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Building on restructuring: SAA financial results presentation for year ending 31 March 2009

Johannesburg, 28 September 2009

Building on restructuring: SAA financial results presentation for year ending 31 March 2009



  • Net profit of R398-million against a net loss after restructuring costs of R1,085-billion previously.
  • Operating profit of R1,9-billion, against a breakeven last year (before restructuring costs of R1,3 billion).
  • Total airline income grew strongly by 19% to R26,4-billion from R22,3-billion previously
  • Costs (excluding energy and restructuring costs) increased by only 2% from R15,6bn to R15,9bn despite the weaker rand prevailing during much of the year under review.
  • The energy bill rose R1,9-billion (or 28%) to R8,6-billion from R6,7-billion previously. This comprises almost 35% of total operating costs in the current year.
  • Re-negotiated Airbus A320 order results in positive impact on the income statement of R407-million.


,b>South African Airways (SAA) today released its financial results for the year ending March 2009 reporting a net profit of R398-million against a net loss after restructuring costs of R1,085-billion previously.

The current year net profit did, however, include a credit of R407-million attributable to the net reversal of the 2004 impairment of pre-delivery payments (PDP’s) paid to Airbus on the A320 purchase. The PDPs were impaired at the time because the deal was thought to have been cancelled. Agreement has since been reached with Airbus to reinstate the deal under more favourable terms that are acceptable to SAA.

Critically, the airline posted a significant turnaround at operating level, posting an operating profit of R1,9-billion for 2008-09 against a small operating loss of R72-million the previous financial year (before restructuring costs of R1,3bn).

The financial results were achieved despite the tough trading environment which prevailed for the latter part of the year, with the oil price rising to record highs during the review period and the global economy going into meltdown. These contributed to the airline industry entering one of its cyclical downturns, with more than 30 airlines globally being forced to shut down. The strong demand for travel seen at the beginning of 2008 started to dampen in about September, and demand continues to remain under significant pressure.

SAA managed to not only survive these turbulent conditions but also to post a strong operational turnaround which was due largely to the deep and fundamental restructuring the airline embarked upon in 2007. The restructuring process was concluded at the end of this financial year (March 31 2009) with tangible results such as cost reduction, revenue growth and efficiency gains. The restructuring resulted in a total of R2,5-billion in cost reductions and revenue being taken out of the airline over the two-year period, which was 8% above target.

As a result, SAA was able to weather the downturn in the aviation industry, and was also able to better manage the impact of increased competition from other airlines. SAA experienced strong growth in market share in Africa, which remains the most profitable market following a strategic decision to concentrate on growth plans in the region. Domestically, the airline’s position remained strong and was backed up well by the low-cost carrier, Mango. In the international market, there was growth in a number of markets, including South America and Australia, although several other markets were negatively affected by the economic downturn, notably North America and Europe.

"In light of the massive challenges currently being faced by airlines around the world following the global economic meltdown, our restructuring intervention was embarked upon most timeously. SAA is operationally profitable today due mainly to the achievements forged under the restructuring programme," says Chris Smyth, SAA Acting CEO.

Revenue and earnings

During the review period, total airline income grew strongly to R26,4-billion from R22,3-billion previously, an increase of 19%. Passenger revenue improved to R17,3-billion from R16,5-billion previously despite a reduction in frequencies on the domestic and international routes towards the latter part of the year. It was driven mainly by continued excellent growth on the African route network as well as improvements in the efficiency and utilization of aircraft.

At the operating profit level, the loss of R72 million (before restructuring costs of R1,3bn) posted in 2007/8 was turned into a profit of R1,9-billion. SAA’s net profit for the year to end March 2009 amounted to R398-million against a net loss after restructuring costs of R1,085-billion previously, although included in this was R407-million profit from the reversal of the prior year impairment of Airbus pre-delivery payments.


Operating costs increased to R24,5-billion for the year to end of March 2009, from R23,6-billion the previous year. This was dominated by the energy bill, which rose R1,9-billion (or 28%) to R8,6-billion from R6,7-billion previously and made up almost 35% of total operating costs. This was driven largely by the sharp increase in the oil price in 2008, when the dollar price per barrel of brent crude oil rose sharply in July of that year. Excluding energy costs, operating costs decreased by less than 6%.


As was common with many of the world’s leading airlines, the sharp rise in the oil price had an impact on SAA’s hedging programme. Hedging is a critical tool in the arsenal of any company that is exposed to oil and currency movements in the financial markets. It provides a means to mitigate the level of exposure of companies to these movements, and it is thus common practice for airlines around the world to hedge to some degree. SAA is conservative in its approach to hedging, with the approved target range being 40% to 60% for fuel and 50% to 75% for forex of the 12-month rolling future purchase. This should be viewed against an industry norm of hedging up to 80% of fuel uplift and for four years. The conservative nature of SAA’s hedging minimised the airline’s potential hedging losses, particularly when compared to the losses seen for other carriers. SAA’s programme of hedging its monthly uplift of 50 000 barrels a month resulted in 40% of the monthly purchase of fuel increasing significantly to July 2008, and thereafter declining to the current levels of US$60 a barrel. In the environment of a declining oil price, hedging losses of R1,046-billion were incurred.


In 2008-09, SAA made a net profit of R398-million. This is compared with a net loss after restructuring costs of R1,085-billion in 2007-08.


The airline has a commanding presence within Africa, a region that so far seems to have been less affected by the recession than the rest of the world. This gives SAA a unique natural hedge against the full impact of what the rest of the world is feeling, although it seems clear that this advantage will not be sustainable for long.

"Africa has started to feel the pain however, and the strong regional growth experienced in prior years is waning, particularly in the oil-rich regions that rely wholly or mainly on oil now that the sky-high prices that generated much of their growth have all but gone," says Smyth.

"As a team we are acutely aware of this and we know that we must continue to root out cost inefficiencies as we have done over the past 24 months. More importantly, we need also to ensure that we take advantage of new opportunities and move quickly into new markets and routes that can be sustained from a profit point of view. The airline is first and foremost set to carry out its mandate of being an African airline with global reach by further expanding its African route network,’’ says Smyth.

SAA will also continue to closely monitor its routes across the global network, particularly those which may underperform. Flight frequencies on certain domestic and international routes have already been reduced, and cutbacks on flight frequencies are foreseen for the rest of the year. These will be reinstated should there be sufficient demand to do so.

Issued by SAA Group Corporate Affairs