Beleaguered national carrier South African Airways (SAA) made an R883-million loss in the 2006/7 financial year, compared with a profit of R65-million a year earlier, as its operating costs increased sharply.
CFO Gareth Griffiths said on Friday that the rate at which the airline was making losses had slowed down “dramatically” between the first and the second half of the year, but reiterated that it was evident from the results that the airline was in need of an overhaul.
In the first half of the 2006/7 financial year, SAA posted a loss of R650-million, while the loss incurred in the second half was just over R200-million.
The company blamed higher oil prices, a weaker rand/dollar exchange rate and higher aircraft leases for the steep increase in operating costs, which escalated by more than 13% to R21,3-billion. Revenue for the period only increased by 8,7% to R20,6-billion.
The aircraft lease cost, which surged by more than 32%, to R2,5-million, was as a result of the sale-and-leaseback of two A340-600 aircraft as well as the introduction of the MD11 cargo aircraft.
Without the aircraft lease cost, the year-on-year increase in operating cost would have been 9%, Griffiths said.
He added that the company’s fuel bill had risen dramatically from R4,9-billion to R5,7-billion, as the oil prices remained high. Energy costs now consistently made up more than 25% of the airline’s total operating costs.
Other costs that climbed steeply included accommodation and refreshments for travelling staff, mainly cabin and cockpit crew on international travels, materials which related mainly to aircraft maintenance, navigation, landing and parking fees as well as higher distribution costs, such as sales commissions.
The overall increase in operating costs also led to SAA’s earnings before interest and taxation (Ebit) margin weakening to 3,1%, and Griffiths said that the airline was hoping to improve the Ebit margin to 7,9% over the next two years.
Most international airlines’ Ebit margin was between 7,5% and 8%.
CEO Khaya Ngqula said that global airline profitability was improving, but that SAA was lagging its peers, reinforcing the case for a restructuring process.
The global airline industry's net losses for 2006 was $0,5-million, which was a considerable improvement from estimated losses of $6-billion, in 2005.
The global airline industry was cutting costs to sustain profitability and he added that restructuring was common, with several companies entering their second restructuring exercise.
SAA planned to reduce its headcount, renegotiate working conditions with employees, ground some aircraft, cut unprofitable routes and restructure the business into seven units in a bid to turnaround the business to profit over the next 12 to 18 months.