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SOUTH AFRICAN AIRWAYS REBOUNDS

Anyone who walks through the executive suite of South African Airways (SAA) today cannot fail to feel the fresh wind of change which the American-style management has brought to the traditional South African carrier in the last few years.

In fact a radical rethink was urgently required: whereas SAA had enjoyed a virtual monopoly on routes to South Africa in the days of apartheid, when this was abolished suddenly all the major European airlines started flying to the Cape. Never had South Africa experienced such a boom in tourism and business travel. Since 1994, the number of airlines flying to Johannesburg has risen from 20 to at times 90 carriers.

The state-owned flag carrier could not cope with the massive international competition and continued to operate like a ponderous official body which often treated customers as unwelcome troublemakers. When the losses mounted after 1994 and SAA's market share sank dramatically, the government decided to seek help from outside.

On 15 June 1998 the American Coleman Andrews took up the post of Chief Executive Officer, having previously managed World Airways and also worked in the White House. He was shocked by what he found in Johannesburg. "I felt like a surgeon who visits the casualty department at midnight," Andrews recalls. The airline seemed to him like a "dozy, semi-governmental organisation in a condition of strategic disarray. Whole operational areas were producing appalling results, flights were endemically late, there were significant weaknesses in sales control, results in all the key areas were getting worse, and so were morale and market share."

He immediately replaced 13 out of the 15 members of the management team, which, as in virtually all comparable companies in South Africa, was dominated by white, Afrikaans-speaking older men, whose old followers made the company hopelessly inefficient and resistant to change. The new CEO also brought over half a dozen experts from the USA with him. These lost no time in restoring life to the clinically near-dead patient.

Before Andrews took up his post, he carried out some stock-taking of his own and flew on a total of 19 SAA routes in order to be able to observe the service. "Our best flights were better than those of the most prestigious carriers in the world," he found, "but our average was not even close to what our customers deserve."

Andrews and his team made it clear to the 10,300 staff how serious the situation was. One of the first priorities was to improve punctuality. At the end of March 1998 only 70% of all take-offs and landings were on time. The situation was particularly bad on the intercontinental services, where only 60 to 62% of flights kept to their scheduled times.

Andrews introduced a bonus system under which if punctuality was improved staff would receive additional monthly payments of 50 Rand (around $7.50) and the chance to take part in a dozen prize draws in which the prize was a car. It worked: today around 90% of all flights are on time. The story was similar with regard to improvements in sales control. When he arrived at SAA, flights which were designated as full often took off with empty seats, while standby customers were left standing at the gate. "The system could be described, at best, as primitive," Andrews recalls. US specialists helped SAA to achieve a standard that was normal for the industry.

Other important goals which the new team were set were to shorten decision processes, reduce costs, and especially to improve customer service. "We had to redefine the human side in order to offer a consistent world-class service, from the telephone reservation through on-board service to ground service at the destination," says Andrews. His six-point plan for turning round the airline was called "Strategy for Winning".

"We have already achieved 50% of our objectives," pronounced Bill Meaney, a member of the SAA management team in an interview with FLUG REVUE in the autumn of 2000. As Executive Vice President, the American is responsible for alliances, networks and world-wide sales, and the fact that the airline is now making profits for the first time for some years is due in no small part to his efforts.

"We started off with a company which had accumulated losses of more than 300 million Rand (approx. $43 million) per year over a period of only two years," Meaney says. "In less than two years the new management team transformed this into a profit of more than 100 million Rand."

At present, however, the high cost of fuel, which has risen by around 400 to 500 million Rand in the current business year, is cancelling out cost savings of the same amount.

"We have internationalised the company, and SAA has accepted this challenge," says Meaney. These are no empty words, but describe perceptible progress which must surely impress passengers who knew the airline from before. On the immediate front are the airports of South Africa, especially Johannesburg, which serves as a hub. Only a few years ago this airport was dominated by dilapidated, gloomy and dirty terminals which could not cope with the sudden increase in passenger numbers.

Today the airport is hardly recognisable with its grand, glassy extensions, its spacious, bright sales areas with first-rate shops and very reasonable prices, and the SAA lounges, which are to world-class standard. The First Class Lounge, opened in the spring of 2000 and decorated with the finest African materials and indigenous artworks, has been a spectacular success. Next door to this, a significantly larger waiting area for Business Class passengers, complete with showers and Internet access, was due to open by November.

Another sign of the new era is the airline's e-commerce presence on the Internet (www.saa.co.za), which was implemented by Bill Meaney and his staff within a period of only six months.

On the other hand, the on-board product still has its weaknesses, especially on the Frankfurt route. Here SAA codeshares its daily service with Lufthansa using 17-year old Boeing 747-300's, to which it has recently added two further ex-Swissair jumbo jets, also for the European routes. Whereas the Economy Class is unusually spacious with a seat pitch of 86.3cm, Business and First Class customers have to make do with old seats and comparatively little free space.

