South African Airways is having a hard time of it. In mid-October, the carrier was embroiled in a bitter battle with its technical staff and faced a threat of court action from its pilots. Its domestic rivals are turning up the heat through alliances with British Airways and Virgin Atlantic. And Virgin itself is threatening to take away market share on the lucrative London-Johannesburg route.
After imposing a lock-out at presstime, SAA management was playing hardball with the technicians unions by threatening to lay off staff who fail to report for work. This followed a week of disruption in early October which cost the carrier at least R10 million (US$2 million) in lost revenue and affected over 170 flights. The carrier has already racked up losses of R75 million in the weaker first half to September.
There were signs that union resolve was crumbling after the carrier chartered three aircraft and began booking its passengers on rival carriers. The dispute centres on union demands for a 25 per cent rise in technical staff and ground engineers' wages, which have dropped in real terms. 'Our demands are based on what we have lost since 1988,' says a union official. But with inflation in South Africa running at 7.5 per cent a year management have limited the offer to a 10 per cent pay rise and a 20 per cent productivity incentive bonus.
The pilots union is also threatening court action in a bid to overturn a plan to lay off 40 junior pilots after management postponed its order for seven B777s.
At the same time, SAA is attempting to stave off further loss of market share to its two domestic rivals by slashing fares and launching a US$3 million marketing blitz. An internal SAA memo to staff shows how SAA's slice of the home market is dropping. 'In 1995 SAA had 73 per cent of the domestic market while Comair, Sun Air and Phoenix held 15 per cent, 7 per cent and and 5 per cent, respectively. Sun Air has increased its share to 17 per cent, Phoenix went insolvent. Comair maintained its 15 per cent and SAA's market share declined to 67 per cent.'
The threat has been compounded by Comair's franchise agreement with BA, signed earlier this year, and state-owned Sun Air teaming up with Virgin, which launched services to Johannesburg on 5 October. Analysts say Virgin's appearance will wreak havoc with the 'cosy BA-SAA monopoly' on the route.
Comair believes the BA franchise will increase its share of the domestic market to 35 per cent over the next five years from the 20 per cent share it currently claims for itself, with a 20 per cent profit boost.
Sun Air's managing director Johan Borstlap also sees the linkup with Virgin, with the two carriers codesharing to Cape Town and Durban, boosting his carrier's market share. But he rejects suggestions of becoming a Virgin franchisee, although he admits he 'would consider operating under the Virgin umbrella.'
In typical fashion, Virgin's chairman Richard Branson has more grandiose ideas and talks of Sun Air becoming the basis for a pan-African airline. He says he would 'like to buy Sun Air' and believes the deal could be done by next March when the government plans to privatise the carrier. Current South African legislation limits foreign ownership to 25 per cent. Branson's bigger scheme for Africa has been greeted with a certain amount of scepticism. 'Don't bother,' suggests one veteran African consultant.
R Makings/M Odell
Source: Airline Business
