake in the firm, their performance influences the performance of their investment in the new company. This share could be within the majority shareholder’s wing, but it enables labour to have sufficient influence in the business decisions at scale. Meanwhile, containing the risks associated with protest action due to the need for cooperation between the shareholders. Here it becomes a Proudly South African carrier.

Thank you for reading this piece, it comes amidst the SAA trail, and should serve as a precursor to the Business Rescue Practitioners’ report. There is hope for the airline, but we need more empirical research to establish the extent of this hope.

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