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From SAA and beyond. Where to next for travel?

14 July 2020 PSG

In a webinar held today as part of PSG’s Think Big webinar series, Guy Leitch, Editor of SA Flyer magazine and aviation expert, discussed where SAA is going, what needs to change and where to next for business travellers in light of Covid-19.

Despite there being no shortage of interventions to save SAA, creditors are getting restless and many jobs are at risk. “The air connectivity provided by SAA is essential for the South African economy in that it enables tourism and the transport of goods and services for economic enterprise. Let’s consider if there was no SAA anymore,” said Leitch. “The other airlines won’t be in a hurry to enter the South African market due to Covid-19, so this will leave a gap in air travel services for South Africa.” This doesn’t only impact people coming in but affects cargo too (80% of cargo by value is transported by air).

Profitability is possible

Leitch feels that SAA could be profitable again, given the right changes.

The airline is bogged down with issues of poor management and corrupt procurement, and it could do with amending some of its unprofitable flight routes. “They cannot make money east of Dubai because they can’t compete with the super connectors like Emirates or Qatar Airlines, so they should cancel all of those routes, perhaps with the exception of Perth.”

Legacy problems with unsavoury suppliers need to be addressed too. “One example was that the airline was paying R17.50 for every bottle of water that gets handed out, but that should have cost R2,” Leitch remarked, as there are also many small but effective ways the airline could improve how it operates.

Comparing SAA to the success of Ethiopian Airlines isn’t a fair comparison, he said. Ethiopia’s geographical advantage as a natural hub aside, the airline has ‘whole of state’ support, down to making tourism visas easily available if that could improve business. Leitch said South Africa went the other way; embracing air route liberalisation, and this makes for paper-thin margins but is great for air travel affordability and thus tourism. “Twenty years ago, SAA accounted for two thirds of South Africa’s airline traffic, but now it makes up only about 12% of it.”

A private sector partnership could be the ticket to saving SAA. Failing to produce a viable business rescue plan, however, will mean nothing will change.

Going forward

Leitch said demand for flights for permitted business travel since lockdown has not helped the industry much as demand is less than 3% of where it would ordinarily be. “I think this has been a big disappointment for airline carriers. Even if they consolidate ten flights into one, 25% to 30% capacity loads are not going to make any money.”

However, he argued that SAA needs to remain operational to enable it to restart for the return to the post-Covid “new normal”.

Leitch argued that the health risks of travelling on an airliner are largely subjective, and now that people have become used to using video conferencing technology, some business travellers may opt to continue having online ‘webinar’ meetings instead of spending the time and money to have face to face meetings.

“The way business has moved into digital communication during lockdown is likely to shape the business travel market dramatically,” Leitch says. The days of the big travel hubs may well be over too. “Point to point travel is set to re-emerge as the preferred way of getting around,” Leitch said. “People aren’t going to want to transit through busy hubs like Dubai. They will want to get to their destination and straight back again.”

When will Leitch personally start flying in an airliner again? He says he plans to fly in November this year to the AGM of the International Air Transport Association (IATA) in Amsterdam. “It’s 50/50 as to whether it will happen, but they are saying we should come to the meeting. I’m happy to do so, unless we see a significant spike in infections,” he said.

One thing is for sure

“The only certainty we have in times like these, is the uncertainty of Covid-19 and this plays a big role,” added Bertus Visser, Chief Executive of Distribution at PSG Insure, who hosted the discussion. “One can hope to find the right balance to bring the airline industry back to where it needs to be.” Time will only tell how things will land, and it will very much depend on how Covid-19 travels too.

 

Quick Polls

QUESTION

The intention with lockdown was to delay or flatten the Covid-19 infection curve and give both the private and public healthcare sectors time to prepare for the inevitable onslaught. Did the strategy work?

ANSWER

No, the true numbers are not reflected. Almost a quarter of South Africans may already have been infected with Covid-19
It’s too soon to tell. We will likely get a second wave with stringent lockdown regulations in place again
Yes, South Africa bought enough time to make a significant difference. We saved lives and have passed our peak. The worst is over
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