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28 March 2013
SAA LONG-TERM TURNAROUND STRATEGY (LTTS)
BRIEFING FOR PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES
10 September 2013
AGENDA
Agenda
Introduction
Context
1. Overview of development process
2. Document Structure
Our Strategy
Supporting Processes
LTTS Implementation
Questions & Comments
3. Strategic Objectives
4. Main Thrusts & Expected Outcomes
5. Key Decisions & Implementation focus
Commercial in Confidence
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The most comprehensive & inclusive strategy development process in SAA’s history
Necessitated by Commercial reality, informed by explicit Shareholder requirements
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Inclusivity
Benchmarked
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Actionable
Validated
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Sustainability
Governance
Process
Extensive staff engagement: 400+ suggections received;
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Stakeholder focussed
Immediate
Outcome
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SAA’s first holistic long-term strategy, drawing on 7 of the World’s top 10 consulting
groups & peer group comparisons;
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SA Express & DPE involvement throughout;
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Proven strategy development framework applied;
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Board led;
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Independently validated;
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20-year outlook horizon;
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Immediate benefits & clear path to profitability;
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Explicit emphasis on accountability & addressing weaknesses; and
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Submitted to the Minister on 2 April 2013 and to Cabinet in August.
Introduction
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Context informs South African Airways’ required & relevant Strategic response
Internal strengths & weaknesses and Market realities culminate in
Problems to be addressed and Opportunities to be pursued
Problem Statement
Assessment
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High cost base: expensive Assets &
unproductive People
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Sub-optimal capital structure
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Poor Stakeholder management
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Strong African footprint, operations &
Brand
Value destructive Business Model
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Increased liberalisation of markets
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Airline market consolidation
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Shifts in global air traffic
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Commoditisation of short-haul air travel
Context
Purpose
clarity
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Sub-optimal route network: International
losses, Regional threat & Domestic
pressure
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Opportunity Statement
New collective Group Vision & Mission
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Creation of Integrated Airline Group
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Implementation of new Network, Alliance
& Fleet Strategy
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Failure to address geographic disposition
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Long-term weakness of Balance Sheet &
high cost structure
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Developing a “Whole of State” policy
framework
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Cultural deficiencies & leadership volatility
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Governance of subsidiaries and processes
lack maturity
Immediate roll-out of human capital
development interventions
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Implementation of new Financial Plan
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Poor implementation record
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Poor decision support systems
Implementation of business
infrastructure & service interventions
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Preceived Mandate conflict
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On-going focus on cost efficiency
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No holistic aviation policy approach
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Executive implementation accountability
Scale
Sustainability
Policy
Framework
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Mission, Vision & Strategic Objectives provides clarity of purpose to South African Airways
Brought to life, every day and in every way, by the values that we exhibit
Vision
Objectives
Mission
Our Strategy: Vision, Mission & Strategic Objectives
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Our 5 new Strategic Objectives provide clarity for the Shareholder, Board & Management
SAA has to balance support for our National Development Agenda with commercial sustainability
Support for South Africa’s National Development Agenda
Commercial sustainability
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Net Operating Profit
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Net positive cash flow from operating activities
Growth will materially build on SAA’s current contribution
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Facilitating trade & tourism to major partners and
African states (26 intra-African routes) through direct
passenger and cargo services
R 8.6 billion annually contributed to South Africa’s GDP
and supporting 35 000 jobs in the general economy and
a further 44 000 in tourism (2012 Oxford Economics
Study)
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Aviation is a key enabler for the National Development Plan
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Continued improvement in transformation profile
Our Strategy: Strategic Objectives
DPE & NT, in consultation with SAA, are reviewing the financial
model and requirements for the business
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Our 5 new Strategic Objectives provide clarity for the Shareholder, Board & Management
Achieving the other 3 objectives are also critical to our long-term sustainability
Providing excellent customer
service
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A new SAA passenger Customer
Service Experience Framework has
already been developed and is being
implemented & Voyager is undergoing major changes
SAA Cargo, SAA Technical & Air Chefs
all have customer service
improvement initiatives underway
Achieving consistent, efficient & effective
operations
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SAA will build on its already outstanding
safety and on-time performance records
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A new Shareholder Engagement Model
being developed and a new approach to
reputational management and
internal/external communications
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Major inititiaves underway to improve labour
productivity, recruitement and retention,
succession planning and organisational
design
Our Strategy: Strategic Objectives
Foster performance excellence
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Driving accountability, by linking
performacne management to
reward & recognition and
consequence management
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A new Enterprise Performance
Management system will be
developed, which will greatly
improve Management
Information Systems
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Structure serves as an enabler to more effectively achieve our Strategic Objectives
Structure is also a mechanism for improved Governance
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Provides structure for asset and capital deployment coordination
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Provides mechanism for ring-fencing and/or equity flexibility
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Single point of oversight with operational specialisation across the aviation value chain
DPE
DPE
Group
Holdings
SA Express
SAA
Airlines
SAA Technical
Mango
Air Chefs
SA Travel
Centre
SAA Divisions
(Pax airline,
Cargo &
Voyager)
SAA
