South African Airways has been losing money for years, and in early December 2019 the company entered “business rescue.”
In this post:
What is business rescue?
With this business rescue process, a specialist practitioner has taken over control of the company, with the goal of maximizing the odds of survival for the company, or at a minimum achieving a better return for creditors than if the company were to just outright liquidate.
Understandably, a lot of us have been skeptical of this process. The reality is that the government is only willing to provide the company enough funding to continue operations, but doesn’t seem to want to let them liquidate, probably due to a combination of pride, as well as the value to the country in having a national airline.
South African Airways cuts some routes short-term
Just yesterday South African Airways issued a press release assuring “customers and stakeholders that flights to all destinations continue as normal.”
This followed media reports that the airline would cease operations soon. While the airline indicated that operations would continue as normal, today the airline has announced some short-term cancelations.
What flights has South African Airways canceled?
- Between January 20 & 24, the airline has canceled up to two daily flights between Johannesburg and Cape Town
- Between January 20 & 23, the airline has canceled up to three daily flights between Johannesburg and Durban
- Between January 20 & 25, the airline has canceled daily nonstop flights between Johannesburg and Munich
In all cases, the airline is working to accommodate passengers on other flights:
- For domestic flights, passengers will be accommodated on other South African Airways or Mango Airlines flights
- For the Munich flights, passengers will be accommodated on flights via Frankfurt and London
As the airline describes the route cuts:
These decisions are in line with SAA’s usual policy of reviewing flights and consolidating services with low demand. Furthermore, during the current process of Business Rescue, these cancellations represent a responsible strategy to conserve cash and optimise the airline’s position ahead of any further capital investment.
The latter part of that statement is true, while the former part definitely isn’t. I wouldn’t consider it a “usual policy” to consolidate services day-of departure due to low demand, at least for long haul flights. Canceling Munich flights for five straight days is significant.
SAA also says that the Cape Town cuts are due to SAA operating A350s on the route lately to familiarize crews, which has led to surplus capacity.
Bottom line
Despite SAA being in business rescue, up until now we haven’t seen major adjustments to their route network or schedule. Quite to the contrary, the airline has been operating as usual, and has even scheduled their new A350 on the New York JFK route.
Given SAA’s dire situation, it’s not surprising to see them managing capacity in this way short-term. At the same time, that’s not terribly reassuring as a customer, when you have to wonder if your flight will be canceled within days of departure.
@Sharon - the nonstop flights between JNB & VFA are operated by SAA mainline, not Airlink. Airlink runs CPT-VFA.
Good to hear that SA Link aren’t likely to be affected. Im flying JNB-VFA in June so hopefully we will be ok
The corruption started under Mbeki as soon as Mandela retired. Typical African airline behaviour.
The corruption started under Mbeki as soon as Mandela retired. Typical African airline behaviour.
It does seem like Airlink's decision is based upon the problems that SAA is having. And they are saying that they will not honour tickets under SAA ticket numbers and codes after 11 June this year. On another topic, Airlink do operate some very interesting routes including Madagascar and St Helena!
@T - the key word there is "existing".
The main issue is not lack of political will but the unions. One hopes they'll be able to turn things around, there's been years of systemic corruption under the previous president, Jacob Zuma, but there appears to be a relatively genuine and sincere attempt to undo this, however major state-owned enterprises like SAA are massively affected and it will take a lot of time to cull the rot.
Liquidation doesn't make sense as the airline...
The main issue is not lack of political will but the unions. One hopes they'll be able to turn things around, there's been years of systemic corruption under the previous president, Jacob Zuma, but there appears to be a relatively genuine and sincere attempt to undo this, however major state-owned enterprises like SAA are massively affected and it will take a lot of time to cull the rot.
Liquidation doesn't make sense as the airline doesn't have many assets, the business rescue practitioner, who is independent and from the private sector, has already indicated that restructuring and maintaining a viable airline is preferable and possible, the issue right now is that the government promised a further R2bn cash injection in addition to the same amount being provided by banks. The banks provided this amount which has now been used up but the government hasn't yet found the funds to provide their share, also a sign of them being more frugal and trying to raise these funds out of other asset sales rather than allocation from other budgets.
@Sean M.
The existing SA schedules for the MUC, FRA and LHR don't allow rerouting from MUC via FRA or LHR that would comply with the requirement to have an ternate flight "allowing them to depart no more than one hour before the scheduled time of departure". The last flight that could conceivably connect them through FRA leaves 80 minutes prior to the scheduled time of the MUC flight, and in the case of...
@Sean M.
The existing SA schedules for the MUC, FRA and LHR don't allow rerouting from MUC via FRA or LHR that would comply with the requirement to have an ternate flight "allowing them to depart no more than one hour before the scheduled time of departure". The last flight that could conceivably connect them through FRA leaves 80 minutes prior to the scheduled time of the MUC flight, and in the case of the LHR flight its more than 4 hours prior to the scheduled time of the MUC flight. Hence EU 261 would be payable in most cases for MUC originating passengers.
For people connecting through MUC there might be the ability to connect through FRA or LHR instead and comply with the "no more than one hour before" rule, but that's very much dependent on flight schedules.
