Aviation: With 1.5m passengers in 20 years Nigeria is South African most profitable Route-CEO
Mr. Vuyani Jarana, was appointed as the Chief Executive Officer (CEO) of South African Airways in November 2017 with a simple mandate to restructure the airline and return it to the era of profitability. In this interview with journalists at his maiden tour outside South Africa since his appointment, Jarana spoke on the restructuring exercise, the Nigerian market, national carrier and several other topical issues. OLUSEGUN KOIKI was there for DAILY INDEPENDENT. Excerpts:
Just recently, the South African Government granted South African Airways some amount of money to restructure the airline, how adequate is this financial assistance?
In August last year, the commercial banks had stopped providing credit to South African Airways (SAA) notwithstanding the government’s guarantee, largely because they think there has to be a plan to turn SAA around. They wanted to know that there is a date in the future when the airline will be able to pay and be profitable. In that context, one of the critical things is dealing with working capital management.
If you don’t have access to the credit facility, invariably, you have to share the capital cost to support until you get the right construct where you can start having access to credit.
Since I joined in November 2017, the big area of focus for us was to work with lenders and get them interested in SAA, get them to expand loans and we managed to get them to do that by November, within my first month. What is important was to get them interested in continuing to invest in SAA as partners. We have had to rework the strategy, rework the plan and complete the corporate plan, present to the shareholders. They are quite comfortable that our partners are not overly ambitious, but are quite pragmatic and focused.
What has been reported at the support for SAA is a kind of funding that is going to support from January, the beginning of the year until September or October. So, this is supporting working capital requirements. That is the investment the government is putting in as a shareholder. What we have done is to set up a joint committee with the government with the Equity Finance Minister. That committee is focused on finalising the capital structure including the funding mechanisms. So, the committee, by September must have done its work and finished, then we can start dealing with funding.
So, in terms of the plan to move forward, is that today we have 9.2billion Rand of debts that are historic. So, that needs to be addressed as part of the capital structure. We have also indicated clearly that the turnaround plan in 2021, where SAA will break even and start delivering results needs a working capital funding of about 12.5billion Rand over the next three years. That is the working capital funding; keeping in mind that we want to grow revenues as well as take out cost.
Turning around the airline is almost a 24 to 36 months work programme that you need to do in that process and you are starting to get the alignment of both revenue and cost.
The five billion Rand that were issued as part of the plan, but effectively what we need is to address the 9.2billion rand and the 12.5billion Rand in order to move forward.
So, a combined figure of 21.7billion Rand is what will take SAA to move forward. This is keeping in mind a premise that no company thrives on debts. The lenders have said to us that they want a planned return to profitability which is on course. Secondly, they have intimated of plans to achieve debt reduction, which implies that the current debt profile of SAA is a bit high. So, we need to address it and that is what we are working on.
So, we have a very clear plan and we have started taking decisions in terms of implementation. So, many people also say SAA had put up many strategies and what is going to be different now?
The difference now is that we are executing our plans. We have created a change hub, which is a nerve centre for execution. These are milestone plans that must be implemented step by step. We have optimised the revenues; we are taking out costs and talking about restructuring. This is where we are now. We talk about the fit for growth plan. The fitness of growth means strengthening your base so that you can build capacity to grow and that is what is uppermost on our mind.
This year marks 20 years of operations in Nigeria. How profitable is the Nigerian route to SAA?
The Nigerian route is very important to us as it gives us good load factors, consistent services, and we have the right mix of customers profile in terms of business class and economy class. So, it is one of the profitable routes that we have in SAA and that are why we want to continue to support, grow it and make sure we improve on customer experience on the route to be able to defend and retain our market position.
We do have and enjoy market leadership in Nigeria. Therefore we need to protect it and make sure we listen more to customers and make sure that our partners continue to support us. So, this is one of the routes that we have to maintain and grow.
I think Nigeria is among the top destination we fly on the continent and that explains its importance to us. Also, it is about consistency. Nigerian market is static and stable and Nigerian people are always supporting us. We too, we didn’t shy away from this and this necessitated the deployment of our best equipment in the market to the Nigerian route.
