CEO Interview - Uniting African Skies
South African Airways CEO, Siza Mzimela, says African carriers cannot continue to operate in isolation if they are to compete on the global stage
How is South African Airways coping with the current market conditions?
It has been a very difficult operating environment in recent months. We don’t have the official figures yet but I’ve been very pleased with how well we have coped with the situation.
Typically we find our regional African and domestic operations do very well although we have seen some softening in the load factors. Part of the reason for this is increased competition from low cost carriers. In response, four years ago, we started our own LCC, Mango, to allow us to differentiate the SAA brand while still competing in an important market sector.
Internationally, SAA has focused its efforts on a limited number of destinations, while maintaining a presence in all the continents—Europe, Asia, North and South America, and Australia. From these, we use the Star Alliance Network to give us truly global reach.
What are the biggest opportunities ahead?
Like everybody else, we’re looking very closely at China and we plan to start direct services to Beijing before the end of the year—in addition to our Hong Kong flights. We’re also looking at Latin America, where we already serve Sao Paulo with a twice-daily service. There might be a good opportunity to link Asia with Latin America and we think Southern Africa is in a prime geographical position to take advantage.
South Africa is part of the BRIC countries, which include the fast-growing economies of Brazil, Russia, India, and China. We see our role as linking southern Africa to these economies. BRICS will form a big part of our strategy, as we already serve all these markets, except Russia.
And what are the challenges?
The bilaterals that dominate African aviation are a big problem for us. They are far too limiting. There are plenty of markets where we could increase frequency or begin service but can’t because of a bilateral agreement or the lack of one. For years we have served Luanda (Angola) seven times a week and we have a strong service to Kinshasa (Democratic Republic of Congo), for example. But we could provide a more convenient and cost-effective service by operating smaller aircraft more frequently.
These restrictions are stunting our growth. It becomes a challenge when deciding on our fleet requirements, as we have to consider building in flexibility and efficiency in a cost effective manner.
What are your feelings on African liberalization?
There has been some movement in individual bilateral deals between various states and the Southern African Development Community (SADC) countries have progressed as well.
But we are still a long way away from the vision of the Yamoussoukro Decision. There are no fifth freedom rights on the table and my view is that we’re wasting our time if we think that Yamoussoukro is the answer. We need to rethink our approach and ask why governments prefer to operate in isolation and protect, rather than open up, their skies. If we can find the solution to this need to protect markets then perhaps we could be more progressive.
Bigger carriers need to play a bigger role, I accept that. If we can offer assistance then perhaps smaller carriers would feel less unsettled by our presence. At the moment, we are simply saying we want to serve your market and the implication is we will force smaller carriers out of business. The way forward is to offer something to these carriers, a partnership approach.
But competition is fierce. International carriers are also interested in the African market and having an impact.
I certainly don’t think we should ever try to stop competition. But international carriers have an advantage over African airlines. Air France and Lufthansa come into South Africa with an A380 and that is hard to argue with. But Air France and Lufthansa have a larger home market in the region. That freedom makes them a stronger airline. They are flying where they want while we are trying hard to get the rights to serve profitable African destinations. Unless we get the opportunity to serve Africa properly we can never develop the economies of scale and efficiency needed to compete with our European or Middle Eastern counterparts.
Is African infrastructure all it could be?
It’s true that infrastructure in Africa needs to be brought up to scratch. It’s not just about where we want to fly. It’s also about where we can safely fly and where the infrastructure is of a standard our customers would expect.
There are issues with the charges being imposed by airports too. If SAA said it was going to increase its charges by over 100%, how would people respond? It’s fairly obvious. And yet airlines have to swallow these types of increases. It’s not fair.
The trouble is the ticket price is the visible part of the equation. So when people see us increasing ticket prices it becomes SAA’s problem. The passengers think the airlines are getting all their money even though most of it goes elsewhere. Airlines don’t make money because of the costs they incur. Every other player in the value chain makes money but not the airline.
