At this point a bunch of airlines are either greatly scaling back flights or suspending operations altogether. Well, there’s something that makes South African Airways’ announcement today interesting, given the company’s financial state.
SAA suspends all international flying
South African Airways has announced plans to immediately suspend all international flights through May 31, 2020.
This is in response to a government travel ban aimed at stopping the transmission of COVID-19. Specifically, South Africa has banned the entry of foreigners from high-risk countries, meaning lots of tourists would be prohibited from entering the country. While tourists from some countries are still allowed, the list of banned countries could obviously change.
South African’s service to “high-risk” countries includes:
- The United States (SAA flies to New York JFK and Washington Dulles)
- The United Kingdom (SAA flies to London Heathrow)
- Germany (SAA flies to Frankfurt and used to fly to Munich, but has suspended that route)
SAA’s other intercontinental destinations include Perth and Sao Paulo, and those flights are canceled as well, even though the countries aren’t considered high-risk by South Africa. Furthermore, all intra-Africa international flights are canceled as well.
As SAA’s Acting CEO, Zuks Ramasia, explains:
“In support of efforts by government to deal with this pandemic, and in the best interests of our crew, passengers and the public, we have decided to suspend all international flights until 31 May 2020. It is all our responsibility, not just government, to curb further transmission of the virus. In addition, the increasing risks to our crew of contracting the virus including the possibility of being trapped in foreign destinations as a consequence of increasing travel bans cannot be ignored.
We also recognise the fluidity in the conditions we operate in and the need to respond to these changes with speed, to this end we commit to keep all our stakeholders abreast of any changes on an ongoing basis.”
Could the current situation help SAA?
When this whole situation got really bad, I assumed that this would put a lot of already unhealthy airlines out of business. After all, if they couldn’t make money in good times, surely this would be the end of them. But more or less the opposite has happened.
Alitalia is being renationalized. Norwegian is getting government funding. And the coronavirus situation is… actually helpful for SAA?!
In late 2019 SAA entered business rescue, as the airline had been losing money for many years, and simply put, was out of cash and on the verge of liquidation. With this, the company was taken over by an administrator who was tasked with turning the business around, and if that’s not possible, minimizing the loss to stakeholders.
About a week ago, one of SAA’s administrators argued that this situation might actually be helping the airline. Why?
- A decrease in international flying by all airlines would decrease the cost to lease jets, making it easier for SAA to renegotiate lease terms on planes
- Oil prices are crashing, which lowers fuel costs, one of the biggest operating costs for the airline
As the administrator explained:
“The coronavirus issues and the impact on the industry means that a lot more lessors are going to find themselves with a lot of aircraft. At a risk of being too much of an optimist that’s a silver lining for our renegotiation of aircraft.”
Personally I think that’s an optimistic perspective, but I also don’t want to dismiss what the administrator has to say…
Bottom line
SAA is canceling all international flights for over two months. This comes shortly after SAA had four A350s join their fleet, so the timing of that isn’t exactly ideal. SAA has been trying to sell several A340s, and I imagine the demand for those is even lower now.
In general I do find it interesting that an airline on the verge of liquidation, like SAA, is somehow taking a positive view of their future in light of this situation. I guess SAA probably loses money with every international flight, so maybe they’re no worse off not operating flights. But they are making a lot of lease payments on planes…
What do you think — will this slump finally kill SAA, or will it actually help the company, somehow?
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