South African Airways Africa Strategy
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Transcript of South African Airways Africa Strategy
African Renaissance Conference 2011
South African Airways Africa Strategy
Aaron Munetsi
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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
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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
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Africa Strategy Context
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
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Africa Strategy Context
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.
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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
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Strategic Threats to SAA
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
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Strategic Threats to SAA
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
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Strategic Threats to SAA
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.
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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
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SAA’s strategic response
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
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SAA’s strategic response
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
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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.
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SAA’s strategic response
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
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Africa Strategy
Thank you