South African Airways (SAA) has confirmed it turned round losses this year to post a profit of R123 million ($16.1 million) for 2007/08, before restructuring costs.

The Star Alliance carrier’s net profit for the year ending March 2008 compares to a loss of R883 million on continuing operations for 2006/07, heavy losses which prompted it to embark on a major restructuring in May last year.

SAA chief executive Khaya Ngqula says: “The first year of restructuring was largely financial in nature, and was completed 3% above target which was a significant achievement. More than R1 billion in costs have been taken out of the organisation, and there has also been a positive impact on revenue as a result of restructuring.

Total revenues rose 9% over the previous year to reach R22.5 billion. Operating costs, including a R951 million increase in its fuel bill, rose 12% to R23.6 billion.

The carrier’s return to net profit excludes one-off restructuring costs of R1.35 billion. Restructuring measures have included the grounding of its Boeing 747-400s, job cuts and new labour deals with unions

“Given that the rise in the oil price added more than R950 million and we have taken R1 billion in costs out of the structure, SAA has actually achieved a R2 billion turnaround in the past financial year. It’s an excellent achievement, but we still have some way to go to ensure that SAA is sustainably profitable by March 2009, particularly in light of the relentless rise in the oil price,” says Ngqula.

“The recent huge rise in the oil price and the concomitant fall-off of consumer demand worldwide has had a big impact on SAA, placing margins under pressure across the board.”

He says the restructuring programme initially set a profit margin target of 7.5% for the coming year on an assumption of the oil price averaging $65 per barrel.

“This demanding target was set deliberately high in order to provide a cushion for the airline due to the volatile nature of the aviation industry. This has proven to be prudent in light of the soaring oil price, which is creating a huge challenge for SAA and will result in a reduced profit target being reached,” Ngqula says.

“Depending on the oil price, SAA nevertheless remains confident that the airline will achieve profitability in 2008/09.”

Source: Air Transport Intelligence news