Julius Baumann
16 July 2008
Johannesburg — STATE-owned airline South African Airways (SAA) is expected to post a loss for the year to March when it releases results today, largely due to a once-off R1,5 billion restructuring cost.
Just how big a loss the airline will post depends on how well it coped with surging fuel costs in the first quarter.
The airline said in May the effect of raging oil prices this year - which then made up more than 30% of operating costs - would be close to R1 billion.
CEO Khaya Ngqula was optimistic that if the restructuring cost was excluded, and high fuel prices aside, SAA would be profitable. In the six months to September last year, SAA reported a R136 million net profit before tax and restructuring charges.
Chief financial officer Kaushik Patel said then that SAA offset some of the costs rise through fuel levies, and fuel hedging helped.
Grounding its fleet of six fuel-thirsty Boeing 747-400s in November as part of its restructuring will have helped curb expenses, with an expected saving of R600 million over an 18-month period. But oil's ascent has not stopped. The question is: did SAA do enough for a return to profit in the year ahead?
Ngqula said in May the airline had forecast an average oil price of $65-$65 for next year, giving SAA a margin of about 7,5%. But with prices of $100- $120 a barrel in the first quarter, he expected margins to be squeezed to about 3%. Three months on, the picture is even bleaker, with oil in the mid-$140s in the past few days and margins under severe strain.
Patel said the airline would keep growing its hedge book against the oil price and the dollar-rand exchange rate.
The airline is also likely to give an update on plans to renew its fleet. In the next couple of years SAA's leases on its 737-800s on the domestic market come to an end. It will also need a replacement for its grounded fleet of long-haul Boeings 747s.
The flag carrier needs extra capacity for its plans to extend its network into Africa and beyond. With the painful cost-cutting behind it, SAA has entered a new growth phase. In October, SAA will launch a flight to Maun, and it recently added more flights to German cities Frankfurt and Munich.
In the past financial year SAA had to deal with dramatically reduced capacity with the grounding of the 747s and scrapping the Johannesburg-Paris-Zurich route. SAA plans to lease six more aircraft this financial year and open a supply competition to Airbus and Boeing for the acquisition of new aircraft over the next 12 years.
Another point of interest will be how much detail SAA gives on Mango.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