@Sunny - the flights are operated by Comair but few people here (in SA) even know who Comair is. Their planes are painted in the full BA livery, the crew wears BA uniforms, the onboard product is the same normally crappy BA product, BA flight number, etc. if you miss the tiny plaque in the galley that reads operated by Comair you’d be none the wiser. So when we talk about our domestic airlines it is BA, not Comair.
This is what corruption does.
A good point about SA link. It’s a different airline and operates many of the regional flights, even relatively long ones like Victoria Falls, Zimbabwe to CPT.
When I was there in November, none of the SA link fights were affected. And, SA link went out of its way to point out it was a privately owned and independent company for SAA.
I think flights numbered SA 8xxx are operated by airlink, but double check.
@T - Based on info put out by SAA, the passengers originating in Munich are being rerouted via Frankfurt and will be covered via the exception to the EU261/2004 compensation regulation.
"(iii) they are informed of the cancellation less than seven days before the scheduled time of departure and are offered re-routing, allowing them to depart no more than one hour before the scheduled time of departure and to reach their final destination less than...
@T - Based on info put out by SAA, the passengers originating in Munich are being rerouted via Frankfurt and will be covered via the exception to the EU261/2004 compensation regulation.
"(iii) they are informed of the cancellation less than seven days before the scheduled time of departure and are offered re-routing, allowing them to depart no more than one hour before the scheduled time of departure and to reach their final destination less than two hours after the scheduled time of arrival."
Passengers originating outside of Munich are just being rerouted with their connections over Frankfurt or Heathrow instead, or in exceptional cases on Swiss - and will almost all be covered by the same rerouting exception as well.
So EU261/2004 compensation isn't really a driving factor in this case.
For anyone thinking about travelling with SAA, just be aware that a substantial amount of travel insurers including CC insurance will not cover SAA. It seems to fall into 3 categories (1) Travel Insurer does not provide for insolvency at all - which is actually quite common (2) Travel Insurer specifically lists companies it will not cover insolvency for - SAA is mentioned in a number of policies I looked at or (3) The travel...
For anyone thinking about travelling with SAA, just be aware that a substantial amount of travel insurers including CC insurance will not cover SAA. It seems to fall into 3 categories (1) Travel Insurer does not provide for insolvency at all - which is actually quite common (2) Travel Insurer specifically lists companies it will not cover insolvency for - SAA is mentioned in a number of policies I looked at or (3) The travel insurer offers fairly low amounts or some insurers state that if it is well known that the company is in financial difficulties then they will not pay. I am going to Antarctica so it is $$$$$. One of the companies that go to Antarctica has experienced financial difficulties (One Ocean Expeditions). According to a FB group set up by people who have lost large amounts of money, most insurers are not paying up - the list they have covers US, Australia and Canada (where the company is based). Hence I am a little obsessed by the topic! Today's task is to seek confirmation from my AMEX Platinum (Australia) insurance - as their wording is very ambiguous (am hoping it falls under the chargeback clause). So if you are flying with them, and coverage for insolvency (bankruptcy) coverage is important, then I recommend you read the fine print on your policy.
All that aside I truely hope they find a path out of this mess.
What has not been publicised widely is that Airlink (a successful privately owned regional airline) which currently operates under the South African Airways code (SA8) will operate under its own code (4Z) from June this year. I have to wonder whether this development has something to do with the situation that SAA finds itself in.
Won't cancelling Munich for 5 days be a serious cash drain? They will have to pay EU 261 compensation to everyone departing Munich - in addition to either rerouting or compensation.
@Sunny leveson-jones Comair fly under the BA brand in South Africa (and also own Kulula)...I think this is what Chris was referring to.
SAA is done, who is going to book with them given that the flight may or may not cancel? They're no longer a reliable operator.
Pride has very little to do with it. More a case of the political power wielded by the unions who represent the large number of people employed by SAA, its affiliates, and its suppliers. I suspect there may also be more than a hint of fear that substantial corruption, implicating many movers and shakers, would be unearthed if the business were subject to a full due diligence necessary for takeover or liquidation.
@chris that's not BA that's Comair, but interesting to know that's a common practice in that region.
SAA is doing the right thing by cancelling flights with low demand. British Airways has been doing the exact same thing with their LCC, kulula, for years. Ive had many BA flights that got cancelled and then rebooked on kulula. Makes sense to have one full flight rather than two half full flights going to the same place at roughly the same time. This is a good thing and it shows that they are serious about their issues this time.
Stick a fork in it. It’s done.
It would be a shame let alone disruptive to regional flights in southern Africa if SA continues in it's current condition, let alone wondering if anything has been cut or overlooked maintenance wise, not saying just wondering.
It's been years and years of mismanagement, political paybacks etc that has led a once not so bad airline to where it is today. With tourism increasing, business travel as well SA so be the leader not...
It would be a shame let alone disruptive to regional flights in southern Africa if SA continues in it's current condition, let alone wondering if anything has been cut or overlooked maintenance wise, not saying just wondering.
It's been years and years of mismanagement, political paybacks etc that has led a once not so bad airline to where it is today. With tourism increasing, business travel as well SA so be the leader not what it is today. Ethiopian Airlines looks to become the main force in Africa as Kenya Airlines also have their issues.