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South African Airways Turnaround strategy

The Department of Public Enterprises (DPE) of the Government of the Republic of South Africa appointed our aviation specialists to undertake a strategic review of South African Airways Group (SAA).

I have read the report and I am utterly impressed. We are on the same wavelength on many issues. The team is busy with the review and a memo is being drafted to brief the Minister.

Monde Benedict Afrika Ngqumeya

DPE Chief Director: Aviation

DPE is the government shareholder representative with oversight responsibility for state-owned enterprises in key industry sectors, including SAA.

SAA is regarded as a strategic asset of the government and is wholly owned by the state. Although it operates in a highly competitive global environment it remains the third biggest airline on the African continent in terms of the size of its network and the frequency of its flights.

Mott MacDonald was was asked to examine and review SAA’s operations in these five key areas:

  • SAA’s route network strategy and business operating model
  • Star Alliance™ membership in relation to SAA’s mandate
  • SAA’s fleet plan and the extent to which it supports the airline's network strategy
  • Analysis of the ideal capital base and funding structure for SAA in the medium term, including identifying elements that will assist in achieving SAA’s mandate
  • A review of SAA’s low cost airline subsidiary, Mango.

Challenges

SAA has suffered from strong international and domestic competition which has had a significant impact on its financial position. The geographical periphery of South Africa has brought up challenges for the airline on its long haul international routes to key markets because it has an aging fleet of fuel-inefficient aircrafts that are frequently payload restricted. For the most part this is due to the fact that the main operational base at OR Tambo in Johannesburg sits at a high-altitude. Many of those routes have a strategic economic importance to South Africa, and as the national flag carrier, SAA has a mandate to connect the country to key international markets.

SAA’s financial position was such that it needed to borrow money under a state guarantee to allow the restructuring changes necessary to become more competitive and financially viable. In return, the government expected the airline to create and implement a long term turnaround strategy. Our work was used to inform government of issues that needed to be addressed in the strategy.

Solution

We worked directly with SAA’s senior management team to understand the dynamics of their business and the issues they faced. Our experience of airline operations, particularly the South African aviation market, allowed us to quickly identify key areas of concern and suggest solutions. Our report informed the government shareholder of the issues that needed to be addressed going forward and ensured that these were all captured with appropriate solutions, within the subsequent long term turnaround strategy produced by the SAA Group and the government.

Benefits

We added value by providing a detailed study on SAA’s market and operating environment, which:

  • Assisted DPE in its capacity as technical advisor to the shareholding minister in delivering the objective of providing strategic leadership to guide the corporate strategy of SAA.
  • Allowed the client to consider the strategic position within airline alliance groupings
  • Helped the client assess competitor activity in domestic, regional and international markets.
  • Helped the client appraise financial performance of its operating route portfolio.
  • Assisted in making business operating model decisions with respect to product and service offerings and risk management.
  • Provided an assessment of and recommendations for aircraft fleet planning and fleet financing options.
  • Resulted in our work being presented up to ministerial level and helped inform DPE in their subsequent work with SAA to develop a long-term turnaround strategy, the implementation of which should form the basis for SAA to move forward with a more sustainable business model.
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