SAA looks to west Africa for new joint venture

Cape Town
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South African Airways (SAA) is looking to establish a west African hub in Accra, Ghana and to set up a new joint-venture airline in the region under its Mango or SA Express brand.

The airline wants a Ghanaian partner to invest in the proposed new airline - of which it will own 49% - SAA chief executive Siza Mzimela told the South African parliamentary portfolio committee on public enterprises.

Speaking in Cape Town on 28 August, Mzimela said the move would bolster feeder traffic through its Johannesburg hub, strengthening long-haul routes to South America, Asia and Australia. Subsidiaries SAA Cargo, SAA Technical and Air Chefs would provide skills and technology transfer to the new airline.

"We have learned from past lessons that it is very important that we have a strong and reliable local partner," Mzimela says in reference to SAA's failed attempt to establish an east African hub with Air Tanzania a decade ago.

Mzimela said SAA also planned to export its low-cost Mango brand into the rest of southern Africa to grow lucrative leisure routes to Mauritius; Zanzibar and Kilimanjaro, Tanzania; Mombasa, Kenya; and Livingstone, Zambia.

All this forms part of an Africa growth strategy that will see SAA replicate its brand and operating hubs in new African markets, including Mango regional operations. Mzimela says the strategy is based on the example of LAN Chile, which has overcome its "end of hemisphere disadvantage" by establishing branded hubs in other parts of South America.

SAA was also examining whether the east-west partnership between ASKY Airlines in Togo and Ethiopian Airlines could be replicated into a north-south model involving SAA and SA Express.

SAA's growth strategy further entails developing new routes into Africa and increasing capacity from its Johannesburg hub, which is hamstrung by restricted bilateral agreements in markets such Mozambique, Congo and Angola.

Although SAA has grown its African market share from 43% in 2007 to 51% in 2012, lack of adequate aircraft leaves it trailing behind major competitors on the continent, Mzimela says.

Outlining SAA's fleet expansion plans, Phetolo Ramosebudi, group treasurer and head of corporate finance, says it is looking for alternative ways to finance its amended order for 20 Airbus A320s, due for delivery between June 2013 and late 2017.

"SAA has engaged with three European export credit agencies who provide credit services on aircraft purchases and has consulted both local and international potential counter parties," he said. "We want to close this process by the end of the current financial year."

Ramosebudi says SAA's fuel costs increased 36% in the past financial year due to high oil prices, while the rand weakened by almost 20% against the US dollar. He says SAA had learned from its previous hedging losses and was following a conservative policy in line with that of other major airlines.