The effects of foreign and domestic competition have cast doubts over this year's planned partial privatisation of South African Airways.

SAA is suffering from a shortage of long-haul aircraft and is losing market share to British Airways and Virgin Atlantic as a result. And its domestic competitors believe their partnerships with overseas carriers could significantly reduce SAA's 70 per cent share of the domestic market.

The prospect of SAA finding a foreign equity partner by the year-end deadline seems bleak following union resistance and a reluctance by foreign buyers to take a minimum 25 per cent stake in an unprofitable operation firmly under government control. The carrier is heading for a R200 million (US$44 million) loss for the year ending 31 March, owing largely to the collapse of the rand, the hike in fuel prices, labour unrest, and government interference.

John Hanlon, BA's general manager for Africa, says the sooner the government quits SAA the better. 'SAA is sitting on a significant and growing market but it is not pulling its weight because of a lack of equipment. It must be allowed to make decisions without government intervention. The lack of equipment to do the job is a good example of interference that is costing SAA money.'

Market talk is that BA, Singapore Airlines and Malaysia Airlines are interested in buying into SAA, but Hanlon will not be drawn. 'Our policy is not to say anything until we have a signed deal. No-one knows what is on offer, but BA would have to have some managerial control over profit and loss, routes and equipment before taking equity in SAA. Much depends on the problems that come with the airline, such as the Transnet pension fund deficit and government policy on route licences,' he says.

David James, Virgin's general manager in South Africa, says Virgin does not want to buy into SAA and that the government will not be able to privatise SAA for at least 18 months. 'There is no point in trying to sell what appears to be a lame duck because this will affect the price buyers are willing to pay'.

Meanwhile, SAA is beefing up its domestic alliances with regional carriers SA Express and SA-Airlink to counter the alliances by government-owned Sun Air with Virgin Atlantic and KLM; Comair with British Airways; and newcomer Nationwide with Sabena.

Roger Forster, chief executive of SA-Airlink, says: 'We have to lock into the global system if we want to survive. Dominant hub feed and hub distribution is what is needed to fight off the growing influence of foreign carriers in our skies.'

Hugo Smit, general manager of Nationwide, says partnerships with international carriers ensure a flow of foreign passengers into the domestic network and give local passengers confidence in the quality of service and the soundness of the operation.


Source: Airline Business