SAA (Pty) Ltd. History

Address:

Website: www.saa.co.za

Private Company
Incorporated: 1934 as South African Airways
Employees: 10,000
Sales: R 5.68 billion (US$1.23 billion) (1997)
NAIC: 481111 Scheduled Passenger Air Transportation; 481211 Nonscheduled Chartered Passenger Air Transportation

Company Perspectives:

We will fly the spirit of our nation to the world and be a role model to our people. We embody the magic of free South Africa to host a safe, warm African experience.

Company History:

SAA (Pty) Ltd., better known as South African Airways, is the largest domestic carrier in South Africa, operating 575 domestic flights per week. Although troubled in the late 1990s, its status as a major global player is evidenced by a plethora of affiliations with the likes of American Airlines, Lufthansa, and Thai International.

1930s Origins

South African Airways was founded from the assets of Union Airways, a private carrier the Union of South Africa acquired on February 1, 1934. Its collection of several de Havilland and Junkers aircraft served to link Cape Town, Durban, and Johannesburg. This "Golden Triangle" would remain the company's hub center. SAA was soon flying "giant" Junkers Ju52 aircraft as far as Kenya.

World War II interrupted civil operations, which resumed in 1943 with the Lockheed Lodestar aircraft as primary carrier. SAA began "Springbok" (gazelle) service to England in November 1945 in conjunction with BOAC. The Johannesburg-London route had stops in Nairobi, Khartoum, and Tripoli. By 1947 SAA was flying several different types of aircraft, but in 1950 it was the Lockheed Constellation that cut flying time to England to 28 hours. In 1950 the DC-7 reduced this time further, and in 1953 SAA became the first pure jetliner operator outside England, leasing a Comet from BOAC.

Technological advancements in jet aircraft allowed SAA to expand its reach. Boeing's 707 allowed SAA to serve Europe nonstop (via Athens) in 1962. In 1969 it began flying to New York via Rio de Janeiro. The company's first Boeing 747s facilitated direct Johannesburg-London flights beginning in 1971. SAA added a weekly flight to Hong Kong in 1973.

In protest of apartheid, several African governments banned SAA from their airspace in 1963. This kept the carrier from overflying East Africa. SAA's transcontinental routes became longer and costlier as they had to follow the continent's west coast. U.S. anti-apartheid sanctions began in 1986. Years of isolation would make SAA unusually self-sufficient for its size, resulting in the development of considerable training and maintenance facilities.

South Africa entered a recession in 1989. Moreover, political instability and a horrendous drought fueled the crisis, and the country's inflation rate reached 15 percent. Under this backdrop of financial pressure, privatization of the airline became an earnestly considered option. Still, SAA ordered four costly 747s, deemed necessary to handle the long-range, west coast route to Europe.

Post-Apartheid Opportunities

SAA was made a division of Transnet, the South African government's holding company for transportation enterprises, on April 1, 1990, putting it in line for eventual privatization. While the Gulf War and a world recession were universally trying times for the civil aviation business, SAA experienced a fortunate turn of events in the early 1990s. At that time, world governments began lifting sanctions against South Africa after president Frederik de Klerk abolished apartheid and freed Nelson Mandela in February 1990. SAA rejoined the African tourism market in 1991 with resumed service to Nairobi and Kenya. Several other destinations in Africa and beyond opened up within a year. Soon 50,000 passengers a year were pouring in from New York City alone; SAA also flew a Miami-Cape Town route. An agreement with Aeroflot came in November 1991.

SAA collaborated with Ukrainian operator Antau in 1992 to operate three Ilyushin Il-76 freighters. Although initially profitable (thanks in part to the relatively low salaries commanded by the Ukrainian pilots), the venture faltered due to the aircraft's unreliability. SAA converted an A300 (its first Airbus had been delivered in 1992) to haul freight on the same route, and discovered the Airbus used less than half the fuel. SAA also operated some of Antau's Antonov An-26 aircraft on domestic overnight express operations.

SAA entered into a code sharing agreement with American Airlines in November 1992. Other agreements followed as SAA withdrew from operating unprofitable international routes with its own equipment. However, it did continue to try new destinations and expand services where needed. SAA preferred to fly smaller planes (such as the Boeing 767, which it first tried in 1993) more frequently on long haul routes, rather than use ultrawide-body aircraft.

Thanks to its new routes, traffic grew 40 percent in 1992. SAA spent US$1.3 billion on new 747s and Airbus A320s to match the resulting demand through 1998. Still, the carrier failed to adapt quickly enough to avoid posting a loss of US$23 million in the fiscal year 1992-93. Political violence frightened many international travelers away from South Africa, and this segment was a vital source of income.

The lifting of South Africa's isolation also meant new competition from outside airlines. Moreover, the company also faced two domestic challengers, Comair and start-up Flitestar. Domestic fares were a fraction of those found in Europe, much to the dislike of SAA management.