Would the whole value chain working together present a better proposition to the customer?
We have to work together. We are being shortsighted because the fact is that the current situation is not sustainable. It is in everybody’s interest to develop a better working relationship. Airlines could easily disappear and many have done so already. Strange, but you never hear of an airport disappearing!
How can safety in Africa be improved?
Being safe is top priority and a prerequisite if African carriers are to be successful. It is hard to say safety in Africa is getting better because you only have to look at figures to know otherwise.
But not so long we could only talk about a few African carriers with international standards in safety. Every year now, a few more airlines are joining that list. Again, we have to stop the isolationist approach. Bigger carriers have to help and smaller carriers should be reaching out. It is more than an airline problem though. We have to get governments to drive the change in attitude.
The IATA Operational Safety Audit (IOSA) has made a real difference because the benefits of being IOSA-compliant are very tangible. And it creates a good focal point for safety discussions, a way forward for everybody.
The South African Government is pursuing its own carbon tax while opposing the UK’s Air Passenger Duty and the European Union Emissions Trading Scheme. Is this hypocritical?
There is a strong argument that says there is no need for extra taxation because the industry is working hard toward environmental targets and we should only pay once for our emissions.
We would be better off without it. But if SAA is going to be taxed then at least we’re being taxed in our home country where we can have a say and where the results of the tax can be felt and understood.
Other schemes like the EU ETS have no jurisdiction to tax SAA for flights outside EU borders. It is the extraterritorial aspect that is totally unnecessary. We feel this especially as an African carrier because too often we are on the wrong end of decisions made in other parts of the world.
So while I would be supportive of a global solution on emissions, it is hard to imagine something that will be fair to African carriers. The maturity of respective markets and airlines must be considered when we discuss the global deal. The devil is in the detail.
Did the Soccer World Cup live up to expectations?
During the event, you would have to say no. In terms of sales it was nothing special. Some routes even suffered as people were staying at home to watch on TV.
But you have to take the long-term view. So, in terms of marketing it was great because we will benefit from increased tourism and a greater awareness of South Africa.
How can we engage governments and get them to understand the economic benefits of aviation?
It is about hard evidence. We have to show governments what the results of their policies really are. We need to use the Latin American example. The region has been transformed in the last decade and we need to explore their case studies and make the evidence very clear.
We have looked very closely at some Latin American airlines to see if they have managed to do something we could replicate. They had very similar challenges to us as well as a comparable geographical position so there is probably a lot we can learn.
Looking ahead, what are your hopes for SAA?
The honest answer is typical of what frightens so many carriers and governments today. It is why we see protectionist policies. But the fact is Africa does not need as many airlines as it has got today. This is why African carriers cannot build up the same efficiencies as other carriers. The South African domestic market just isn’t big enough and it’s one of the biggest on the continent.
So we will have to think in broader terms, in pan-continental terms. Africa needs to be a consolidated market. Every country doesn’t have to have a flag on a tail. This is the main problem we have to overcome. We have to think in terms of an African flag.
As a global airline, we will continue to grow through the Star Alliance. And we will also grow our own international network. We want international reach but there is a question of what will make sense. Star Alliance works well for us now.
On a personal level, female CEOs are quite rare. Do you have any different challenges from the norm?
I think I have better opportunities as a female. Aviation is strange because it is very well suited to a woman and yet there are so few of us. I’m really enjoying it because it is almost like a different job every day. But you really need to multitask. And that is a female trait!
Aviation has always been a male-dominated industry and one that relies on specific industry experience. Credibility was always based on how long you have been in the industry. So CEOs came from a pilot or engineering background. This is why we don’t see so many women.
It is changing. We still need to bring in more women with other experience, though.
Aviation is not an industry that people move in or out of and so you don’t get the fresh thinking that this industry really needs. If we got more women with unique views then perhaps we would see better profit margins than the 0.1% achieved in the past 40 years.
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