SA
Express
MRO
Mango
SAA
Technical
Our Strategy: force integration and accountability through structure
Logistics
Air Chefs
Loyalty
Cargo
Voyager
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Sub-optimal route network
The Network, Alliance & Fleet Strategy is at the core of any airline strategy
• Our long-haul international network is under-performing financially
• Our regional (African) network continues to perform well, however competition is
steadily increasing
• The domestic market is challenging, however our dual-brand model of SAA/Mango
leaves us well placed to respond to a commoditising market
• Mango continues ot perform well and can play a greater role for the Group in the
years ahead
• SAA Cargo continues to perform well and can can also play a greater role for the
Group
Our Strategy: we need to address our major competitive challenges
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Subsidiary and Business Unit Strategies must be aligned to the Group objectives
Plans of Action enforce accountability for delivery
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SAA Technical focussed on:
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SAA Cargo focussed on:
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Growth in SAA revenue contribution and Expansion of African footprint
Enhacement of franchisee value proposition
Voyager focussed on:
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Full implementation of transfer pricing and Process enhancements to improve efficiency
Top-line revenue growth
SA Travel Centre focussed on:
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Integration of SA Express Technical, synergy extraction with Denel and In-sourcing of high-value services
African expansion and continuation of existing Turnaround Plan
Cost-effective enhacements to redemption options
System rejuvenation
Air Chefs focussed on:
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Product enhancements, customer wins
Process improvements and loss control
Our Strategy: align efforts while retaining unit-level focus
Supporting processes are focussed on Efficiency and Effectiveness, reducing cost and
ensuring service consistency
Balanced Scorecards serve as instrument to translate strategy to tangible actions
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Human Capital: Performance management, succession and accountability emphasis
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Sales and Distribution: Increasing reach through cross-Group leverage and specfic segment focus
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Operations: Continued focus on safety and operational integrity, along with automation and cost compression
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Information Technology: Modernisation of business support infrastructure, MIS & direct service/sales channels
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Environment: Focus on meeting compliance requirements
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Marketing: Brand standardisation and rebuilding
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Communication: pro-active, commercialy orientated messaging to highlight the value SAA adds to South Africa;
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Customer service: Alignment of processes, systems and people to deliver consistent service externally benchmarked
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Procurement: Compliance emphasis and focus on service level management and enterprise development
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Governance and Risk: Focus on full PFMA compliance through improvements in planning activities
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Stakeholder relations: Development of an integrated Stakeholder relations function within SAA
Supporting Processes: the bridge between strategy & action
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All Strategies, Plans and Processes culminate in a Financial outcome
The projected Finance Plan outcomes indicates a financially sustainable business
Approach
Objectives
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Contain current Shareholder value
depletion
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Containment – maintaining liquidity and
solvency
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Redress deficiencies in the Group’s
capital composition
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Alignment – address group capital
structure
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Equip the Integrated Airline Group
with an appropriate fleet
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Refinement – strategies and plans aimed
at sustained growth
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Realise organic growth in retained
earnings
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Optimise the group’s Balance Sheet
Growth – full benefits of new wide body
fleet and resumption of international
network
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Optimisation and growth – funding further
expansion and growth (internally
generated capital and reserves)
Supporting Processes: the Financial Plan
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LTTS implementation will transition SAA to a sustainable business model
These are the attributes of successful major change programmes
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Organisational clarity on the way forward and
everyone’s role.
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CEO ownership & long-term tenure.
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Executive (Change Leader) stability.
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All actions are informed by the strategy.
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Good market intelligence reaches the leadership and
informs decision support.
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Once decisions are made they are rarely second-guessed.
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Very effective rapid implementation.
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High visibility of implementation progress for all
stakeholders.
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Alignment of performance and reward.
10. On-going strategy revalidation informed by the
competitive landscape.
LTTS Implementation: attributes of successful major change programmes
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LTTS implementation will transition SAA to a sustainable business model
Future SAA Corporate Plans will include an LTTS Implementation Plan, including all KPIs agreed with the Shareholder
1. DPE & National Treasury and
via Quarterly Reports
2. As required to Portfolio
Committee & other key
stakeholders
Board (incl. LTTS Committee)
2013-16 Corporate Plan
LTTS Amendment
CEO
Group EXCO
Turnaround Office
LTTS Implementation: alignment to PFMA cycle via annual Corporate Plan
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There have already been some quick LTTS implementation wins
Already supporting the more effective achievement of our 5 Strategic Objectives
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GHANA
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DRC
TANZANIA
ZAMBIA
MAURITIUS
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SAA & SAA Cargo African growth: SAA capacity increases on existing routes (from 6-7 weekly
flights to Accra [already operating], new schedules in place for Mauritius (8-9 weekly,
September); Dar es Salaam (11-12 weekly, October); Lusaka (18-19 weekly, October); and
Kinshasa (4-6 weekly, November). Evaluations also being completed on increased capacity to
Harare, Ndola and Windhoek
Mango operating to Zanzibar (weekly from September) and received two more aircraft and
increasing domestic scale (operational from 8 September)
Combined SAA/Mango response to Fastjet market entry
Etihad and TAM code-share agreements (building “non-metal” capacity
Nigerian National Carrier project added to West Africa Hub options (Shareholder engagement
required)
New SAA Customer Experience Framework approved by Group EXCO and being implemented
Higher utilisation of the fixed capital cost base (aircraft), from September, will further reduce
unit cost
Further (≈ R 100 million) Cost Compression Programme savings (currently being audited)
LTTS Implementation: quick wins already achieved
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Long-Term Turnaround Strategy
Questions & Comments