How Sick is South African Airways and what will it Cost to Fix it?- CEO Vuyani Jarana

SAA’s new CEO Vuyani Jarana

April 23, 2018//-SAA’s new CEO Vuyani Jarana left a big position in telecoms to take on the perhaps impossible job of turning SAA around. SA Flyer and FlightCom Magazine editor Guy Leitch managed to get this hard-running CEO to make time for a detailed discussion of his plans.

The Auditor General’s 2017 report described South African Airways (SAA) as a ‘horror show’. There are claims of massive understatement of expenses, even with a R5.5bn loss. Do you believe the airline can ever be profitable?

Yes. Otherwise I would not have accepted the job.

What is the current financial position of the airline? – government has just pumped in another R10bn.

The government gave us the R10bn to discharge R7.6bn in debt that we couldn’t affordably roll over. So only R2.4bn was used to support working capital requirements. We have reduced the debt level from the big lenders down to R9.8bn.

The latest turnaround plan says that you will need yet another R10bn in bail-outs and that you don’t expect to make a profit until 2021. Do you think you could ever be profitable enough to refund the state’s massive investment?

Yes. But the state as shareholder must firstly recapitalise the business. Then it must get a fair return. That means we have to run it on a profitable basis to the point where we can pay a dividend.

Since your appointment on November 1 you have continued to cut very senior staff. The latest casualties are the SAA technical CEO and former acting SAA CEO Musa Zwane and the airline’s CFO, Phumeza Nhantsi, who are suspended pending a forensic investigation. Is this continual loss of key staff and their experience base not going to set back a turnaround?

I have not dismissed any senior staff member at SAA. A number of investigative reports have been commissioned by the SAA board. It is the board’s view that whoever has allegations levelled against them must be given an opportunity to clear their names.

SAA has had nine turnaround plans in the past 15 years. Has your latest turnaround plan – “Corporate Plan 17-22” (CP22) actually been started?

When I arrived on November 1, the lenders said we want you to sign off on the long term (CP22) plan as it is, so that we can hold you accountable. I said to them – look I’m only arriving now, so I can’t sign. I first need to stress test it, so I know it is something I can achieve.

For the past few months we have been going through CP22 to revise and rebase it. We now have approval and are quite clear about what needs to be done ­– and the financial costs of that plan.

Are there measurable goals that you can deliver on?

Yes, we have very clear goals. Both at the strategic level and at the operating level. We know what the organisation must look like to underpin the strategy. There has to be a dose of reality – that we can’t be everything to everyone.

Being big just for the sake of it is an aspiration that is out of reach, but being a much smaller fit for purpose airline which is a good brand in the domestic, regional and international market, is our aim.

The airline is shrinking fast. You have already cut routes and many flights. Yet you will not be able to get your costs down as quickly as you decrease revenue. That means an even bigger loss that will have to be carried by yet more bailouts?

We found that on both long haul and domestic routes we were making a loss on even the gross profit (GP) line. If you don’t show a good GP you have to look at cutting direct expenditure, such as costs of fuel and crew. Which meant cutting flights.

In addition, we looked at the market and realised that SAA cannot be everything to everyone. SAA has been stretched from being a full-service carrier that has to compete with low cost carriers like kulula, Mango and Safair.

So, we are now saying, let’s focus on market segmentation. We have Mango to do battle in the low cost market space and SAA in the full service market. As an airline group, it means that we are not pulling out, but pushing more capacity to Mango. Therefore, as a combined group we should not be down on revenue.

Will the new SAA be mainly focused on international routes, leaving the domestic routes to the smaller carriers?

Yes, take Airlink for example. If we cut down international routes they will have less flights to feed. We need to look at aviation policy at a national level, so we do not undermine the ability of small towns to connect with the regional hubs.

Would this be part of a ‘whole state aviation strategy’?

Yes, which is why I’m saying it’s not just about SAA. We need policy congruence across the whole aviation market in South Africa.

Does a ‘whole state aviation policy’ even exist in South African government thinking?

Not yet in South Africa, but in the Middle East, the airlines, tourism authorities, hotels and airports work together to support each other to grow that region’s economy.  When you confirm accommodation at a Dubai hotel, the hotel can apply for a visa for you.  In Dubai there are no transit penalties. Everyone works in concert, in contrast with SA, which introduced transit visas.

I am hearing good things from within the airline about changes you have already made – including a new head of procurement?

We had a massive brain drain and are now rebuilding the organisation.  We are in the final stages of recruiting key people – from very diverse backgrounds. We are looking for heavy-hitter executives with deep domain expertise and exposure to large scale turnaround situations, people who already have been through some form of restructuring or turnaround.

Are you happy with SAA’s headcount, or are you looking to cut it?

We have to look at everything in terms of improvement and efficiency, including rightsizing the airline to be commercial. This includes staffing, procurement, aircraft types and so on. This requires zero-based budgeting – we have to go back to basics. We have to be a market-facing organisation as our pricing is not on a cost-plus basis.

We need to create headroom for ourselves, which means we have to be very thorough on the cost base and make sure that we deliver best service at the lowest cost possible. There needs to be a cultural change within SAA to understand that.  It’s not about what we want to be, it’s about what the market tells us to do.

What is morale like?

No one can be happy working for a loss-making organisation.  No one can be happy when there is a lot of negativity about the brand out in the market. There are however a handful of divisions where morale is high because they are delivering world-class services.

Have you been given ‘carte blanche’ to look for the right people? Is there an affirmative action requirement?

No – I have not been told to only consider someone from a particular group. Affirmative action is always desirable as we are in South Africa, but SAA today does not have a problem with diversity, at least at Exco level. So we have the right platform to recruit the best candidates, regardless of race, but gender equity will always be high on my agenda.

If you recruit from around the world won’t you end up with mainly white males?

Yes – and there’s nothing wrong with that. We are not short of black employees, so we can blend – and diversity is not a one-way street. We will always be sensitive to the bigger transformation agenda of the country and strive to keep a good balance, but for now our priority is to turn around the airline.

Will they be recruited into permanent posts?

The current policy at SAA is that some Exco posts are permanent, but others are temporary – usually five-year contracts. We are working with the board to find the right mix.

And you on a five-year contact?

Yes.

And finally, how have you found the airline industry compared to telecoms?

I found the airline industry pretty primitive around customer engagement – how to engage customers – keeping them in the know about what’s happening and so on. The airline industry needs to look beyond the passenger on the seat or the cargo item and provide services and engagement that makes the customer feel unique.

In terms of digital engagement, I think that the airline industry could evolve a whole lot more and I hope to be able to lead that.

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