COLIN BAKER LONDON
As it gears up for key strategic decisions on alliance membership and a possible privatisation, South African Airways (SAA) is reviving its amibition to develop a hub network across sub-saharan Africa. To add to its own southern base in Johannesburg, SAA wants to develop more central hubs in East and West Africa to add network potential.
Former SAA executive vice-president Bill Meaney formulated this tri-hub strategy before he left for a short spell at the Star Alliance in 2000. However, previous attempts to develop outside its home market have foundered. The SA Alliance joint venture, which SAA formed together with carriers in Uganda and Tansania in the mid-1990s, eventually petered out. A codeshare deal with Nigerian Airlines in the West also failed.
SAA is now looking to revive this plan by taking a stake in Air Tanzania, which is up for privatisation. In addition, it is scouring West Africa in search of a similar arrangement. Bilateral deals mean these will be minority stakes, although SAA is likely to seek a significant amount of management control.
SAA believes that this strategy will give it a stronger position in its negotiations with the global alliances. "We do not want to be treated as the small kid on the block," said Richard Forson, vice-president corporate finance, speaking at a briefing in London.
SAA was invited to a recent SkyTeam management meeting and has held talks with Star and oneworld. At the same time Lufthansa Systems is also courting the carrier in an attempt to replace EDS, which became SAA's IT provider after acquiring Atraxis. Forlson says that SAA is weighing up the options, although he notes that there could be difficult regulatory issues surrounding a link with oneworld, given the importance of London in the carrier's international network.
In addition to its alliance decision, SAA is looking to rekindle its privatisation efforts. Transnet was forced to buy back the 20% SAir stake at a heavily discounted price following the collapse of the Swiss group. The South African government has been courting Singapore International Airlines as a potential investor, although Forson stresses that "all options are open".
He makes it clear that his priority is "sustainable profitability on a long-term basis", and adds that following the disappointing experience with SAir's minority stake, an equity partner is far from the only iron in the fire. Forson would like to see three straight years of profitability before privatisation to provide a credible track record. With an operating profit of R553 million ($52.8 million) in the last financial year, this sets a target date of 2005.
Source: Airline Business
