A tale of two airlines
Two separate announcements from local airlines. One from Comair, with a proud history and a recent management shuffle, probably courtesy of large shareholder Bidvest (thinking out loud here) and the other from state-owned (that means we are all shareholders, right?) company SAA. A client of ours worked for the company for a number of decades and his comment was that since he had started working for SAA, he could not remember a year when it was actually profitable. I cannot verify if this is true, but I will take his word for it. We all had a chuckle. Or should we chuckle? Surely R4bn to R6bn that the state entity is asking for could be better used elsewhere?
I quote from a Business Day article titled “SAA needs extra R6bn from state as costs bite”: “SAA chairwoman Cheryl Carolus insisted in Parliament yesterday that the R4bn-R6bn required was not a bail-out for mismanagement or for ‘going wild’, but to fund SAA’s future growth.”
Just a reminder, the difference between R4bn and R6bn is R2bn. The market cap of Comair is R783m. So, by using a rough figure from the seemingly neverending pot of money, Carolus is saying that the difference between what SAA needs at the bottom and top end of the range is roughly two-and-a-half times the entire market cap of Comair.
Comair unfortunately registered a loss, something that is not rare for the industry, but quite rare for the group. Very rare. Through all of the tough times over the past five years, Comair has made a profit. The very latest SAA annual report on the DPE Annual Reports 2011 website link is for 2008-09. Hmm … SAA lost money in 2006-07 all the way until 2007-08, while Comair was making money, even before restructuring costs. This cost is to you, the ordinary citizen. So if Comair made a loss because of a tough operating environment, then you can bet your bottom dollar (rand) that SAA will do worse.
SAA reported a combined profit of more than R1,2bn for 2010-11, but this year, as the article suggests, SAA will probably be in a loss-making situation. Probably? It is tough for everybody in the space.
How does Comair see the future? The short term? Prospects look more than a little sour, but having done the hard yards on costs: “We remain of the opinion that the high oil price and a weak global economy will prevail for the foreseeable future. Airlines that do not substantially reinvent themselves will not survive in this new environment, as demonstrated by the failure of a number of airlines globally in the first weeks of 2012.”
They offer an equally compelling service, a better service in my opinion. But you see the point that I am trying to make? Public money does not sweat as hard as private money. Ever. Nor is it more efficient. Almost never as efficient. As a capitalist (pig with tendencies, perhaps) I will support the private entities. It might sound unpatriotic, but then again, so is using hard-earned tax money to continue to bail out dithering state entities that seemingly don’t get that the pot of money has a bottom.
SASHA NARYSHKINE at VESTACT