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During a fascinating interview with BizNews founder Alec Hogg, airline veteran and Chief Commercial Officer Simon Newton-Smith explains why newly relaunched South African Airways (SAA) is unlikely to need taxpayer funding going forward. Newton-Smith returned to SAA in August after a successful career at several major airlines, including a long spell with Virgin Atlantic, and although it’s a “very different airline”, he is optimistic about what the future holds. South Africa’s national carrier has been trimmed down from around 4,000 pre-business rescue staff to about 800, but Newton-Smith says that a modernised approach to managing the airline, with “proactive airline decisions”, is already starting to work. “To do the right thing for the airline – to do the right thing, frankly, for the taxpayer – we’ve got to build back better, but we’ve got to build back cautiously.” The full interview can be heard below. – Claire Badenhorst
Simon Newton-Smith on why he returned to SAA:
I worked for the airline 20 years ago and for a whole bunch of reasons, I’ve had a passion for South Africa and South African Airways. I’m married to a South African, we have a home here, my children are South African. I just love the country. I love the place. Having worked for the airline for four years, it’s been quite sad to see what’s happened over the last 20 years. For my sins, I’m an airline guy through and through. There is a path for South African Airways moving forward. I’ve spoken to a lot of people who can criticise from the sidelines [but] I wanted to be part of the solution and I was delighted when the conversation started. The environment felt right to come and play a role and just help this airline [get] back on its feet.
On restarting operations and cancelling flights:
We started our first week of operations around the holidays, flying three flights a day to Cape Town. Our original intended start date for all services was 27 September. A sort of National Tourism Day. The following week, we began service to Harare, Accra, Kinshasa, Lusaka, and the intention originally stated was to begin service to Maputo but we made the decision to delay the start of Maputo until December.
Going back to the first point, it’s a shame that some things get reported the way they do because we’ve made a commitment that… You know, restarting an airline is tough. Doing it in the middle of Covid-19, where your markets are generally down anywhere between 50% and 70%, adds an extra layer of complexity to the mix. The times are not usual, so we have to be data-led in terms of how we make our flying decisions. When we announced our flying programme on 26 August, I mean, that was less than a month before we started flying – it’s a tight window at the best of times – but we made a company-wide decision. We had made a commitment to our trade partners that we would use data to inform our schedules and use data if we had to change our schedules. But the one thing we would do is we would make those changes in advance of people going to the airport. Now I’ve heard so many horror stories of people arriving at the airport only to find out, flying on another airline, that their flight is cancelled on the day, and some airlines adopt a strategy of, publish flights, get the demand and then consolidate flights during the day and move people around. We’ve made the decision not to do that.
Our ambition is to get to daily flights and then back up to double daily flights. We initially published a daily schedule for Lusaka but as we could see when the numbers were building, there were some flights performing well and then there were some obvious days that were performing not so well. We made a proactive decision to say, you know what? It doesn’t make sense. We’ve got a dual responsibility to maintain a schedule, so our customers have confidence, but equally, we’ve got a responsibility to not fly with very few passengers. When you’re starting a service, it takes time to build. We’ve just been striking a balance and we’ve done that in advance. To my knowledge, we have not cancelled a single flight that has not been part of a planned schedule change. So point number one is yes, there have been changes to the schedule, but not cancellations. We’ve proactively changed the flight programme to fit capacity with demand.
When we had the first batch, and we’ve literally done one round of changes, we did that the week prior to launching the services into the regions. It was either on the 23rd or the 24th, the week prior to flying the regional flights from the 27th. There have been no changes to the Cape Town schedule. However, there were changes to Lusaka and a proactive decision to delay the start of Maputo, which, again, was just a sensible airline decision. We contacted every customer directly who was impacted, gave them the opportunity to move to partner airlines, change their dates, or get a refund. It impacted very few people, but again: proactive airline decision.
On why SAA is flying to places like Accra, Harare, Kinshasa, and Lusaka:
Well, a couple of reasons. The Covid-19 playbook, if you like, for airlines round the world, is actually focused on those airlines that have got big domestic markets. That’s where you play. It’s easy to travel. You are aware of what you’re dealing with. But as you well know, South Africa is well trafficked. There are a lot of very good airlines plowing the same routes. Frankly, the quickest way back to business rescue for South African Airways would have been purely flying Cape Town and Durban. So the rationale was about spreading the network. Cape Town is by far the largest market in Africa. We’ve tapped in with the small footprints of the Cape Town market. But then, there’s a multitude of places that you can fly across the region.
Historically, regional flying has been the bread and butter, if you like, of South African Airways. So we were looking for markets that were relatively open. Right now, Nigeria is not an easy place to get it in or out of. So which markets are open? Which markets can we see that there’s been some demand during Covid-19? Which markets are showing some increasing demand looking forward? We’ve got data that helps point us in the right direction. And frankly, where are the fares in the market that will allow us to add our seats? When you add capacity to a market, the pricing comes down a bit, but even with that, could we offer the value for money in the market and still make a profit? So essentially, those were the five or six factors that determined that initial selection.
