SA Express banks on delivery of its turnaround strategy in year ahead

Unsplash via pixabay

The airline received a R1.1bn guarantee from the government in February to underpin its going concern status on condition that it implement its turnaround strategy and report regularly to the government. Its prospects are still weak.

"The balance sheet indicates that the company is in need of urgent recapitalisation by way of permanent equity funding as the balance sheet cannot bear more debt in order to re-fleet," chief financial officer Mark Shelley noted in the airline's annual report tabled in Parliament on Friday. "Short or long-term debt funding will further hamper the profitability of the company."

A flat outlook

The outlook for the 2015-16 financial year remained "flat" with passenger numbers forecast to grow 2% and the average fare 3%, Shelley said.

"Despite the low top-line growth, the strategy of flying less frequently with higher load factors will drive costs down and assist in the continuation of the return to profitability in the next financial year," he said.

SA Express had targeted a profit of R69m in the financial year to end March but instead suffered a net R132m loss and only achieved 56% of the 45 key performance indicators it had agreed upon with the government as shareholder. This failure, the annual report said, was due to escalating operating costs, increased competition in the sector and other challenges such as the fluctuations in the dollar/rand exchange rate.

Falling revenue and profits

Revenue of R2.59bn was generated in 2015 compared with R2.56bn in 2014 when a restated net loss of R10m was recorded.

At operating level - before finance costs, depreciation and impairment of assets - the airline made a profit of R14.7m compared to the restated 2014 operating loss of R25.4m.

An operating margin of 1% was achieved compared to the negative 1% the previous year.

CEO Inati Ntshanga said five unprofitable routes were cancelled and significant savings realised from landing fees, fuel costs, ground handling fees and other costs. It carried 1,451-million passengers compared to 1,469-million in 2014, a decline of 3.4%.

The weak rand-dollar exchange rate had a negative effect on dollardenominated costs.

SA Express was exploring the feasability of new routes to Sun City and Mahikeng, which could prove profitable in the short to medium term, Ntshanga said.

Source: Business Day