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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

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South African Airways Africa Strategy

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  1. African Renaissance Conference 2011 South African Airways Africa Strategy Aaron Munetsi

  2. 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 Page 2

  3. Africa Strategy Context African aviation markets are only slowly liberalising relative to global markets EU US-EU ASEAN (2012) AUS-NZ 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. Page 3

  4. Africa Strategy Context Airline market consolidation is accelerating after the Global Financial Crisis United-Continental Lufthansa/Swiss-BMI-Austrian-Brussels Delta-Northwest Air France-KLM BA-Iberia Republic-Frontier-Mid West Vueling-Click Air America West-US Airways TACA-Avianca These are the major airline mergers/takeovers in recent years LAN-TAM Almost all airline equity consolidation has occurred in single marketsand African airlines face competitors of much larger scale than five years ago. Page 4

  5. Africa Strategy Context Concentration of market power then interracts with mid-hemiphere advantage 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. Mid-hemisphere 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. End of Hemisphere Page 5

  6. 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. Emirates • 2. 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 Page 6

  7. 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: 13 Seats: 55,310 Page 7

  8. 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 seats Flydubai: 6 destinations / 11,340 seats Other activities Emirates SkyCargo: 6 destinations DNATA: Travelocity (online travel agency) & hotels Destinations: 22 Seats: 100,844 Again, an overwhelming focus on North, West & East Africa. Page 8

  9. 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. Page 9

  10. 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 Page 10

  11. 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 Page 11

  12. 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 Page 12

  13. 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. Page 13

  14. 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 Page 14

  15. Africa Strategy Thank you Page 15

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