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May 17, 2013

Network changes likely to flow after SAA links up with Etihad

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National carrier South African Airways (SAA) has indicated that the codeshare agreement signed with Etihad Airways, of the United Arab Emirates (UAE), formed part of its yet-to-be-announced long-term turnaround strategy by creating the ‘platform’ for a network re-evaluation that could facilitate its possible near-term exit from some unprofitable Asian routes.

Following the signing of the memorandum of understanding by Etihad president and CEO James Hogan and acting SAA CEO Nico Bezuidenhout in Johannesburg, SAA would be in a position to place its ‘SA’ code on 12 Etihad destinations in the Middle East and Asia, serviced out of Abu Dhabi.

In return, the UAE carrier would place its ‘EY’ code on flights from OR Tambo International Airport to ten other destinations in South Africa, Africa and South America.

Bezuidenhout refused to be drawn on which routes might be terminated. But it had been widely speculated that SAA was keen to extricate itself from flying directly to Beijing, China, while still offering it as a destination through partnership arrangements.

He said the Etihad association could enhance yearly revenues by more than R100-million. However, it should also be viewed as part of a broader thrust to lower SAA’s operating costs and return it to profitability in the coming years.

The embattled airline, which reported a loss of R1.3-billion in 2011/12 and cumulative losses of more than R14-billion over the last number of years, was currently pursuing 38 separate ‘cost-compression projects’ and had reportedly shaved R1.2-billion off its costs in 2012/13 – its results would only be released at its annual general meeting in September.

However, Bezuidenhout indicated that the airline was still about 20% “off the mark”, compared with the operating costs of other airlines, and that part of the remedy lay in the use of partnerships.

There was also potential, in the longer term, for SAA and Etihad to combine their purchasing power in a bid to lower the cost of procuring everything from aircraft and maintenance services through to catering equipment and aircraft components.

Hogan said it was premature to speculate on what the relationship could mean for SAA’s wide-body refleeting plan, but he indicated that the airline had worked with a number of its other partners in sourcing aircraft, engines, components and catering services.

Bezuidenhout said SAA intended to engage with both Airbus and Boeing on its fleet needs, but also indicated that it would “avail” itself of Etihad’s prowess in this area.

Likewise, he saw a myriad of other “value-chain opportunities” arising out of the “scale” offered by the two airlines, which collectively transported 20-million passengers yearly.

For Hogan, the rationale for the tie-up arose from the fact that Africa had emerged as one of the fastest-growing aviation markets globally, with the International Air Transport Association forecasting yearly compound growth of 6.8% in African air-passenger travel between 2013 and 2016. Air cargo, meanwhile, was expected to rise by more than 4% over the same period.

Participation in that growth, Hogan said, was key to sustaining Etihad’s position as one of the fastest-growing airlines internationally.

Edited by: Martin Zhuwakinyu
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