State-owned airline South African Airways (SAA) increased its profit to R782-million in the 2010/11 financial year, from R442-million in the previous year, despite a challenging and difficult environment for airlines, CEO Siza Mzimela said on Thursday.

Group operating profit increased by 66% to R807-million, and turnover, which largely comprises passenger revenue, climbed to R18-billion from R16.9-billion.

Capital and reserves were brought up to R1.64-billion from last year’s restated R992-million and R618-million in cash was generated. Net retained earnings of R681-million exceeded the target of R201-million.

SAA said it achieved these results despite the fact that the market was still recovering from the effects of the global financial crisis, as well as the fluctuating Brent crude price.

A 25% increase in the oil price contributed to the airline’s higher energy costs, which rose to R6-billion for the period under review. However, operating costs rose by only 5% to R21.8-billion, despite the significantly higher fuel costs.

“Despite the great success of the 2010 FIFA World Cup, the expectations for the year did not translate into the increased passenger demand expected,” Mzimela said.

Passenger revenue growth increased by 8% to R15.8-billion, with the airline’s total income at R22.8-billion, up 3% from the previous financial year.

SAA has also taken delivery of five of its six new Airbus A330-200s, which it is leasing from Aircastle of Ireland.

Mzimela said that SAA would be working on securing its own financing for its fleet programme, without government support.

The delivery of the A330-200 aircraft forms a significant part of SAA’s route expansion plans. 

The expansion plans also translates into a new route to Beijing expected to be operational from November 15.

Mzimela said she hoped that at some point it would turn into a daily route and address the demand from Southern Africa.

The CEO also said that Southern Africa remained a strong area for the airline, which is focused on increasing its footprint on the African continent.

In line with this, SAA will be introducing new routes into the continent, including to Kigali, in Rwanda, Abuja, in Nigeria and Bujumbura, in Burundi.

Public Enterprises Minister Malusi Gigaba said it was key for government to ensure that SAA received the necessary support to pursue bilateral cooperation in the aviation sector by engaging with African countries to “open their skies to all South African airlines”.

“The airline has increased its network and there has been a concerted effort to increase its African footprint.

“Entry into Africa by South Africa carriers continues to be a challenge and yet it is vital in order to advance regional integration, as well as South Africa’s political and economic agenda,” he said.

Gigaba also said it was critical for SAA to sustain its positive performance and strive to advance the State’s policy objectives, as outlined in the tourism growth strategy and the New Growth Path (NGP).

Mzimela added that SAA, as a State-owned enterprise, had an obligation to support the NGP. “Our new growth strategy strongly positions the group to more strongly support State policy initiatives.”

Chairperson Cheryl Carolus added that SAA’s financial position and the state of the business continue to show significant improvement, and that the financial performance was an encouraging response to the strategic objective to become a fully sustainable business over the next three years, and positioning SAA to compete successfully in the global aviation market in ten years.

“This effectively positions the SAA group for growth, enabling us to fulfill our strategic role within the continent,” she added.

However, the outlook for the aviation industry, as with other industries in the global arena, pointed to more difficult operating conditions. “It remains concerning to note the economic growth rate in the markets we operate in, and the early warning signs of a possible double-dip recession would impact business,” Mzimela said.
 

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