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South African taxpayers have been propping up Mango Airlines through SAA, with substantial discounts allowing the carrier to keep its flight prices down – effectively plugging a hole in its finances. This was revealed when the airline’s financial statements were shared with Fin24 this week after SAA chairperson Dudu Myeni took the credit for Mango’s impressive financial performance. Beneath the veneer of success are creative moves between SAA and Mango to keep the numbers looking pretty instead of a tale of pure commercial acumen and smart management. The revelations raise questions yet again about the ability of Myeni to preside over a major South African state-owned entity. SAA is costing taxpayers billions of rands, with Mango contributing to these losses, yet the government is unwilling to relieve Myeni of her duties. It seems evident that running national airlines as state entities is not in the best interests of South African taxpayers. The sooner the government comes to its senses by privatising SAA, the better. Until then, and in the absence of a major change in leadership at SAA, the airlines are likely to be a drain on the country’s coffers. – Jackie Cameron
By Matthew le Cordeur
Cape Town – Mango Airlines made a net loss of R36.9m in the year ended March 2016, its most recent financial statements show.
Fin24 was given a copy of Mango’s 2014/15 and 2015/16 annual financial results on Tuesday, after South African Airways (SAA) chairperson Dudu Myeni delivered outstanding annual financial statements of SAA’s subsidiaries to the Standing Committee on Finance.
The parliamentary committee had requested them in terms of the Public Finance Management Act and the SAA board is expected in Parliament on Wednesday to give an update on progress made since being appointed a few months ago.
This is the first time Parliament and the public has been able to get a glimpse inside the financial performance of the low-cost national airline, which is 100% owned by SAA.
This is the second time in 10 years that the celebrated airline has not made a profit. In fact, Tuesday marks the exact day in 2006 when Mango first took to the skies.
The decline in profit comes after the airline made a net profit of R40.26m in 2013/14 and R38m in 2014/15.
Mango, which operates a fleet of 10 Boeing 737-800 aircraft with a seat occupancy rate of 81%, made R307m in earnings before interest, tax, depreciation and amortisation, down from R310m the prior year.
— Mail & Guardian (@mailandguardian) June 18, 2016
“This loss contributed to the massive R5.62bn loss incurred by SAA and begs the question as to why the entity exists as a separate company with all the overhead costs associated with being a stand-alone entity,” Democratic Alliance MP Alf Lees told Fin24 on Tuesday.
“The current National Treasury argument that SAA and SA Express should be consolidated should apply equally to Mango being consolidated with the other two airlines into a more cost effective and efficient single entity that turns a profit instead of being a drain on taxpayers,” he said.
From a salary perspective, acting CEO Nic Vlok earned R3m in 2016 in salary and benefits, down from R3.347m in 2015 and up from about R2m in 2014. Former Mango CEO Nico Bezuidenhout’s total package totalled R4.42m in 2015, down from about R5.47m in 2014.
Mango points to predatory pricing probe
In its report, Mango acknowledged the Competition Commission inquiry into allegations that “SAA has been and continues to sub-lease aircraft to Mango at discounted rates, and that this conduct has allowed Mango to price its flights below operational costs”.
“This, so alleged, amounts to predatory pricing,” the directors’ report states.
The investigation was launched after the DA reported the airline to the commission following a statement by Myeni, in which she tried to downplay the resignation of Bezuidenhout.
In the June 11 statement, Myeni said “SAA materially contributed to the much-celebrated financial performance of Mango Airlines and will continue to support the airline should the need so arise”.
Bezuidenhout was hailed in the 2016 report, with Mango chairperson Rashid Wally praising his “absolute commitment and drive”.
“Nico has led Mango from an idea on a piece of paper through to what we are today, surrounded by a team that has believed, and still aspires to the ideals of the Mango brand,” he said.
End of many years of secrecy – Lees
Lees said he was pleased the reports have finally been tabled “after many years of secrecy”.
“The tabling of these reports comes after the matter was initially raised by the DA in parliament some two and a half months ago,” he said. “Despite a commitment at that time from Deputy Minister of Finance Mcebisi Jonas that Mango and other SAA subsidiaries’ reports would be tabled, they were not tabled with the SAA annual reports,” said Lees.
“It required a further written follow-up from the DA before they were finally distributed today, the day before SAA is to appear before the Standing Committee on Finance.”
In a statement to celebrate Mango’s 10 year anniversary on Tuesday, Vlok said that economic conditions are expected to remain flat during the next 18 months and market competition will remain “fierce”.
“We do not expect to announce additional network points or increase our fleet at this time,” said Vlok.
“Mango’s focus in the short term will be to maintain and grow market share on the routes that we already operate and to drive cost control and operational efficiencies while ensuring continued commercial success.
“The market is not conducive to expansion and business prudence in volatile conditions is paramount.”
Vlok said Mango’s highly cash positive position and proactive commercial agility will stand the airline in good stead during challenging times.
“The market remains oversubscribed in terms of available capacity,” he said. “Mango took a strategic decision some months ago to disengage from unsustainable price sparring between other low-cost carriers and focus on our strengths, product and track record while remaining affordable and widening our distribution reach.
“The consequences of buying market share artificially with unsustainable fares have seen several airline casualties along the way. The South African consumer deserves airlines that offer value and affordability and, importantly, longevity.”
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