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July 21, 2017

South African Airways (SAA) is now in a terminal spiral dive, exemplifying all that is wrong with the African approach to airline ownership and operations.

In Africa, there is a prevalent notion that airlines have a dual mandate: to perform not just a key transportation function, but also a social development function.

The social development function is beguiling, in that it is tempting to use a high profile first world industry such as airlines to uplift disadvantaged communities. However, experience in Africa has shown that this development function becomes an excuse to have badly run airlines that make a loss. The irony is that this in effect becomes a completely counter-developmental diversion of funds from the poor who desperately need support, to rich airline passengers, who don’t need their air tickets subsidised.

South African Airways is a case in point. A simple calculation dividing the expected annual loss of R3.5 billion into the seven million passengers flown (excluding Mango) reveals that the South African taxpayer is subsidising every SAA ticket sold by R500. It needs to be said again – this R500 per passenger or R3.5 billion annually is desperately needed for social upliftment.

Historically, under the ANC government, SAA has cost the taxpayer around R1 billion a year. Although for many people this is still an unconscionable subsidy of the rich, there were policy makers in government who considered this to be an acceptable level of loss as the airline was fulfilling an essential development role. This role was threefold. Firstly, it was good for national prestige to have a ‘flag carrier’. Secondly, it was important for skills development, as it could enforce racial quotas far more vigorously than truculent private enterprises. And thirdly, credible studies were produced to show that the airline provided an essential connectivity for trade, and that this enables far more value creation than it costs.

Proponents of state ownership of key industries claim that these three reasons repudiate those who argue that governments have no business – or skills – running an airline, and that SAA should therefore be privatised. Champion of the state ownership proponents is the still youthfully idealistic Minister Malusi Gigaba, who became Minister of State Enterprises in 2009. Since then, there has been no serious discussion of privatisation of SAA. The old agenda remains, bad management will be appointed and the losses will continue. The question is: How much can taxpayers tolerate?

Also in 2009, President Jacob Zuma had his close friend Dudu Myeni appointed to the board, and since then the airline has been treated as an asset to be looted and managed by inept cronies. Losses have now increased from R1 billion to R4 billion per year, and much of the skilled management has left or been purged.

Using the development function as an excuse, R1 billion may, for the SA government, have been a tolerable subsidy, but R4 billion can never be. As with the ANC government, there is a groundswell revolt demanding that what is left of the airline be privatised and thus removed as a burden of the state, the tax-payer and the poor. 

 

 

 

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