WHILE SA Express
has requested
R1,74bn from
Treasury to recapitalise the
airline, it has re-entered
the market with fares that
are unsustainably low
and will only prolong the
airline’s losses, according to
industry players.
The carrier has also
asked National Treasury if
it can take credit lines with
South African banks. Siza
Mzimela, SAX acting ceo,
said the recapitalisation
would go toward buying
spare parts, overhauling
the engines of its grounded
aircraft and paying off
creditors. She said the
three-month grounding
period meant SAX would not
break even, or turn a profit,
in the next 12 months.
The airline has also
cancelled its leasing
contracts, and stopped a
R2,4 million fuel contract.
The SAX board told
Parliament’s Public
Enterprises Committee that
the airline was currently
‘dysfunctional’ and that it
had instructed its managers
to review all major
contracts to determine their
affordability, cut costs and
analyse the profitability of
its routes.
But competing airlines
report that the carrier has
slashed fares on its return
to the market. Miles van
der Molen, ceo of CemAir,
way back into the market’.
He said, based on his
understanding of the average
unavoidable cost of operating
various routes, it was
possible that SAX was selling
these flights below cost.
“The question is whether it
is morally correct to do this
on the taxpayer’s dime, and
whether or not the practice
falls within the realm of legal
competitive pricing.
“Given the difficulty it
will face when returning
to a market flush with
competition, I would
forecast that SAX will not
easily be able to recover its
direct variable operational
expenditure,” said Rodger.
“The more it operates, the
bigger its loss will be.”
He added that, looking to
open credit lines with banks
appeared to be misguided.
“The shareholder should
recapitalise SAX, rather than
approve agreements and
provide sovereign guarantees
that will place the airline in
more debt. And one should
question the wisdom of
burdening the fiscus further
in the current recessionary
economic environment.”
Travel agents canvassed
by TNW have reported mixed
sentiment from clients
towards SAX. A number of
agents said their clients were
concerned about the safety
of the aircraft and wary about
supporting another SOE that
kept requesting bailouts,
although some clients have
welcomed the carrier’s return,
responding positively to the
cheaper fares.
SAX was unavailable for
comment at the time of
print.