On why SAA is not doing long haul flights yet:
In the short term, what we do know is the domestic market will return first. The regional market will return thereafter. It will be the long haul that will take longer to return. What has happened in the UK with the removal from the red list in the last week is undoubtedly going to create a surge in short-term demand, but we shouldn’t confuse the short-term surge with the underlying trends, and all of the indicators are that it’s going to be well into 2022, if not 2023, before we see any global normalising of leisure long-haul travel demand. So we’ve got to be really careful.
We could jump on that bandwagon. We’ve got aircrafts that can fly to London. We still have the slots and still have the licences. We could do it but it would not be the most prudent thing to do for the longer term. So part of our strategy will be working with partners to help folks from the UK get into South Africa and then connect to the South African Airways network, as well as the other airlines. We can still benefit from the changes but we won’t necessarily be rushing to put aircraft back into the UK, into the US, and the long-haul routes. The underlying economics have got to be stable for longer than a short-term spike.
On plans to fly SAA to Durban:
The numbers don’t make sense right now. And as much as we want to be back in Durban, right now, and this is being transparent, if we were to operate Cape Town by itself, it would be loss-making. As part of the small network that we’re operating, it makes sense because it delivers passengers to all of the routes. Those economics aren’t there yet for Durban. We want to be back in Durban, our customers want us back in Durban, our partners want us back in Durban. But right now, if we were to add Durban to the relatively small network we have, it would probably make the whole network unprofitable. We’ve got to wait for the network to get a bit bigger before we can comfortably add Durban back in.
Part of what we’re doing is working with the opportunities today. We’ve announced that we will be resuming service to Mauritius. All of the numbers suggest it is the right thing to do. So we’ll start cautiously at the end of November with two services per week on peak days and, depending on the demand, we’ll go bigger from there. But again, to do the right thing for the airline – to do the right thing, frankly, for the taxpayer – we’ve got to build back better but we’ve got to build back cautiously.
On how small SAA is now compared to pre-business rescue:
Oh gosh, I think pre-business rescue, and I stand to be corrected on the numbers, but there was a point in time when the whole group was 10,000 people, including the subsidiaries. Pre-business rescue, I want to say it was in the 4,000s, but forgive me, I don’t have the exact number. I can tell you that right now it’s around 800, give or take.
On why things must be done differently this time:
If we just rebuild what we had, we won’t be successful. If we do something different and the SEP (Strategic Equity Partner) is certainly a big signal to doing something different there’s a massive opportunity on this continent. It has been staring the continent in the face since the late ‘90s, and it’s about how airlines operate within the region. I think sometimes African carriers have the aspirations of being the next Emirates or British Airways, and the reality is that we can’t and won’t be that. Yet, there are things that African carriers can do that the other guys can’t. And we need to be really clear on what our knitting should be and we should stick to it. The reality is that the rest of the world needs something we can provide, which is connectivity across Africa, and provided South African Airways and a number of other airlines on the continent are committed to doing what the customer needs – connecting Africa – then there is a path for success. But there is no path to success operating independently.
On SAA Voyager:
In a way, South African Airways is like a start-up airline that has got the benefit of a massive customer base already, and there’s a couple of things that we need to do. One is we need to do the right thing for the existing members. One of the things that I learnt in my first week was that 60% of all of the miles in circulation were due to expire in March 2022. That’s not a good thing for our members and frankly, it’s not a good thing for the airline because when you start flying again, there’s a massive surge in demand to use up what mileage they have. So first of all, we’ve extended those miles.
The lifetime platinum members are a big deal. It’s a small population within the airline who are very elite. To earn lifetime membership, you need to do a minimum mileage for a certain number of years. Now, we’ve not been flying for the best part of two so basically, we’ve wiped out the last two years. For those folks who earned lifetime platinum in under four years, we’ve given them lifetime platinum.
The two things I think a lot of people don’t realise is that whilst we haven’t been flying, all of the partners within Voyager have remained. Now that we’re back in business, all of those partnerships are getting reactivated very quickly. ven though our network is relatively small, you’ve still got the redemption partners of all of the Star Alliance members. Secondly, right now we are looking at some innovative partnerships with other lifestyle programmes that essentially could cross-fertilise the member base. I won’t get into too much detail there, but the reality is that Voyager is a secret weapon. Even when the airline wasn’t flying, it was still the best frequent flyer programme in the market. You know, certainly for those holding miles, your choice of redemption. So we’re dusting that off. We’re making it better. There’s a road ahead, I think, on all sides of the business, but the last people who will be compromised will be our Voyager members.
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