Competition, costs force airlines to restructure

SAA, like many other full-service airlines throughout the world including British Airways and Qantas, is going through a restructuring process to help...

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SAA, like many other full-service airlines throughout the world including British Airways and Qantas, is going through a restructuring process to help it meet increased competition and rising costs.

Although its passenger numbers and revenues have grown, it has lost more than R650 million in its current financial year and cannot go ahead at present with plans to buy or lease more long-haul aircraft and enlarge its route network.

It is preparing a business plan, with the help of US-based consultants Seabury, which will be ready in May and might result in it being able to order more planes.

Meanwhile, the government has agreed to provide it with a guarantee of R1.3 billion as the first part of a recapitalisation process. A task team from the treasury and the department of public enterprises will help it to re-organise.

At a press conference last week its financial director, Gareth Griffiths, said some of its international routes including London – once the most profitable – were now only marginally so.

There are several reasons for this but one, as I have mentioned before, is that South African business people are believed to be reluctant to fly a long-haul route in daylight.

As a result, the expensive planes used to fly to London waste 12 hours parked on the tarmac at Heathrow Airport before returning to South Africa overnight. Aircraft used by European airlines on the South African route are put to use in daytime on shorter regional flights from Europe and, increasingly, some are using them to return from this country in daylight.

But, so far, it has not been possible for SAA to fly to neighbouring countries from London or other European cities because the bilateral air traffic agreements that govern travel between countries will not allow it.

At one time, SAA considered leasing the aircraft used on its London route to its ally, Lufthansa, for regional flights in Europe during the day, but there was some reason this could not be done. Perhaps it could be considered again now that SAA, like Lufthansa, is in the Star Alliance.

Otherwise, perhaps it’s time for local business people to consider flying in daylight and getting a decent night’s sleep in a bed before working the next day.

Some companies already allow executives a day off in London to recover from a night flight before an important meeting. This could, of course, act as an incentive to insist on flying overnight. The comfortable – in some cases luxurious – arrival lounges maintained by airlines at the biggest airports for first class and business class passengers could also be a reason for preferring overnight flights.

SAA’s arrival lounge at Heathrow provides only showers and breakfast, but British Airways and Virgin Atlantic Airways really go overboard, with amenities such as a free barber service for men and free facials and hairdressing for women.

The European Union has agreed to allow open skies between it and the US, doing away with the need for bilateral air traffic agreements between the two regions.

Peter Barry, Virgin Atlantic Airways general manager in southern Africa, tells me Virgin is preparing to take advantage of this by flying to US destinations from continental Europe in addition to its present flights from Heathrow.

In anticipation of this, he says the US and continental European airlines “don’t know yet what competition is.” That sounds encouraging for the many South Africans who prefer indirect flights to the US, breaking their journey in London or a European capital, with a choice of trans-Atlantic destinations, rather than one inordinately long flight to New York or Washington with SAA or Atlanta with Delta.

Once Virgin starts its transAtlantic flights from Germany, France or Italy – countries that Barry tells me are being considered, it will be well worth keeping an eye on their fares and destinations. Barry says Virgin quadrupled the number of passengers it brought to South Africa from Britain last year, compared with 2005 and that there was a big increase in the number of South Africans who travelled to the US with Virgin by way of London.

He believes the US airlines planning to take advantage of the new open skies agreement to fly to Heathrow for the first time will get a shock when they find how intense the competition on routes to the US from that airport already is.

The Airports Council International has issued its monthly air traffic report for February. It shows that international passenger numbers grew by nine percent compared with the same month in 2006. The growth in passenger numbers to Africa was higher than this at 12 percent, with South Africa one of the three most popular destinations – Morocco and Egypt were the others.

But passenger numbers to the Middle Eastern countries grew by a higher 18 percent. Many of these were flying to destinations all over the world with Emirates, Etihad, Gulf Air and Qatar Airways, all of which fly into South Africa, by way of their home airports.

The four are continually growing, offering indirect flights to more destinations worldwide at fares that undercut the older airlines.

Source: Competition, costs force airlines to restructure | IOL