Jarana stands to deliver

The past few years have not been kind to South African Airways. One of Africa’s oldest and most-respected carriers, it has not made a profit since 2011 and has experienced a revolving door of chief executives, several of whom have been suspended or dismissed for alleged transgressions.
The short time in office of many of them made it difficult to get to grips with the airline’s problems.
Those problems have included an ageing fleet and increasingly intense competition from non-African carriers.
These factors have put the company in a difficult financial situation, with the South African Government having had to step in with several cash infusions or financial guarantees in recent years to allow it to continue trading.
In the 2017-18 financial year, for example, SAA is receiving ZAR10 billion ($700 million) for recapitalisation. That money will be used partly for working capital and partly to settle debts, enabling the airline to reduce its interest expenses.
The good news is that the South African Government believes that retaining a national airline is still in the country’s interest. “The airline remains a strategic asset and, in its role as flag-carrier, it serves as an economic enabler with direct and indirect benefits across a wide range of economic activity,” the National Treasury noted in July 2017.
However, a turnaround is urgently needed. That is the situation into which Vuyani Jarana stepped when he took up the role of CEO in November 2017.
Jarana arrived after two decades with South African telecom company Vodacom. He is the first to admit that he has no previous experience with the airline, or the sector generally, “except flying on the airline”.
He was appointed after being chosen by an external headhunting agency as the man most likely to turn around the ailing company. He does not know which factors made him the first choice, but says that he brings strong commercial experience to the table and has also been involved in a technological environment for many years.
In some ways, an airline’s business is straightforward, he said: “Essentially, it’s about facilitating the movement of passengers in the most secure and comfortable manner.”
And, like many other sectors, the customer has to be at the centre of the business.
However, his first priority is stemming SAA’s financial losses. As part of that process, he is working to get lenders back on board; several major financial institutions declined to provide further funding to SAA in 2017.
Alongside this is the need to change the airline’s internal culture, to drive the commercial orientation of the airline’s services. In other words: “What it means to be profitable and to have more and more customers preferring you ahead of the competition.”
That focus on profitability and customers can be built on the foundation of SAA’s strong reputation in the operational field.
“Look, SAA is a very good airline in terms of operations and safety but for years it’s not been profitable,” said Jarana. It was essential to build a leadership focus on winning customers and giving them a good experience during their flights, he said.
The airline business today has notoriously low margins, which means that a tight rein on costs is essential. On the other side of the coin, new income streams are essential. For that reason, there will be a major focus on augmenting traditional income from airfares with ancillary revenues.
And, to improve efficiency: “We need to put together a strong ‘big data’ analytics capability, both in terms of systems and people, to liberate customer engagement and give passengers what they want. Segmentation is going to be key.”
Segmentation has become a major component of successful airlines in recent years, particularly in the US, where major carriers are increasingly dividing up the mass of economy-class passengers, giving them a series of price points from which to choose. A passenger can opt for a basic, no-frills flight, perhaps with limited baggage and less seat pitch at the rear of the aircraft, pay a bit more for a few frills, such as advance seat reservation, or upgrade to premium economy.
Equipment is another area on which SAA has to focus. It has been operating an increasingly outdated fleet in recent years, with its long-haul services still mainly based around the Airbus A340-300 and -600. The four-engined A340 has rapidly disappeared from most other major carriers’ inventories, as the efficiencies of the ‘big twins’, such as the Boeing 777 and the Airbus A350, have become apparent.
“At the end of the day,” said Jarana, “the aircraft becomes a big part of the proposition, so if you have an aircraft that doesn’t offer modern, comfortable, flights and services that customers are looking for, your competitive ability is very limited. We are making sure we have a fleet fit for purpose, together with network design.
“It will take us a while to get there – until we get into a better position financially. Alongside that will be fleet strategy. But for now, it’s all about optimising the current network and maximising the return on current assets.”
In a move towards the ‘big twins’ approach, SAA last year introduced the Airbus A330-300 on its services from Johannesburg to Washington DC, via Dakar, with a new business-class product and improved economy-class cabin. It is also due to introduce the 249-seat A330-300 (46 business, 203 economy) on the Jo’burg-London route in April 2018.
In an example of optimising the route network, however, the arrival of the new aircraft on the London sector is being accompanied by a drop from the current double-daily flight to a once-daily frequency.
“In terms of route optimisation, we’re looking through our portfolio and looking at routes that are not profitable. We have a number of routes where we can recover profitability in the short to medium term; those that we can’t, we are dropping or reducing capacity,” said Jarana.
“We’re pruning the tree, strengthening the rest so that it can bear better fruit.”
The giant Middle East airlines have, in recent years, increasingly pushed into Africa, siphoning up traffic through their hubs at the expense of African carriers. How does SAA propose to compete?
“One has to be very clear on how you compete in a market where scale is becoming a big driver of competitiveness,” said Jarana. “If you’re never going to get to the scale economics of some of the bigger players in the short to medium period, you have to develop a different strategy.”
One key point in SAA’s favour, he said, was that it provided direct routings to its destinations, rather than connecting through an intermediate hub.
However, it was also essential that a carrier offered excellent service to its passengers. “I think SAA has a great advantage in terms of our people. Yes, we have to improve, but my experience in terms of our own cabin crews gives us a big differentiator in the market.
“If I take my own experience, comparing SAA with other airlines, I think we have the ability to compete, but we need to accept that the air travel market is not static, it’s growing. So, the fact that you have bigger guys putting in more seats [to the market] doesn’t necessarily mean that the medium-sized guys will necessarily lose. I think we can both grow.”
Do low-cost carriers also pose a threat? “When an airline has only a full-service model, you feel you’re being challenged. Fortunately, we have Mango, our own LCC, so that gives us a chance to compete in both markets,” concluded Jarana.