SA Express bucks global trend: paper

South African Express, the regional state-owned regional airline is expected to post an improved profit for the six months to March this year, in stark contrast to its rivals, including South African Airways (SAA) which is expected to post its third full-year loss in the next few months.
Other domestic airlines have also struggled in the past year with Comair and 1Time recently reporting lower earnings, Business Day newspaper reports.
In the year to September SA Express (SAX) posted a net profit of R201 million — boosted by a 14.3% rise in turnover. This stands in contrast to a warning by the International Airlines Association (IATA) last month that the global airlines industry is “in intensive care” and that African airlines will lose at least US$600 million this year – six times more than last year – as a result in the fall-off in business travel, tourism and air freight as a result of the global recession.
Business Day notes SAX increased its operating profit margin from a healthy 19% in the last financial year to “an extremely well-padded” 25%.
“Improving that result in this economic climate is no mean feat and it is therefore not surprising that CEO Siza Mzimela, an airline veteran who held various senior positions at SAA before moving to SA Express in 2003, has been mooted as a possible replacement for former SAA CEO Khaya Ngqula,” the paper adds.
Mzimela says that while the airline faced the same challenges as the rest of the industry — slowing passenger demand and volatile fuel prices — the key to its success was the pursuit of profit ahead of market share.
“We are a feeder airline and therefore that is what we focus on. There is no point in us competing on major routes such as Johannesburg-Durban. We concentrate on secondary routes and leave major routes to the bigger carriers.
“Any route we fly needs to be profitable and you will see that we employ a large team of analysts to ensure that any new destination will work for us, with a focus on yield management and scheduling,” says Mzimela.
A fairly young, fuel-efficient fleet has also aided the airline. In the past two years it acquired two new Bombardier Q400 turboprops and leased two CRJ 700 regional jets to its existing feet of CRJ200s and Q300s.
The airline plans to expand regionally and is pursuing an agreement with an airline in the Democratic Republic of Congo to operate secondary routes in that country.
Mzimela believes that there is place for two state-owned airlines. Both SAA and SA Express now fall under the Department of Public Enterprises. “SAA remains the mainline airline and SA Express the feeder airline.”
However, she admits that in reality the lines are sometimes blurred. Gaborone is just such an example, with both carriers now serving the route, the paper adds.
Mzimela believes SA Express is better placed to serve the smaller routes. “Some airlines look at a destination such as Bloemfontein and see us doing well. They will see an overall market of say 100 passengers. But that does not mean that those 100 passengers all want to fly at 6am.
“Some want to fly mid- morning and others at 3pm. Our use of small aircraft and careful scheduling allows us to cater for those demands profitably, which airlines using larger aircraft cannot,” says Mzimela.
While Mzimela is in a position to be smug, she has some sympathy for her rivals, particularly SAA. “We were in the same position a few years back and it was a hard slog to get where we are now.”
Business Day last month reported local airline companies said they were unlikely to take the sort of drastic measures some global carriers have implemented to survive the severe downturn in business.
Executives at SAA, Comair, and an industry body representing travel agents told the paper while passenger numbers had fallen; it was too early to sound the alarm.
Some carriers in Europe, Asia and the US have cut operating costs to the bone, mothballed aircraft and dropped unprofitable routes in addition to putting workers on unpaid leave or retrenching them altogether.
Comair joint CEO Gidon Novick said while times were tough, the airline was working to retain market share, cut costs and win customers, particularly the corporate market, which provides the bread and butter of the passenger business.
“We are now looking at being creative and we have to be very aggressive to protect (rather) than merely grow market share,” Novick said.
SAA shrugged off the predicament of some airlines and said it was prepared for the downturn because it was benefiting from a restructuring exercise started well before the aviation industry hit turbulent times.
“The most significant challenge is to ensure that costs remain sustainably under control in the current tough environment and that we continue to root out cost inefficiencies as we have done during the restructuring,” spokeswoman Robyn Chalmers said.
SAA was cutting unprofitable routes while aggressively looking for opportunities to grow, particularly on selected African routes.
“More importantly, we need to ensure that we take advantage of new opportunities and move quickly into new markets and routes that can be sustained from a profit point of view,” Chalmers said.
Novick said Comair was encouraged by business out of Lanseria airport, which was experiencing an increase in passenger volumes as people moved away from OR Tambo International Airport.
“The big variable now is the demand side apart from the pressures of running an airline like fuel, which adds to the cost pressures,” he said.
Comair was working with corporate clients to help them save money by, for example, suggesting that they fly during off-peak periods. It had been also upgrading its fleet to use more fuel efficient aircraft, he said.
Low-cost airliner 1time, while hoping for improved business in the period to June this year, said last year was probably the worst trading period for the aviation industry.
CEO Glenn Orsmond said domestic passenger departures fell 6% from 13.1-million passengers in 2007 go 12.3-million last year — the first such contraction after an average 15% annual increase for the previous five years.
The CEO of the Association of Travel Agents, Robyn Christie, said statistics from members showed there had been a dramatic fall in airline seats booked, and the corporate sector had been particularly aggressive in cutting back.
“We have people who used to travel first or business class now flying economy, and some airlines cutting routes,” she said.
Chalmers also said tough times had changed travelling habits. “Corporate and leisure travellers are certainly becoming more savvy with their travel spend … looking for the best price when travelling.”
Novick said more drastic measures might have to be taken if market conditions deteriorated further, although there were no indications that this would happen in SA.