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SAA revenue up but losses continue for 2013

A South African Airways Airbus A300.State-owned carrier South African Airways (SAA) improved its financial performance in the 2012/13 financial year, but still reported an operating loss of R991 million.

In its recently released 2012/13 Annual Financial Statements, SAA reported total revenue of R27.1 billion in the year under review against the previous financial year's R23.9 billion, representing a 14% increase in total income attributed to a 7% increase in airfares despite competition from the Middle East region; an 8% increase in revenue passengers; and a 3% increase in available capacity.

The carrier said that new destinations and frequencies launched during 2011 and 2012 are now maturing and making positive contribution to the airline's improving revenue.

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 million 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. Total operating loss for 2012/13 was R991 million, down from the previous year’s R1.252 billion. Loss for the year, after tax, was R1.168 billion.

Some of the challenges the carrier faced were high fuel costs and the weakening rand against the dollar (13% year-on-year). The average fuel price was at levels in excess of $110 which further eroded route profitability, the carrier said. 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 the year under review, SAA embarked on a cost cutting programme ranging from 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 reported that it had 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 said other costs increased as well, with maintenance costs rising by a third (from R1.7 billion to R2.3 billion) and leasing costs rising by 17% (from R1.8 billion to R2.1 billion). Regulatory costs (which include navigation, landing and parking fees) increased by 18% from R1.5 billion in the previous financial year to R1.8 billion in the current year.

Other increases were commissions and network charges (13%), electronic data (11%) and employees (3%). “Operating costs over the past five years have remained well contained compared with the significant increases in fuel and regulatory costs, said SAA Chief Financial Officer, Wolf Meyer.

SAA CEO, Monwabisi Kalawe, said that, “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.”

Part of the turnaround strategy involves replacing the ageing long haul fleet, with plans to buy 20 new aircraft, either Boeing 787s or Airbus A350s.

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