Pathway to Privatization

Rather than try to serve every domestic destination, SAA concentrated on the trunk routes that warranted the use of its jets. SA Express, founded in 1994, and SA Airlink operated other regional routes with turboprops. Their cooperation brought new routes and more flights to the marketplace. SAA took a 20 percent interest in SA Express, the founders of which included a Canadian and a black South African. SA Airlink, independent of SAA, was established in 1992, though its origins dated back to 1978. Airlink, which had placed one of the region's most experienced black pilots in charge of flight operations, served as a type of training ground for SAA pilots hired under a national affirmative action program known as "Turnaround 2000."

However, the coming to power of the leftwing African National Congress in the mid-1990s dimmed hopes of SAA privatization and other management reforms. Chief executive Michael F. Myburgh, who replaced Gerrit D. van der Veer in the spring of 1993, was able to trim 16 percent of the workforce in 1994, however. Bureaucratic wrangling also slowed the arrival of desperately needed Boeing 777 and 747 aircraft on order.

The carrier operated a truly unique, nostalgic flight when it dispatched a restored Douglas DC-4 (the last one ever built) to an air show in Oshkosh, Wisconsin, in July 1994. The plane had first seen SAA service in 1947; it was subsequently sold to the South African Air Force. The trip took 55 hours of flying time to cover nearly 10,000 miles. The 22 passengers paid more than US$6,000 each; they returned on a regular SAA jet from New York. SAA flew regional tours and chartered its Historic Flight, which operated other vintage aircraft such as the Ju52 and DC-3.

SAA managed a profit of US$72 million in 1995-96. It entered a code share agreement with Lufthansa in 1996, to the extent of cooperating in the areas of cargo, frequent flier programs, even airport lounges. Transnet also planned to open a network of travel agencies modeled on a Lufthansa program in Germany.

A New Look in 1997

In the late 1990s, SAA unveiled a dramatic new color scheme based on the colors of the flag, meant to evoke the richness of the country's landscape. The airline also moved its corporate headquarters from a high crime downtown area to the International Airport. By this time, SAA's worldwide network spanned 29 destinations from Japan to the Netherlands.

In spite of an increase in sales to R 5.68 billion, the fiscal year 1996-97 showed a record loss of R 323 million (US$45 million), thanks to a huge increase in the price of fuel (Johannesburg International had the world's highest fuel prices) and a 35 percent drop in the South African rand. Crime and a shortage of long haul aircraft were other hindering factors.

SAA was by then competing with 70 international and nine domestic airlines. Virgin Atlantic and British Airways, its archrival, had together reduced SAA's market share of profitable London traffic to 40 percent. Moreover, Comair had captured nearly a fifth of the domestic market. Its licensing agreement with British Airways allowed it to operate as a virtual clone, right down to aircraft livery and flight designators.

SAA introduced a "Frequent Freighter" program in 1997, designed to foster loyalty among shipping clients. It operated one Airbus A300, two Boeing 737s, and one 747 dedicated to freight, in addition to utilizing the cargo capacity of its passenger aircraft.

SAA appointed a new CEO in the summer of 1998 after the departure of Mike Myburgh. Coleman Andrews, a Stanford MBA, was credited with helping World Airways stave off bankruptcy in the early 1990s. He had also advised president Gerald Ford and had once run for lieutenant governor of Virginia. "We need to develop an airline which customers love and competitors fear," declared Andrews in SAA's in-flight magazine, Sawubona. Critics in Finance Week and the Washington Post, however, pointed out the more recent failing fortunes of WorldCorp., the parent group of World Airways, which itself seemed to face impending bankruptcy before Andrews's appointment. Andrews countered that he was not in direct control of that airline at the time.

The International Airline Passenger Association dubbed SAA the Best African Carrier in 1999, agreeing with Executive Travel, Travel Weekly, and the London Evening Standard. However, the service was not without its complaints, and absenteeism was a significant problem. Coleman's plan to rescue SAA focused on productivity and forecast layoffs. Coleman also wanted to standardize SAA's fleet for the first time in its history to save money on spare parts, maintenance, and training. He also planned to aggressively market the carrier's expertise in technical services.

Privatization had to await untangling financial problems at Transnet, which found itself R 4 billion (US$730 million) in debt in 1998. Part of the government's plans for SAA involved dismantling its various components. In 1997, the Johannesburg Airport, which had itself been a part of SAA, was transferred to another state enterprise, Airport Company SA, also in the process of privatization. In 1999 Transnet planned to unbundle SAA's business units: Technical, Cargo, and Passenger. It planned to sell up to 49 percent of the company; British Airways, Virgin, Singapore Airlines, Lufthansa, and other eminent airlines were considering investing. Andrews himself preferred a European carrier over a U.S. airline for hub/feeding possibilities.

In spite of SAA's considerable difficulties, signs of a new "African Renaissance" gave cause for hope. The World Tourism Organization ranked South Africa the 25th most popular tourist destinations in 1999. Hoping to offer "Africa's warmest welcome," SAA finally became independent of parent Transnet on March 31, 1999, under the name "SAA (Pty) Ltd."

Principal Subsidiaries: SA Express (49%); SA Alliance Air (Uganda; 40%).

SAA (Pty) Ltd. History

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