South African Airways Africa Strategy

African Renaissance Conference 2011

South African Airways Africa Strategy

Aaron Munetsi

SAA’s operations in Africa

SAA has an expansive route network on the continent …

• 18 international routes into Africa

• 15 African states served from South Africa

• 1.57 m passengers flown from/to African states in 2010-11

• Most modern fleet on the continent

• Highest On Time Performance in Africa

Africa Strategy Context

More than half the world’s aviation capacity is now operating in open markets, with Africa still liberalising slowly. African states are reluctant to implement open skies with South Africa, however they enter into open skies type agreements with other African states (if their own airlines will not be affected) and non-African states, such as the UAE.

African aviation markets are only slowly liberalising relative to global markets

US-EU

AUS-NZ

ASEAN (2012)

EU


Almost all airline equity consolidation has occurred in single markets and African airlines face competitors of much larger scale than five years ago.

Airline market consolidation is accelerating after the Global Financial Crisis

Delta-Northwest

Republic-Frontier-Mid West

United-Continental

America West-US Airways

TACA-Avianca

LAN-TAM

Lufthansa/Swiss-BMI-Austrian-Brussels

BA-IberiaAir France-KLM

Vueling-Click Air

These are the major airline mergers/takeovers in recent years


End of hemisphere airlines, like SAA and Air New Zealand, are at a distinct disadvantage. Mid-hemisphere capacity growth into Africa is being primarily driven from the EU single-market or gulf nation states, such as UAE and Qatar.

Concentration of market power then interracts with mid-hemiphere advantage

End of Hemisphere

Mid-hemisphere

End of Hemisphere

Mid-hemisphere airlines, such as Emirates, enjoy advantages of geography (they can operate to any major market non-stop), technology (longer range aircraft are being developed) and capital availability (to purchase more aircraft.

Strategic Threats to SAA

Uneven market liberalisation (particularly between Africa and non-African open markets) and mid-hemisphere advantage combine to create strategic threats

1. Emirates2. Kenya Airways

Higher hemisphere position than SAA State owned-private shareholder model makes them commercially

nimble Their growth has affected SAA’s scale relativity.

4. Air France/KLM (due to their scale and 25% equity in Kenya Airways).5. US airlines, primarily Delta.6. Qatar Airways and Etihad.

The first two strategic threats are summarised in the following slides


Case Study 1: Emirate’s five year African gowth

July 2006

Passenger operations network & monthly capacity

Emirates: 13 destinations / 55,310 seats

Other activities

Emirates SkyCargo: 3 scheduled destinations

Destinations: 13Seats: 55,310


Case Study 1: Emirate’s five year African gowth

July 2011

Passenger operations network & monthly capacity 82.3 % increase over 2006

Emirates: 16 destinations / 89,504 seatsFlydubai: 6 destinations / 11,340 seats

Other activities

Emirates SkyCargo: 6 destinationsDNATA: Travelocity (online travel agency) & hotels

Again, an overwhelming focus on North, West & East Africa.

Destinations: 22Seats: 100,844


Case Study 2: SAA’s loss of scale relativity to Kenya Airways

SAA lost scale relativity to Kenya Airways, which unless addressed could make SAA less competitive reducing the need to travel via Johannesburg and provide greater access to competing tourism markets.

From 2008-10 capacity (monthly seats) changes were:

SAA - 8.6% Kenya Airways +10.66%

As Kenya airways grew routes from its home market. SAA retired its B747-400 fleet (this capacity has not been replaced) and started few routes.

The timing of this loss of scale relativity is also concerning, as it was during the period of the Global Financial Crisis and subsequent slow recovery.

SAA’s strategic response

Informed by the Strategic Context/threats and fundamental lessons from successful airlines

Key strategies to grow on the continent: New route development from SA “home” hubs Replicating brands and operating hubs into new

African markets. Strong leverage of Star Alliance membership and

code-share relationships to increase capacity, which minimises capital expenditure on new aircraft.

Market entry using non-airline subsidiaries, such as SAA Technical and Air Chefs.

Very strong support from South African DOT for additional traffic rights for SAA


1. New route development from Johannesburg hub

New SAA routes announced in July 2011

(Libreville) Cotonou Kigali-Bujumbura Ndola

+ additional capacity increases on some existing routes has already occured

Mango regional operations

International license application in progress


2. Viable new routes from SA “home” hubs (with traffic rights challenges)

SAA has growth plans for some existing routes and would like to operate other new routes from Johannesburg

Angola - increased frequency to Luanda Benin - extend Libreville service to Cotonou DRC - increased frequency to Kinshasa Malawi - increased frequencies to Lilongwe & Blantyre Mozambique - increased frequency to Maputo Rwanda/Burundi - two new destinations Zambia - increased frequency to Lusaka

SAA’s Strategic Response

Stronger leverage of Star Alliance membership and code-share relationships

1. Investigate closer alliance links with mid-hemisphere consolidated airline groupings

2. Renegotiation and stronger performance management of existing code-shares

3. Establish new code-share agreements

This allows capacity increases without capital expenditure and improves SAA’s position to participate in the next alliance development phase.


SAA needs to address its end of hemisphere disadvantage

African brand/hub replication ECOWAS, CEMAC and EAC member state analysis The SAA Group has a range of businesses that could be

used to enter new markets, e.g. SAA, Mango, SAA Cargo, SAA Technical and Air Chefs

Many African markets are under-served for aviation services, including:

• Passenger and cargo services;• aircraft MRO; and• In-flight catering.

Sound local partners, with capital, is critical to success LAN, Air Asia and Ethiopian Airlines (Asky) are good

models

Africa Strategy

Thank you

South African Airways Africa Strategy

Documents

Transcript of South African Airways Africa Strategy