parliamentary update 22 october 2002

Parliamentary UpdateParliamentary Update22 October 200222 October 2002

Parliamentary Update 22 Oct 2002 2

What is SAA today?What is SAA today?What is SAA today?What is SAA today?• SA brand around the world

(flies the flag & flies the country)• Extensive network serving business and tourists

- Europe- Africa- Expansion

• Largest single carrier of tourists• Extensive safe & reliable service• Major employer• SAA’s spend• Foreign currency generator• Good corporate citizen



(flies the flag & flies the country)

• Extensive network serving business and tourists- Europe- Africa- Expansion



Extensive serviceExtensive serviceExtensive serviceExtensive service

International

Regional

Domestic

184

277

1450

56 450

37 390

187 560

Freq/week Seats


• SAA is the biggest carrier of in-bound tourist to South AfricaTotal Intl. Revenue pax in 2001 = 2.3 million*

• SAA provides a unique air service for both in-bound and out-bound passengers covering 600 destinations

*2001 Financial statement

Source: SAA Strategy & Planning

SAA contributes value to the SAA contributes value to the South African economySouth African economy

SAA contributes value to the SAA contributes value to the South African economySouth African economy


SAA provides employment to many people SAA provides employment to many people in South Africain South Africa

SAA provides employment to many people SAA provides employment to many people in South Africain South Africa

•Direct employment 10,000

employeesSalary bill ZAR 2

billion

•Indirect employment 50,000


•Uniforms•Direct servicing SAA•ACSA•Air Chefs•Apron services•Transnet

-IA-Treasury-Transtel

•Auditors•ATNS•Aircraft cleaning•Security


SAA generates economic activities for SAA generates economic activities for business in South Africabusiness in South Africa

SAA generates economic activities for SAA generates economic activities for business in South Africabusiness in South Africa

• Apron services

• Air Chefs

• Shell, BP and Engen

• Municipalities

• Transtel

*Based on 2001 Financial Stetement


Spend on these entities amounts to Spend on these entities amounts to ZAR 2.5 billion*ZAR 2.5 billion*

• ACSA (Airports Company South Africa)

• Cleaning Services

• LGM


SAA Supports Business & Sport/ SAA Supports Business & Sport/ Cultural EventsCultural Events

SAA Supports Business & Sport/ SAA Supports Business & Sport/ Cultural EventsCultural Events

• Sponsorship - (North Sea Jazz Festival, Cape Argus,

Two Oceans, SA Woman of the Year, SAA Open etc.)

R150m

• Tourism- Destination marketing

R130m

• Cadet Pilots (since inception) R100m

• Lounges R60m

Source: SAA Communications


• SAA generates foreign currency earnings which are US$ based

Pax ZAR 4.7 billion (R8-$1)

Technical ZAR 390 million (R8-$1)

Repatriated US$ 70 million

*2001 Financial statement

**Sales statistics


Foreign currency earningsForeign currency earningsForeign currency earningsForeign currency earnings

SAA's value to SA Economy 16

• SAA is a good corporate citizen

- Children’s promise fund ZAR 2 million

- Goodwill in lieu of tickets ZAR 5 million

- Love Life ZAR 2.5 million


SAA is a good corporate citizenSAA is a good corporate citizenSAA is a good corporate citizenSAA is a good corporate citizen


• Turnover increased by 26.1%

• Operating cost (excl. leases) increased by 16.3%

• Lease charges increased by 74.6% from R777M to R1,4B

• Taxation charge of R218M

• Headline earnings improves from a loss of R998M to a profit of R553M (excl. AC133)

• Bank balances and cash increased from R2.0B to R3.9B

• Cashflow from operations increased from R389M to R1.9B

Financial HighlightsFinancial Highlights


Challenges facing Domestic and

International Tourism and the

impact of Public Transportation


Underlying crisis predates

11th September


• Over-capacity in many markets, especially long-haul

• Falling yields due to over capacity and low-cost airlines

• Escalation in fuel prices

• Rising labour costs

• Slow down in key economies - Japan, USA and Germany

Causes of deepening crisis Causes of deepening crisis 2000 to September 20012000 to September 2001

Causes of deepening crisis Causes of deepening crisis 2000 to September 20012000 to September 2001


