Vuyani Jarana took up his post as SAA’s new CEO in November last year. He is already shaking things up. Guy Leitch continues his discussion on the airline’s new strategies and turn-around plans.
GL: I think Air New Zealand is a useful role model – it’s also an ‘end of the line’ operator, has no natural hub, and is very similar to SAA in size and number of aircraft, although yields and thus revenue are significantly better. An interesting thing is that Air New Zealand’s staff complement is around 10,000 as well. Are you happy with SAA’s staff complement, or are you looking to cut it?
VJ: We have to look at everything in terms of improvement and efficiency, including rightsizing the airline. 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 the best service at the lowest cost possible. So 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 what to do.
Your fuel costs are now just 23% of total costs, which is way below the industry norm. Even 33% would be good, especially as you are still operating some relatively fuel inefficient aircraft. Has the airline done a fantastically good job saving fuel, or are your operating expenses just far too high?
I think a bit of both. We have been cutting routes and therefore our cost of fuel, but overheads are still far too high.
Talking about budgeting, has your latest turn-around plan, ‘Corporate Plan 2023’, been accepted by the board?
When I arrived on 1 November, the lenders said they wanted me to sign off on the long term (Corporate Plan 17-22) plan as it is, so that they can hold me 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 revising and rebasing it, and now Corporate Plan 2023 has been presented at the AGM. We are quite clear about what needs to be done and the financial consequences of that plan.
Are there measurable goals?
Yes, very. We have clear goals, both at the strategic level and at the operating level – what the organisation must look like to underpin the strategy. There’s quite a bit of work that needs to be done. 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 the right size and a fit for purpose airline which is a good brand in the domestic, regional and international market is our aim.
Does SAA not need to be big for the sake of being a flag carrier?
No, it doesn’t. If I cannot match BA’s frequencies between say Cape Town and London, we must accept that reality. BA is with the One World Alliance, so they pull traffic to their London hub from all over Europe, and can fill many A380s. BA is not only taking the London traffic; it is aggregating the One World traffic from Europe through London. We need to accept that we are a point to point carrier. If my team says we must compete against BA, we will lose because we can never aggregate like they can. Although, things are different in Germany. There we are with Star Alliance and have the giant Lufthansa competing with us. This is why I say we need to finesse the details, particularly around customer acquisition. We need to move away from the emotional responses that say, “BA is putting three A380s a day on the route. Why are we leasing away our slots and not competing?”
I’m pleased to see you are already up to speed in the jargon – talking about point to point and feeder networks.
It’s been like drinking from a fire hose these past few months. But I like to think I have been able to get up to speed quickly.
Let’s talk about your African plans. For a long time, SAA has claimed to be ‘Bringing the world to Africa and taking Africa to the world’. Yet Corporate Plan 2023 talks about SAA not being a global airline anymore but being a regional airline. That was quite a surprise! Is that your view?
Yes, but there are a number of things we must consider. A few years ago, South Africa was not very liberal in terms of open skies, so we did not have the number of frequencies we have now with Emirates and the others. The policy framework has moved, so now we have to fight with the heavyweight giants, both internationally and now regionally. Yet we are just lightweight, and we want to be the best in our weight division. We recognise that we need to operate in our division with leverage, and we believe it is our African continental play that gives us that leverage. When you do it well, it forces the heavyweights to work with you.
Do you think you have unfair competition from the Gulf carriers?
To be honest, whilst it can be argued that the Gulf airlines have taken market share from SAA, it can be equally argued that they have also made a great contribution in terms of air travel market expansion. The African economies are growing and so is Africa’s air travel market. With growth, the market does not become a pie of a fixed size where one must lose for the other to win. SAA can still take its proportionate share of the growth in the market. However, to achieve success we must organise ourselves to win. This talks to the operating model, skills, technology (especially digital technologies), being frugal on costs and we must drive the culture of customer centricity and commercial delivery. For the further development of South Africa’s air travel market, it is critical that policies that are enacted by government not only promote tourism but also have a degree of promotion of local industries.
So how are you doing against Ethiopian, which has a reputation for being protected by the Ethiopian government? It’s said that even the birds in Ethiopia have to ask for permission before they can take off.
Ethiopian is not facing the challenges we face, such as liquidity, and we are in a transformation phase. Therefore, it is hard to compare us with them because we are consolidating while they are growing. However, we believe that, with the required support from our shareholder, we will be able to compete.
What sort of shareholder support? Just financial, or more protection as well?
We are looking for financial support, not handouts. We don’t want people to think that we are asking for super-protection, or a monopolistic scenario. That’s not the case. In terms of more protection, it’s important to recognise the development aspects of domestic passenger traffic. There are more and more South Africans who want to access air travel, especially in the smaller towns. To do that we are going to have find a degree of policy congruency between open skies and liberalisation on the one hand, and the developmental needs of the country on the other hand. We need to ask ourselves, “How do we develop more routes – especially to the smaller towns?”
But SAA is mainly focussed on the regional and international routes, and so is leaving the domestic routes to the smaller feeder carriers.
Yes, take Airlink for example. If we cut down international routes, they will have less flights to feed. So that is why I say 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. We need to look at network effects and how we manage that.
Would this then 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 in South Africa, but in the Middle East. There 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, which make it expensive for tourists travelling to other destinations in Africa through Johannesburg. What that has done is take those transiting passengers away from South Arica.
It is crucial that there is a well thought through approach to aviation policy in South Africa, ensuring greater alignment between state entities in the aviation sector. How the SAA group, ACSA, Tourism as well as the Department of Home Affairs work together to coordinate ease of travel for people has become increasingly important. We expect government to coordinate all efforts in this regard.
There are other policy instruments that other countries have adopted. We must study them carefully to establish whether they would not be beneficial to SAA and industry.
Are you using international consultants to help restructure SAA?
Not any more – those projects were all historical and formed part of the strategy input. We used Seabury reports as a base to map out the mechanics of how we realise our strategy, but we have had to beef up the commercial aspects of the Seabury report. We have a new Restructuring Office headed by Peter Davis, with a team of people with international experience. In the restructuring office we now have a change hub that is driving the execution.
I am hearing good things from within the airline about changes you have already made – including a new head of procurement?
How do you know that? But yes, we had a massive brain drain and are now rebuilding the organisation. We are looking at operational sequencing within the divisions, as most of the Exco roles have had acting heads. We are in the final stages of recruiting key people – and from very diverse backgrounds. We are looking for heavy-hitter executives with deep domain expertise and experience or exposure to large scale turn-around situations, people who already have been through some form of restructuring or turn-around.
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 of course 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 is nothing wrong with that. We are not short of black people, 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.
Are you on a five-year contact?
How have you found the airline industry compared to telecoms?
I find 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 make the customer feel unique. It may be a bit unfair to compare the two industries though.
I would venture to suggest that, if you did a market survey, you would find that people are more loyal to SAA than they are to Vodacom.
Yes, SAA runs an excellent loyalty programme in Voyager and there is a strong brand affinity. But in terms of digital engagement, I think that the airline industry could evolve a whole lot more. I understand that constraints may be in, for instance, the Global Distribution System (GDS), but I think there is a journey to get there. IATA’s new GDS should help this process.