Presentation to the Parliamentary Portfolio
Committee
June 2007
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Contents
Vision and Core Values
Background
Market Position
Strategic Focus
Current Fleet & Network
Domestic Strategy
Regional Strategy
Financial Performance and projections
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Our Vision, Mission and Values
Vision
To be the most successful
regional airline in Africa
Mission
To provide the best service to our
customers whilst optimising profits
2
Background
South African Express (SAX) was established in 1994 as a regional feeder airline
to South African Airways
SAX operates predominantly on routes that are secondary within South Africa
and the region, e.g. Bloemfontein, Kimberley, Richards Bay, George and
Gaborone, Botswana. These routes cannot be served viably with larger aircraft
SAX has suffered from historical under-capitalisation. It was highly geared,
having a share capital of only R100 and therefore became reliant on Transnet
guarantees
The majority of SAX customers (75%) are business travellers commuting
between major hubs and on secondary routes (the Hub-and-Spoke system)
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Three categories of airlines
Full Service Network Carriers (FSNC) operating mainline services on larger routes (e.g. South
African Airways, BA/Comair and Nationwide)
Legacy carriers with large hubs
Segment customers into two groupings according to their sensitivity to timing of departure.
o
Time sensitive Business Pax (mostly insensitive to price) and
o
Time Insensitive Leisure / Discretionary pax that are very price conscious
High costs resulting from high labor costs and hub inefficiencies
Enjoy revenue premium driven by loyalty schemes, network and service product advantages
Low cost carriers (LCCs) (e.g. Mango, Kulula.Com and 1Time)
Single class service offering with minimal frills and simplified systems
No hubs or interlining of traffic
High productive use of aircraft, labor and facilities (frequency of operation increase units by which costs are
recovered)
Regional carriers (e.g. South African Express and Airlink )
Feed and distribute pax traffic to and from mainline carriers at their hubs
Operate point to point service in less dense markets with smaller gauge aircraft
May be independent or partially spun off from mainline parent
SAX is positioned as a regional/feeder carrier within the South African Network. Although SAX is
adopting low cost approaches as a regional carrier, SAX is not a low cost carrier (LCC)
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Regional carriers
Regional carriers mainly operate on shorter distance domestic and regional
lower density routes with smaller gauge aircraft
Less vulnerable to currency fluctuations
Less dependent on leisure travel which can be impacted by the economic cycle
Less vulnerable to general concerns accompanying, international terrorism instability
and safety demands on large African airlines
Regional carriers operate on a principle of higher frequencies with smaller
aircraft than mainline carriers
Incur substantially lower level of start-up losses on new routes than mainline
carriers
Regional carriers are ideal for development of profitable operations on thinner
routes within the African context
Despite economic environment and fluctuations in expenses, regional airlines
have shown great resilience by reporting solid operating profits
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Strategic Focus
Profitability is essential
Continue to build a strong regional and feeder airline
Identify opportunities for new secondary hubs in the African region where services are
well suited to the 50 to 70 seater gauge aircraft
SAX is amenable to co-operation with other African airlines to pursue joint venture
opportunities
This will add to the hub status of the OR Tambo International Airport and will provide
additional feed to SAA’s international network
Apply a low cost focus without necessarily adopting no frills model
Reduce distribution costs. Increase internet bookings
Promote e ticketing to reduce ticketing costs
Build efficiencies in aircraft maintenance
Re-negotiate terms of the engine overhaul contracts
Re-engineer process of management of spares
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Staff Numbers
SAX employs a total of 687 employees
Demographics
PDI - 373 (48% male, 52% female)
White - 314 (75% male, 25% female)
SAX plays an important role in training young commercial pilots. To
date 52 cadet pilots have passed through SAX
SAX still employs the first woman pilot to fly for a South African
commercial airline
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Current Fleet
Fleet size of 18 aircraft
7 Dash 8 aircraft (50-seater)
9 CRJ aircraft (50-seater)
2 Q400 aircraft (74-seater)
Daily average utilisation per aircraft is 09 hours 21 minutes
The gauge of the current fleet operated by SAX is more efficient and
profitable than larger gauge aircraft
SAX’s breakeven passenger number is significantly lower than the load
required on a 120-seater A319 aircraft
Furthermore, SAX’s turboprop aircraft are able to physically operate
into smaller airports such as Richards Bay which cannot be operated
with larger aircraft
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Current SAX Route Network
Livingston
Vic Falls
SAX operates to 7
regional
destinations and
11 domestic
destinations with
over 120 flights
per day
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Domestic Routes
Johannesburg – Kimberley
Johannesburg – Richards Bay
Johannesburg – Hoedspruit
Johannesburg – Bloemfontein
Johannesburg - George
Johannesburg – Nelspruit
Johannesburg – East London
Cape Town – East London
Cape Town – Port Elizabeth
Cape Town – Bloemfontein
Durban – Port Elizabeth
Durban – East London
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Johannesburg – Bloemfontein
This is a predominately a business route for SAX
SAX operates 9 times daily utilizing a fleet mix of between 50 to 70seater aircraft depending on peak and off peak times. Schedule begins
at 06h00 ending at 21h00
1Time operated the route using a 157-seater aircraft once per day.
However, 1Time stopped services on this route 16 March 2007 due to
the market demanding more frequency and flexibility than cheaper
fares
Other carriers such as Nationwide have attempted to offer services
between Johannesburg and Bloemfontein but terminated operations
after only a three week operation
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Cape Town - Bloemfontein
SAX had no competition on the Cape Town – Bloemfontein route until
Mango began operations on 1st December 2006. Mango remains SAX’s
only competitor
The majority of passengers are business travellers, with Mango on the
route the leisure market has shown substantial growth as Mango
targets predominantly the leisure market with lower fares
SAX currently flies 3 daily services between Cape Town and
Bloemfontein compared to one flight by Mango
SAX utilizes a 50-seater aircraft while Mango’s aircraft has a capacity
of 186 seats
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Johannesburg – George
SAX operates 3 frequencies daily between Johannesburg and George.