• Demand collapses further

• Insurance and security costs shoot up by 600%

• ATC charges rising

• Changing fuel prices

Short-term aftermath of 11th September

Short-term aftermath of 11th September

Source: SAA Insurance & Risk Management

SAA's value to SA Economy 22

Transformation ChallengesTransformation Challenges

Management:- Black15%- White 85%

Technicians:- Black35%- White 65%

Cabin Crew:- Black64%- White 36%

Pilots:- Black 3%- White 97%

Total Employees:- Black 51% (5186)- White 49% (4884)

Percentage Breakdown:

SAA Update Durban Indaba 14 May 23

SAA’s future core networkSAA’s future core networkCurrent frequencies/

seats per weekFuture frequencies/

seats per weekFreq. Seats Total Freq. Seats Total

ATL 4 350 1,400 ATL 7 350 2,450 CPT-ATL 3 350 1,050 JFK 7 350 2,450 JFK 4 350 1,400 LHR 7 350 2,450 LHR 13 320 4,160 LHR 6 280 1,680 CPT-LHR 7 320 2,240 CPT-LHR 7 340 2,380 ZRH/CDG 7 330 2,310 ZRH 7 240 1,680 FRA 7 355 2,485 CDG 3 240 720 BKK 3 270 810 FRA 7 350 2,450 HKG 4 290 1,160 HKG 7 340 2,380 PER 4 290 1,160 PER 5 240 1,200 GRU 3 290 870 GRU 5 240 1,200 BOM 4 178 712 BOM 3 240 720 growth

19,757 21,760 10.1%

SAA Results and Strategy 23 July 2002 24*Option*Option

A/C Type Number Lease Purchase Delivery

Fleet Renewal StrategyFleet Renewal Strategy

A340-600 3 - 1Q2003

A340-600 3 1 2 4Q2003

A340-600 1 - 3Q2003

A340-600 2 * - 2005

A340-300e 2 - 1Q2004

A340-300e 3 - 1Q2005

A319-100 11 - 2005/6

A320-200 15 2010/11/1241

A340-300e 1 - 2Q2004


Transportation Policy on AviationTransportation Policy on Aviation

• Niche Player vs A Global Network Carrier- Niche Player

Provide domestic service within a particular country May focus on a particular region within a country i.e

Emirates, Malaysian Airlines & Singapore Airlines

- To be successful Strong market Good alliances that protect the niche player Support from the regulators High entry barriers


Transportation Policy on Aviation (cont.)Transportation Policy on Aviation (cont.)

• A Global Player- Provides world-wide network of routes and

destinations i.e. BA, Delta and Lufthansa

• Key Success factors- Link its own route wide network to a handful of

Alliance Partners

- Support from the regulatory

- Focus on hub and spoke strategy

Source: The Airline business in the 21Source: The Airline business in the 21stst century; SAA Strategy & Planning century; SAA Strategy & Planning


Challenges for the Airline IndustryChallenges for the Airline Industry

• South Africa is a challenging +/-10 hours away from its key tourist markets- Coming here for a holiday is a big decision

• How to provide competitive price in the key markets as provided by South African Tourism

• As passenger numbers fall, yields and revenue are also under pressure

• Linking our efforts together- Transportation Entities- Service providers, Hotels, Government, Restaurants etc- Local Authorities- Regulatory framework

• Growing the number of value added skills in this sector


Challenges for the Airline IndustryChallenges for the Airline Industry

• Currency problems- Pricing

Hedging 9.5 million barrels / 1.5 billion litres per annum

Cost US$10 million

- Currency hedging programsLeasesLoansFuel

12% of cost p.a.

Source: SAA TreasurySource: SAA Treasury


42

64

192

94

10 14

122

12

48

23

84

111103

0

50

100

150

USA UK WesternEurope

Asia Australia SouthAmerica

Africa

Available Currently Used

Access To South AfricaAvailable Flight Frequencies From International Markets

are not Currently Fully Utilised

Access To South AfricaAvailable Flight Frequencies From International Markets

are not Currently Fully UtilisedN

um

be

r of

flig

hts

Fre

que

ncie

s pe

r W

eek


ConclusionConclusion

• Key Success Factors- Stable currency

- Support from all sectors of government

- Service providers to push the Transformation agenda

- Coherrent policy on the future of the Aviation Industry in South Africa

Thank You

parliamentary update 22 october 2002

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