saa overview

SAA Overview

Presentation to Public Enterprises Portfolio Committee

SAA CEO and President; Dr Khaya Ngqula

22 June 2005

2

SAA Overview

Bringing the world to Africa, and taking Africa to the world

Agenda

• SAA Business Overview

• The Bambanani Turnaround Programme

• SAA Restructuring

• Exit Plan from Transnet

• Star Alliance

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SAA Overview


Agenda

• SAA Business Overview




• Star Alliance

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SAA Overview


SAA Business Overview (1/4)

• Declining yields with the emergence of LCC in Domestic market and strong

competition in some European routes

• Drop in market share especially in domestic market

• Negative Return on Invested capital

• Impact of fuel prices and exchange rates in our international markets

• SAA overall has demonstrated poor operating and financial performance in

the past three years

•The findings by external consultants also indicated that our headcount per

flight is not in line with that of other airlines.

To continue surviving as an airline we had to do something different

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SAA Overview


SAA Business Overview(2/4)

2,150

-4, 035

-12,719 -13,003

FY01/02 FY02/03 FY03/04 FY04/05 EST

Cumulative Net Profit Before Tax for the last three yearsNPT ( Rm )

0

2,000

-2,000

-4,000

4,000

-6,000

-8,000

-10,000

-12,000

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SAA Overview


SAA Business Overview(3/4)

349

-870

-6,066

FY2002 FY2003 FY2004 1H FY2005

Operating Profit for the last five yearsProfit ( Rm )

-2,000

0

-4,000

1,500

-6,000

-8,000

-10,000

FY2001

500

1,000

365

-8,087

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SAA Overview


SAA has therefore launched the Bambanani programme, to improve

operating and financial performance, and take advantage of market

growth, and this include the;

– Profit Improvement Programme – focused on unit cost reduction

– Sales & Marketing plan – aiming to boost share of premium customers

– Customer Service Delivery programme – provide consistent, high quality

service throughout the travel experience

– Profit focus on all decisions – all strategic decisions based on their impact

on contributions (as opposed to market share or revenues alone)

SAA Business Overview (4/4)

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SAA Overview


Agenda

• SAA Overview




• Star Alliance

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SAA Overview


PatronagePatronage

ProfitProfitPeoplePeople

SAA’s TurnaroundSAA’s TurnaroundStrategyStrategy

SAA’s turnaround strategy focuses on the three pillars, which refer to our key stakeholders ( People, Customers, and Shareholders )

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SAA Overview


The Bambanani Turnaround Programme

• Launched customer service programme for

11000 employees worldwide

• Risk Management established

Internal audit

Compliance

Financial Risk

Business Risk

People

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SAA Overview



• Re-aligning positions to eliminate

duplication throughout the airline.

• Appointed a new Leadership team that will

help drive the turnaround strategy.

People

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SAA Overview


• Looking into our product to ensure

consistency in all markets.

• MOU signed with JET Airways and India for

seamless travel experience.

The Bambananani Turnaround Programme

Patronage

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SAA Overview


• Reviewing service standards at all touch

points in line with that of leading airlines.

• The process to join STAR is on track to give

our customers exposure to Star Alliance

Frequent Flyer Programmes.

The Bambananani Turnaround Programme

Patronage

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SAA Overview



• Cost diagnostics with Mckinsey

• Launched New Routes all effective July05

o Washington DC

o Livingstone

o Zanzibar

Profit

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SAA Overview



• Move existing international routes to dailies

o Zurich/Paris/Sao Paulo/Mumbai

o CPT – FRA

• Application for additional frequencies

Accra, Lagos, Luanda

• Feasibility study on China route

• Reestablishment of JHB Bangkok route in

October05

Profit

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SAA Overview


Agenda

• SAA Overview




• Star Alliance

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SAA Overview


Problems with old organization

– Too many direct reports to the CEO

– Unclear roles & responsibilities among management team and unclear accountabilities (e.g., fleet planning)

– Inefficient structure, e.g., duplication of tasks across organization

– Limited focus on core airline business operations

– No integrated management of investments and subsidiaries

– No alignment of structure along strategy and no link with performance management

– From 10 to 7 direct reports to CEO

– Clearly defined and delineated roles and responsibilities among ExCo

– Organization significantly streamlined based on benchmarking

– Dedicated COO to bundle and focus on core airline operations

– Management of subsidiaries integrated into core business (e.g., technical)

– KPI-based performance contracts designed and tied to strategic objectives of SAA

Problems with old organization Improvements in new organization

Improvements in the new organization

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SAA Overview


SAA Structure Prior to Restructuring

CompanySecretary

CEO

Board

EVP Human Resources and Transformation

EVP Operations and Customer

ServiceEVP Subsidiaries EVP Commercial EVP and CFO EVP SAA Technical

VP:HumanResource

VP : Legal

VP : Treasury

VP : Finance

VP : Fleet

CIO

VP: Cargo

VP:Marketing

VP Alliance, Network & Revenue Management

VP:Global Sales

VP: Operations

VP: CustomerService

VP:Global PaxServices & OCC

VP:Subsidiaries

NB : CSSE - Corporate Safety, Security and Environment

VP: Western Cape Business Dev

VP : CSSE VP : Comms &Gov Liaison

Deputy CEO

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SAA Overview


New Management Structure (1/7 )