We have been operating in Nigeria for the past 20 years. We had our first flight in December 1988 into this country with few frequencies. We have graduated from four to seven frequencies and even we had a taste of Abuja Airport. We have operated several brands of aircraft into this country. We started with a Boeing 767 aircraft with different capacities and we moved to use a B747-400 and then to Airbus 340-600 and now we are using a brand new aircraft A330-300 with different capacity. In the last 20 years, we have airlifted over to 1.5 million passengers.
In specific terms, what changes are you bringing in to ensure the airline return to the era of profit?
If you look at the restructuring, it is about four issues. First, you have to look at the restructuring of the balance sheet, the funding structure of SAA as well as getting the right capital structure.
Secondly, you have to look at the network and the market aspect of the business, making sure we serve the right market with the appropriate tools, so that there is no mismatch in the way you address the market, otherwise you suffer losses.
We have partners who give us different types of portfolios, and tools to actually address the market. We have to also look at the ratios, it is about costs, about taking out costs, you need to look at productivity ratios, whether it is the pilots or all of us; in fact, we have to consider everything.
Most importantly is how we simplify the organisational processes because we need to bring a lot more simplicity in building a strong commercial organisation that will focus on profitability as well as customer experience. So, the five key things are customer experience, balance sheet restructuring, revenue management in terms of the network design as well as how we address the market; a fit for growing commercial organisation, while we continue to hold on to our safety records.
In each of these areas, there are work streams that focus on making sure we do the right things by managing it through the change hub. So, we are not leaving this to chance. We watch these every week.
In this turnaround plan, how many aircraft do you plan to acquire?
We have built a plan based on the current fleet profile. We are also aware that it is unthinkable that we will stay as we are into the future. But, of course, to do this, you need to apply a lot of science and analysis. So, we are busy doing the analysis of the network and a fleet strategy that we are going to unleash soon sometime in September.
That will tell us what kind of fleet profile we should have, bearing in mind that we have to re-engineer the strategy because it is imperative that we do something different. That will be communicated in the second half of the year. We need to fly aircraft more than what we are flying presently. We will share the future plan once we have a sense of what the possibilities are.Are there plans to return to Abuja route that was suspended a few years ago and how many frequencies will you be operating on this route, if you eventually return?
What we did was to suspend operations in Abuja in the gauge of the aircraft that we were using. We are bringing in our franchise partners in the same way we did in the Central African routes. This is with a view to addressing the route with the right products and the right economics. So, that piece of work is being done. It is between two authorities to approve the start off of the route. So, it is on our agenda to support that through our partners, in terms of the franchise.
What is the contribution of SAA to tourism development in South Africa and in your restructuring; are there plans to bring the private sector on board?
There are a number of drivers for economic value added for SAA, not only in South Africa but proudly in the continent because by far for many decades, we have facilitated the intra-Africa travel by far and strengthened the economies through bi-lateral trades that have led to the ease of travel. We know there are still lots of work that the continent must do in terms of air travel because some of the travel between African countries still go outside the continent.
The thinking within government is that even though SAA plays a critical role in promoting tourism as having economic value addition, that has to be done in a profitable context and I think we can’t fault that thinking because we can deliver both.
To that extent that there will be a developmental mandate that may not fit a commercial enterprise, that could be dealt with as an isolated matter. But I don’t think the challenge SAA faces today can be solely ascribed to develop that mandate. I think we could achieve profitability as well as make sure we still promote. Part of the areas South Africa needs to look at is the alignment of the state aviation policy to make sure that it is balanced, promotion of local travel market and also to encourage intra-Africa travel market.
What does the West African market meant to SAA?
