South African Airways releases financial results

The airline reported total revenue of R27.1 billion in the year under review against the previous financial year's R23.9 billion. The increase in revenue is attributed to various factors including 7% increase in airfares despite competition from the Middle East region continuing to place pressure on average airfares; 8% increase in revenue passengers with domestic routes traditionally contributing positively to the airlines performance; and 3% increase in available capacity. New destinations and frequencies launched during 2011 are now maturing and making positive contribution to the airline's improving revenue. Additional routes launched in 2012 are similarly starting to yield more positive returns.

Fuel cost and the weakening of the ZAR against the USD (13% year-on-year) among other factors continue to impact severely on the airline's operating costs. Despite the challenging and competitive environment, SAA delivered a 40% improvement in EBITDA (earnings before interest, taxes, depreciation and amortisation) from a loss of R705 million in 2012 to a loss of R425 in 2013. After depreciation, amortisation, finance costs and investment income, the airline reported a 14% improvement in the loss before tax from R1.4 billion to R1.2 billion.

Fuel cost had the most impact on long haul routes where the existing fleet is fuel inefficient. The average fuel price was at levels in excess of US $110 which further eroded route profitability. While operating cost reflect a 12% year-on-year increase, fuel remains the single biggest cost to SAA having increased from 34% to 35% of operating cost. For the period under review, fuel cost increased by 15% to R1.3 billion. Operating costs, excluding uncontrollable costs, decreased by 2%.

During this period, SAA embarked on Cost Compression Programme to re-engineer processes in order to derive sustainable cost benefits going forward. The programme consisted of 38 individual projects covering a multitude of initiatives. These initiatives ranged from basic simple projects, such as saving energy by switching off unnecessary lights, to more complex projects such as fuel-saving initiatives to optimise fuel by utilising dynamic flight plans and alternative landing rights, and reducing the weight of on-board items. SAA successfully achieved 97% of the R1,3 billion budgeted reduction in costs, removing in excess of R1 billion in costs from the business, which was unfortunately to a large extent offset by the weakening rand.

SAA CEO, Monwabisi Kalawe concluded by saying: “We are confident that we will be able to turn this business around. We have the Long Term Turnaround (LTTS) strategy in place to make certain that we secure survival as a commercial airline while quickly focusing on the successes that we are beginning to realise. Clear and measurable targets have been outlined in the LTTS and a strong and empowered Leadership is in place to ensure we realise our long term goal of turning this business towards profitability.”