CEO Level Structure

Board

CEO

CFO CROGeneral Counsel

GMCommunication/

Customer Service

GMBusiness

Development

GMHuman

Resources

CompanySecretary

COO

Changes made in the old structure

This structure focuses on effective Governance

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SAA Overview


COO Level Structure

Head Network,Planning

Distribution

GeneralSales

Manager

HeadMarketing

HeadPassengerServices

HeadTechnical Operation

GMCargo

COO

CIO

Head Safety,Security

Environment


This structure focuses on efficient operations

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SAA Overview


•Our new structure is built upon our guiding principles of Profit, Patronage and People, as

–We have created full transparency on roles and responsibilities

–We have established clear accountabilities and avoiding duplication of activities/responsibilities

–We endeavour to achieve higher efficiency, effectiveness and quality in our work through realigning our functions to our strategy


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SAA Overview


•Both our customers and people will benefit from the new organization, as

–We have consolidated all customer service functions in a dedicated unit to provide consistent excellence in service delivery

–We have broken-down functional silos and re-enforce cross-functional processes with clear interfaces and governance bodies to establish process stability for our people


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SAA Overview


•Excellent performance to drive SAA-growth will be measured and rewarded, as

–We are developing our new performance management contracts around Key Performance Indicators, which are linked to driving Profits, Patronage and People initiatives

–We will be rewarding our staff for excellence in performance and establish a fact-based system of measuring performance

New Management Structure (5/7)

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SAA Overview


•To increase efficiency and effectiveness we

streamline our management levels, as

–We have reduced management levels from 7 to 3 to

simplify the organization

–Get employees close to management and get

management closer to customers

–We are basing the recognition of individuals more on

their roles and responsibilities rather than on their titles


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SAA Overview


In reinforcing our workforce and realigning our management, we applied the following principles;

• A Focus on People

• A Focus on strengthening Risk Management

• An Aggressive Focus on Customer Service

throughout the organisation

• A culture of excellence with profit and cost control


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SAA Overview


As part of the Restructuring process, SAA had to introduce Severance Packages ( VSP’s ) for management staff

9

22

36

0

5

10

15

20

25

30

35

40

ExecutiveManagement

SeniorManagement

JuniorManagement

Total Approved : 67

Total Cost : R42 m

Approved Severance Packages for Management

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SAA Overview


Agenda

• SAA Overview




• Star Alliance

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SAA Overview


Progress to date

• Positive competition advisory opinion obtained

• Draft SAA Bill drafted

• Legal and tax due diligence completed

• Pension fund related obligations largely quantified (subject to

finalisation by fund actuaries)

• Financial modeling and preliminary reports of impact of transfer

on SAA and Transnet have been completed

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SAA Overview


Next steps

Transnet/SAA/Public EnterprisesNegotiations in relation to:what is to be transferred consideration payable

SAA/Transnet/Public Enterprises/National Treasury

Consideration of due diligence reports, business case and financial models and implications for proposed transaction

Deutsche Bank Finalise the financial evaluation reports on Transnet and SAA

Public EnterprisesComplete business case analysis for SAA as stand alone SOE

Responsibility Action items

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SAA Overview


Next steps continued

Public EnterprisesCommence legislative process (targeting August 2005)

Transnet/SAA/SHG/DBEngage with Transnet and SAA lenders required consents/waivers

SHG/Public Enterprises/National Treasury

Draft PFMA Amendment

SHG/Public EnterprisesFinalise SAA Bill and supporting documentation

Responsibility Action items

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SAA Overview


Agenda

• SAA Overview




• Star Alliance

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SAA Overview


SAA Current Network

Sao Paulo

New York

Atlanta

Hong KongBombay

PerthMauritius

Washington DC

Europe : 5 Destinations

Africa : 19 Destinations

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SAA Overview


Star enables SAA to leverage a global network; revenue benefit is driven by the connecting potential Star generates

Key:

Star

SAA

Proposed SAA

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SAA Overview


Key Milestones …before joining we still need to

• Sign the joining documents or the MOU

– The MOU has already been signed in December 2004

• Competition Implications

– SAA’s request for an advisory opinion from the Competition Commission

Becoming bound by the various agreements that define the alliance

Agreeing to comply with certain minimum requirements provided in those agreements

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SAA Overview


Key Milestones continued…

•IT Requirements

–The decision to migrate to a new reservation system has implications on migration

•Pay the joining fee

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SAA Overview


Thank You

saa overview

Documents

saa overviewpresentation

different saa overviewbringing

international markets

bambanani programme

customer service programme

market share

worldsaa business overview

advantage of market