More questions than answers about ‘new’ SAA

The announcement by government that it has reached an agreement with the trade unions representing SAA’s employees raises a number of critical issues regarding public policy. Most importantly, it talks to the issue of public trust, specifically what those entrusted with the management of public funds owe the public.

Government must place before the public all the relevant facts that informed its decision. Specifically, what objective will be achieved by creating a new airline and why such an objective warrants the expenditure of public funds, especially at a time when government is cutting budgets for other more worthy public policies? Why can that objective not be achieved by other means, such as through existing private sector airlines? And, how will the success of a state-owned airline will be measured?

READ: Will ‘new’ SAA fly as unions fight retrenchments?

In this regard, President Cyril Ramaphosa has already spoiled us in how government has managed the Covid-19 coronavirus pandemic. The management of the crisis has been informed by science, meaning that decisions made by the Covid-19 National Command Council are based on scientific inputs. We have been given a partial view of that science when the team of scientists advising government came forward to explain some of the reasoning behind the approaches taken.

Yes, government could have, and should, become more transparent about the science behind its decision-making. Nevertheless, South Africa ranks as one of the top countries that have gone some way towards ensuring greater transparency in their management of the pandemic.

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It is in this context, therefore, that one cries out for the same treatment of the public with regards to the promised new airline company. In short, the point here is that winning an election cannot be taken as public endorsement for office bearers to commit public resources to whatever project they deemed fit without persuading the public of the desirability of such an investment. In SAA’s case, there have been so many promises and a fortune of public funds poured into what the public sees as a bottomless pit.

The promise, therefore, that the mooted new airline will indeed be different must be informed by much more than just the word of government. It requires greater clarity upfront on a number of critical issues. Before I get to these, let me clarify a few issues, in particular the role of governments in the airline industry.

The origins and development of the airline industry have been deeply influenced by governments. This was done through regulation, investments in infrastructure or support for flagship carriers. In some cases, government participation has been through a combination of all three.

The issue of landing rights for airlines remains a matter decided by governments, whether a country’s airline or airlines are state-owned or in private hands. These are regulated through bilateral air service agreements. Such decisions will be informed by market data as well as each country’s development objectives. The building of airports, without which there will be no airline industry, remains a project driven by governments in many countries.

READ: Has SAA reached the end of the runway?

The second issue for clarity is that there is no doubt that the airline industry is a major economic sector, both in its own right, but also as an input to the other sectors of the economy. Airlines, for example, enable people to travel between and within countries, whether for business or tourism. Tourism is, in its own right, a major contributor to economic activity and the creation of jobs, especially for young people without skills or working experience. In a country like ours, which has a plentiful supply of young people with very little skill or working experience, a booming tourism sector is one way to absorb them into the economy.

Now, let’s return to the issue of the new SAA.

Firstly, government’s statement on the new airline conflates SAA’s long-standing problems with Covid-19, as if were it not for the pandemic, SAA would still be up there in the sky, propelled forward by its own financial steam. That’s simply not true. When the pandemic hit us, SAA was already on a wing and a prayer.

That said, government’s statement further makes a number of promises about a different airline. It says this new airline is premised “on a long-term vision and strategy to mitigate the impact on employees, tourism and the aviation industry more broadly, and become a catalyst for economic development and job creation”. These are noble objectives.

However, bar the impact on employees who risked losing their jobs, there has yet to be any evidence presented that shows that placing SAA under business rescue and the subsequent closure of certain routes had any significant impact on the tourism industry. Nor did SAA’s woes put any strain on the country’s aviation sector. By strain, I mean there is no evidence that the airline industry couldn’t cope with the scaling down of SAA’s route network.

Let me then spell out the kind of detail that citizens require to assess whether government knows what it is committing public resources to, and whether such expenditure will provide value for money.

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Firstly, growth in air travel has been, and will be for the foreseeable future, driven by domestic and regional flights in Africa and Asia. These continents have the fastest-growing populations and the highest movement of people from rural to urban areas. The greatest growth in middle-income earners is on these continents. Existing international routes don’t offer much growth opportunities. In addition, competition for bums on seats is most keen on the international routes. By the way, SAA burnt most of its finances on these routes – on some of them, SAA became the most expensive airline, measured on the cost of a ticket.

The question government must persuade the nation on is regarding the business model the new airline will pursue. Such a model will depend on the scale of the ambition and the determination of African governments to pursue the greater integration of the continent’s economies. Air networks are critical in this regard. However, South Africa’s key challenger in this case will be Ethiopian Airlines, which already has a head start. Ethiopian Airlines’ network may not be perfect, but it is there and has advanced a lot over the years. Despite its recent financial woes, Kenya Airways has also made some gains.

An Africa strategy for South Africa is not without its risks. These risks centre on two things. One is trying to muscle in on a network that Ethiopian Airlines already runs. The second, and most important, relates to the reception South Africa will receive from other African governments when it seeks their buy-in on extending its airline network across the continent. Then there is the big question mark about what African economies will look like once countries emerge from the Covid-19 pandemic. A number of African countries already went into the pandemic with a heavy burden of government debt, South Africa included.

READ: Staff face axe as SAA has less than two weeks’ worth of money left

Let me state also that saving jobs through pumping the billions of rands that will be required to get the new airline off the ground isn’t prudent. There are far cheaper options for ensuring that the SAA employees who can’t be absorbed by the airline industry, both locally and globally, are not left destitute.

Regarding the tourism industry, I have made the point that it is an important sector, not only in terms of its contribution to economic activity in general, but for the creation of the jobs suited for the type of labour South Africa has in abundance – low in skill and working experience.

But all we know at this stage is that air networks are important for the development and growth of tourism. How the troubled SAA drove the country’s tourism ambitions in this regard has never been supported by solid evidence. Nor is there clarity about how the new airline will do this.

Most crucially, the key question is, shouldn’t this role of driving the development and growth of the tourism industry be left to the private sector? No doubt government will continue to have a big role to play through regulation and policy development, as well as in terms of the upgrade and development of airport infrastructure.

Greater transparency on what facts government took into account in deciding that a new airline was worth creating from the ashes of SAA will go a long way towards adding credibility to the decision.

Mathebula is the managing partner and senior adviser at Cornerstone Capital Partners. Follow him on Twitter @hlengane

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