"Now we finally have the financial power to improve our product," says Bill Meaney. On the trunk route to London the new First Class Premiere will be making its debut in the Boeing 747-400 in December 2000. This will be fitted with beds as at Swissair, which owns 20% of SAA. In the Business Class, SAA is following the model operated by another partner, this time Delta Air Lines' acclaimed BusinessElite. But it will not be until December 2001 that these changes are also implemented on the old 747-200 and -300 jumbos, some of which SAA will continue to operate and use on the services to Germany.

The extreme lack of homogeneity in the fleet is one of the biggest millstones from the past that SAA carries around its neck as it seeks to establish itself as a global player. No one could describe it more aptly than Coleman Andrews. "We had a kind of Noah's Ark fleet - two of every type built in the last 30 years," he jokes. The consequences were horrendous - six different cockpit types, 11 different engines and no fewer than 28 cabin configurations. Despite attempts to simplify the fleet structure it continues to be a nightmare in an industry which is intent on reducing costs through simplification.

Slowly SAA is making progress, even if sometimes through unorthodox solutions. In February 2000, the airline announced its biggest ever aircraft order - 21 Boeing 737-800's worth $680 million, plus another 20 options. The first aircraft joined the fleet in the early summer of 2000, and by the end of the year five new 737's will have entered service. They are replacing three other types: seven Airbus A300's (average age 21 years), three Boeing 767-200's (16 years) and seven A320's (7 years).

The eleven old Boeing 737-200's, whose average age is 18 years, will remain in service and together with the new 737-800's, which have an identical cockpit, will form the future short- and medium-range fleet. "Today our pilots work in four expensive pools for domestic and African flights , but in future they will all fly in a single 737 pool," says Coleman Andrews. From January 2001 all the 737-800's will be fitted with 2.4m high winglets, which SAA is the first airline to have retrofitted, even before the German charter operator Hapag Lloyd. In this way, it will be possible using the new aircraft to also operate non-stop flights at maximum payload from Johannesburg to west African destinations such as Lagos and Accra.

This takes one back to the question of a new longhaul aircraft. An earlier order for the Boeing 777-200ER was later cancelled due to perceived incompatibilities with the rest of the fleet. But change may soon be under way. To quote Bill Meaney, "In the next 12 months a decision will be made; we are very open and could imagine both the A340 and the Boeing 777." But for the time being even the two 25-year old Boeing 747SP's will remain in service. "We had actually taken them out of service, but business is growing too fast and we needed them back again, even if they are completely uneconomical," explains Meaney. In general he believes that SAA's alliance strategy will be important to the decision about the fleet.

Virtually no other airline of the world, with the exception of Emirates in Dubai, is being so keenly wooed as a potential partner of the leading airline alliances, as the South Africans. "We have special market conditions," Bill Meaney explains. "SAA is five times bigger than any other carrier on the African continent but the regional market here is relatively small - only six to seven million people in southern Africa could even afford an air ticket." Given the absence of competition, everyone wants to team with SAA, but in fact the airline would prefer to co-operate to a small extent with all of them rather than working exclusively with one of them. "We are looking for different partners in different countries," says Meaney. Hence there is scarcely a carrier with which SAA is not co-operating in some form.

Just in his first year at SAA, Bill Meaney concluded no fewer than eight codesharing agreements and committed SAA to two international joint ventures. "Our new US partner Delta Air Lines brings us an extra 100 million Rand revenue per year, Lufthansa and Swissair each bring 50 million and Cathay Pacific 40 million - what global alliance could match those figures? The global alliances have simply not advanced far enough to the point where it would pay us to give up what we have now."

The most surprising thing about this is the role of Lufthansa, which lost out to Swissair in the competition to acquire a 20% minority shareholding in SAA. "Even after Swissair acquired its equity holding, we have strengthened our operational ties. Lufthansa is extremely important to us," says Bill Meaney. For SAA also has ambitions to improve its position in the German market. "Within two years we want Munich to be integrated into our route network, and we might perhaps even operate a non-stop service to Cape Town, but that would only be possible in collaboration with Lufthansa."

In the meantime services within Africa are to be massively expanded for the first time, for the curious thing is that the South Africans are actually newcomers in many countries in their own continent. Until a few years ago they were boycotted by the black African nations. Today, with 192 flights to 21 African destinations every week, they serve more cities than any other airline. The only hiccup has been SAA's attempt to team with Nigeria Airways on the Johannesburg-Lagos-New York route. The Nigerians, who do not possess any aircraft of their own to fly this route, felt that the South Africans were outmanoeuvring them and became defensive. Could SAA's new strength have already gone to their heads?

From page 36 of FLUG REVUE 1/2001