THE question is not whether South African Airways is on British Airways CEO Willie Walsh’s list of acquisition targets, but what it means if it is not.
While there may be some good reasons for BA to take a hard look at the state-owned carrier, there are many more why it would not.
If it does not, SAA would find it harder to compete with the mega-airlines on the one side and the low-cost carriers on the other, forcing it to trade in an ever-shrinking pool of opportunity.
In the past few years, British Airways, Lufthansa, Air France-KLM and Emirates have already made many long-haul routes unviable for SAA. At the same time, its much- vaunted African expansion will come increasingly under threat from local airlines such as 1time and Comair and other carriers on the continent that are also expanding their reach.
“It is a challenge that is facing all mid-sized legacy airlines around the world such as SAA and Olympic, with the mega-airlines dominating the long-haul routes, leaving the short-haul markets to low-cost carriers,” says Prof Rigas Doganis, chairman of aviation consultants Rigas Doganis & Associates and a former board member of SAA.
Mr Walsh’s announcement at the weekend — that International Airlines Group , the holding company for the merged British Airways and Spanish airline group Iberia, had identified 12 airlines as possible acquisition targets — marks the start of the next major phase of consolidation in the industry.
While Mr Walsh did not name the airlines and emphasised the group had not yet had discussions with any , industry watchers were quick to draw up their own lists . These included India Kingfisher and Brazil’s TAM. Some even named SAA.
There are factors that would make SAA attractive to BA.
On the continent, it remains one of the best-run airlines, based in a country where there is good airport infrastructure and a vibrant domestic market.
But there are many more reasons BA would look elsewhere. For one, the government is not selling. Then there is BA’s franchise agreement with local airline Comair, which continues to provide access to a strong domestic network and increasingly to a growing regional network.
Another negative is that SAA is already aligned with Lufthansa in the Star Alliance. The German group would not take kindly to BA tampering with a cosy relationship that allows it to tap SAA’s domestic and regional traffic without the hindrance of ownership .
And finally, SAA’s, or any African airline’s, attractiveness to BA must be weighed up against other potentially lucrative markets such as India, China or Brazil.
That is likely to leave SAA to battle airline consolidation on its own, a process that will no doubt shape its ultimate future strategy — a small airline carving out a niche on the continent.
SAA will have to give up any hope of becoming a world airline or serving the government’s strategic imperatives of creating new trade and tourism routes .
The dominance of the three main European mega-carriers on SAA’s traditional long-haul routes has ruled out growth in Europe.
Emirates can only add to SAA’s problems, dominating many routes into Europe and Asia from its hub in Dubai. Airports Company SA said in its 2009-10 annual report that Emirates was its best perform er in terms of passenger growth and market share, growing by 12% and 3% respectively.
Fortunately, Delta Airlines remains SAA’s only competition in North America and Qantas in Australia, after the withdrawal of V Australia. South America may provide growth opportunities, but that is likely to change in the next few years — look for the entry of Brazil’s TAM and Chile’s LAN into SA in the next few months.
That leaves Africa as SAA’s last hope, but challenges have arisen there too. While it has already made strong headway , low-cost carriers such as kulula.com and 1time are snapping at its heels .
While SAA may still have a first-mover advantage , its growth is being hampered by its inability to expand as aggressively as it may like. While it may be adding new aircraft in the next few years, it is a renewal rather than an expansion programme. The airline simply does not have the balance sheet to go on an expansion drive.
But as Prof Doganis points out: “It is not proven that size is critical in ensuring high profitability. Some of the most profitable airlines in the world are mid-sized smaller carriers. While a motivation for the BA-Iberia merger was cost savings, this will take years to be achieved.”
For SAA that means becoming a niche Africa operator that strives for the best connections, on-time performance, pricing, safety and the best service in the air on certain key routes. A point-to-point airline which feeds and is fed by the major operators.
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