South African Airways is preparing to liquidate

A few days ago we learned that South African Airways is preparing to liquidate, as the government has refused further funding for the airline, and will soon be laying off all staff. The airline has been losing money for many years, though the current situation has made matters even worse.

Well, it appears like the situation might not be quite as we expected.

South Africa to form new national airline

Reuters is reporting the South African government has made it clear that they intend to create a new financially viable and competitive airline from the current business rescue process.

This came via a statement from South Africa’s public enterprises ministry, as the government will work with SAA trade unions to preserve as many jobs as possible.

I’m skeptical…

I’m skeptical about the prospects of this for a couple of reasons:

  • The government is not in a position to provide more capital for SAA, but presumably any sort of airline reboot would be extremely costly
  • I can’t think of many examples of airline reboots that succeeded in this manner, where a national airline supported by the government technically goes out of business, and then a new, successful national airline emerges, presumably still supported by the government (it actually sounds a bit like Air Zimbabwe)

South Africa needs a good regional airline

When writing about SAA potentially liquidating, I posed the question of whether South Africa would get a new national airline, so I guess I wasn’t too far off.

In my opinion what South Africa needs is an airline that offers a good network domestically and regionally, rather than a good long haul network.

When you look at the South African Airways “family” right now, you have:

  • South African Airways
  • Mango, which is South African Airways’ wholly owned low cost carrier subsidiary
  • SA Express, which isn’t owned by South African Airways, but which operates as a regional airline for the carrier

Between those operations, a new airline would have to figure out a cohesive way to offer regional service.

I don’t think South Africa actually needs a long haul airline, because these routes can be tough to operate in a profitable manner without a bigger strategy:

  • The Gulf carriers all fly to South Africa, offering connectivity to all parts of the globe
  • Most major European airlines fly to South Africa, also offering good connectivity
  • Ethiopian Airlines is a powerhouse in Africa, so we could see them increase connectivity to South Africa, so you can get to most points in the world in one stop

Even out of South Africa, South African Airways hasn’t been able to compete with other airlines in terms of price, product, and schedule.

Bottom line

South Africa plans on creating a new national airline, which has me questioning if they actually plan on cutting off SAA at all.

If there’s any chance of things actually changing, I really think they need to shut down SAA altogether, and then start from scratch, because otherwise it’s unlikely that any of the core problems of the airline will actually be addressed.

If a new airline does emerge, I strongly believe the focus has to be on offering regional connectivity, and having one or two strong partnerships (or even joint ventures) for global connectivity.

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