SAA is a catalyst for economic development. SAA facilitates trade, tourism and investment in the different economies. What we have decided to do is to look at how we will be able to serve other West African markets through our operations. Before the restricting, we were on-line to about nine countries in West and Central Africa, starting all the way from the Democratic Republic of Congo, to Senegal (Dakar), Abidjan, Accra, Cotonou, Brazzaville, Kinshasa, Lagos and so on. We have been online to most of these cities, but because of the restructuring and the fact that some of the routes were not entirely profitable, we are not able to sustain them. With the restructuring, we have had to strategise on Central Africa and have pulled away from Brazzaville, Cotonou and Duala for now.
Once we are able to get the right gauge of equipment to service these markets, we will go into it. We have also consolidated on our operations by trying to make the ease of travel better for the West African travellers. So, we are partnering with regional carriers like Africa World Airlines (AWA) to be able to feed our operations either through Lagos or Accra as we are also strengthening our operations in Accra.
We have flights originating from Accra to Washington and that has proven to be a very sustainable operation. We also have flights originating out of Dakar to Washington as well. We have a lot of expansion plan for Dakar, Accra and Nigeria. One this comes to fruition we will let you know.
SAA will like to ease travel in West Africa because it is very difficult to travel within West Africa. We cannot do it on our own because of the location of our hub, but we will do it by partnering with local and regional carriers to be able to achieve that. We have effectively done it in Accra and it is working well for us.
We are not leaving Nigeria behind, we have a lot of plans for Nigeria and we will start implementing the plans for Nigeria soon because it is key. A population of almost 180million people is not a market that you joke around with and we have seen it in operations between Lagos and Johannesburg to our South African and Continental networks because it is a very good and viable market. So, we are not leaving Nigeria out in its entirety.
What is your say on the Single African Air Travel Market (SAATM)?
I think it is good for the continent and don’t forget that the International Air Transport Association (IATA) had predicted a growth in the number of air travellers for the next 10 years and to achieve that it requires a support from a lot of things, including air service, which is an African. It also requires development in terms of infrastructure.
One critical aspect of it is that African aviation is going to require more of partnership and collaboration. The ambition for a national carrier can only be achieved and sustainable when there is a commercial partnership that has investments with different kinds of people that are concerned about rendering excellent service, safety and security.
It is important that we promote intra-African travel significantly and that can only be achieved when more African airlines begin to build capacity to support destinations within the right commercial context.
Part of our turnaround is to be able to strengthen the airline on the continent, come together and make us important to the industry. That’s why we need to talk about partnerships and investments. As things stand today, our main priority is turnaround strategy to ensure we achieve growth and we see single African air travel market as part of that growth plans and we need to be strong enough to take that advantage.
What form of ownership should a national carrier follow?
I support mixed ownership in national carrier set up; significantly, it should be private sector investment. So, you have the two shareholders keeping one and other in check. My belief is that it should be mixed ownership model.
What new strategy is SAA bringing on board to attract more passengers to its operations?
One of our missions is to be a carrier of choice to cities where we operate. A research done has shown that what passengers want from one city to the other is different and that is why we have market segmentation. But, by and large, what do they really want in common? They want safety and security and we have done this for the past 34 years. No one can do these than we have demonstrated. We also have schedule integrity and in the past 20 years that we have operated on this route, there have been several carriers that have operated into Johannesburg and beyond and we all know where they are right now.
In the last 20 years, SAA has been consistent in terms of schedule integrity, flying between these two countries including business and relationships, promoting tourism; we pride ourselves as a catalyst to economic development and a number of South African companies in Nigeria is huge; the number of Nigerian companies doing businesses in South Africa is huge. The number of Nigerians that go for tourism in South Africa is huge. In the last four years, there have been a lot of destinations in Cape Town; we have brought in experience, pleasure and exceptional good customer services into the market.
So, what we have is what the passengers really want. We are extremely competitive, but we are not cheap. If you look at our airfare and charges, they are commensurate with the product we offer on the route, you will know that SAA has placed a lot of values on the customers.
Now, our focus is on customer experience; we are good and exceptional with the kinds of goods that we have in the market. We are much more particular on each passenger that flies on SAA, we want them to have a much more experience with us and will want to come back to us again.
By Olusegun Koiki