George, is mainly a leisure market which is highly seasonal
SAX utilises a fleet mix of between 50 to 74-seater depending on peak
and off peak times
Competitors are Nationwide Airlines, Kulula.com, 1Time and Airlink
The range and gauge of our current fleet is cost effective and has
proven to be more profitable than when SAA operated this route
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East London Market
Johannesburg – East London:
SAX operates 2 daily flights to East London utilising a 50-seater aircraft. SAX schedule
and its utilization of a smaller gauge aircraft are ideal for the business market into and
out of East London
SAA operates larger gauge aircrafts on this route, SAX has positioned its schedule at
off peak times for the mainline carriers and where the market conditions could be best
met by SAX gauge aircraft
Competitors on the route is 1Time and BA Comair
Cape Town – East London
SAX operates this route daily utilizing a 50-seater aircraft. This is the optimum aircraft
for this route due to market size
Majority of travel is business travel, and as such the schedule, frequency and service
provided by SAX have maintained and protected market share
The sole competitor on this route is the low-cost carrier 1Time who only operate on Fri,
Sun and Mon mainly to capture the leisure market
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East London Market (ctnd.)
Durban – East London:
SAX operates 4 daily frequencies using a 50-seater aircraft and the gauge of
aircraft is the most profitable aircraft that can service this market
1Time was operating on this route, but have since stopped operations
effective 15 April 2007
SAX schedule offers flexibility to passengers due to the timing of its
scheduling
Business travellers constitute 75% of travel on this route
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Port Elizabeth – Durban
Competitors are Nationwide and the low-cost carrier Kulula.com
SAX operates 4 daily flights with a 50-seater aircraft while Kulula.com
only has 1 flight per day
SAA operated this route prior to SAX commencing this operation, due
to the size of aircraft it proved to be costly for the mainline carrier The
size of SAX’s aircraft allows for faster turnarounds and more frequency
and benefits from economies of scale
The range of the schedule allows for more frequency and additional
capacity which are key on majority business travel routes
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Port Elizabeth – Cape Town
SAX currently operates 8 daily frequencies between the route utilizing a
50-seater
Competitors include Nationwide and two low-cost carriers: Kulula.com
and 1Time
SAA operated this route prior to SAX commencing this operation, due
to the size of aircraft it proved to be costly for the mainline carrier
The size of SAX’s aircraft allows for faster turnarounds and more
frequency and benefits from economies of scale
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SAX Domestic Strategy
SAX’s strategy in the domestic market is to consolidate its network and
grow frequency on routes such as Bloemfontein, Richards Bay and
Kimberley
Fares are not projected to increase due to pressure from low fares
airlines, however since SAX has adopted low cost carrier principles of
cost containment, the lower fare tickets will not cause a major impact to
profitability
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Current Regional Routes
SAX has a greater role to play in providing intra-Africa operations which
are safe and reliable
SAX currently operates to Botswana, DRC, Mozambique, Zimbabwe
and Namibia
Johannesburg – Gaborone
Johannesburg – Windhoek
Johannesburg – Walvis Bay
Johannesburg – Lubumbashi (DRC)
Johannesburg – Victoria Falls (to commence middle of financial year)
Cape Town – Windhoek
Cape Town – Walvis Bay
Cape Town – Maputo
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Johannesburg – Lubumbashi
SAX commenced flight to Lubumbashi in November 2004 and is
currently flying three frequencies a week
The competitor on the route is Hewa Bora Airways operating on Day 1,
4 and 7. The market has an unfavourable perception of the competitor’s
safety and reliability
The route has proved to be very profitable and SAX has applied for
additional frequencies to meet the demand of the Johannesburg Lubumbashi route to bring the total frequencies to 5 per week
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Johannesburg – Gaborone, Botswana
SAX is the only South African carrier operating to Gaborone based on
the single-designated bilateral
SAX operates 5 daily frequencies from Johannesburg to Gaborone
SAX’s current competitor is Air Botswana who operate 4 daily
frequencies
The bilateral mentions possibilities of an open-sky policy between
South Africa and Botswana as of May 2007
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Johannesburg – Windhoek and Walvis Bay
SAX operates 2 daily flights to Windhoek ideally suited for the market in
the mornings and afternoons where SAA are not able to get optimum
loads
The SAA/SAX brand has a loyal customer base in Walvis Bay and
Windhoek due to the frequency and the offering of seamless service
Competitors on the route are Air Namibia and Kulula.com
The range of the schedule allows for more frequency and additional
capacity which are key on majority business travel routes
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Cape Town – Windhoek
SAX operates this route utilising a 50-seater which has proven to be
the most optimum aircraft due to the market size
The competition on the route is Air Namibia utilising a 737-200 aircraft
type
Majority of travel is business travel, and as such the schedule,
frequency and service provided by SAX have maintained and protected
market share
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Competitive Advantages
SAX is ideal for the lower air traffic demand in Africa and due to its
fleet, size and experience of operating secondary routes, will succeed.
SAX has a favourable market perception, mainly due to :
Right gauge aircraft to operate profitably in developing these new routes as
a feeder
Adequate frequency into hubs as the aircraft utilised by SAX is better placed
to implement such a strategy because of its competitive advantage provided
by smaller gauge aircraft which will provide the required frequency
Sourcing of aligned strategic partners in terms of joint ventures and
partnership.
No perceived threat to home carriers and gauge precludes it from pursuing
African routes
Lower break even load factor required thus operation can be profitable quite
quickly
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Thank you
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