South African Airways is suffering from reduced travel demand due to coronavirus concerns just as every other airline is. However, there has been noted something of a silver lining for the airline, according to administrator Siviwe Dongwana. The administrator claims that low leasing costs and a drop in fuel prices are actually helping the airline during this tough time.
A silver lining
We’ve spent much time in the past couple of weeks reporting on the negative effects of coronavirus on airlines, even in Africa. However, one African airline could be an unlikely benefactor of the outbreak, and that’s South African Airways.
According to reporting in Bloomberg today, the significant reduction in demand for international flights has caused a slump that has rippled right across the aviation space. While airlines are struggling to fill planes and manufacturers are struggling to sell them, the international leasing market has crashed as well.
As a result of this, and a bit of good timing, SAA has found itself able to negotiate some cut-price deals on leased aircraft for its fleet, so says Siviwe Dongwana, one of the administrators busy trying to turn the struggling airline around.
In addition to cheaper leases, this week has seen the price of oil crash through the floor. This, in turn, will lead to reduced fuel costs for the airline, giving it even more room to breathe. Siviwe Dongwana told Bloomberg,
“The coronavirus issues and the impact on the industry means that a lot more lessors are going to find themselves with a lot of aircraft. At a risk of being too much of an optimist that’s a silver lining for our renegotiation of aircraft.”
South Africa has only seven cases of coronavirus confirmed as of this morning. This means that the nation is not being subjected to the same travel bans as more badly hit regions of the world. If the government can prevent any further spread, SAA could end up coming out on top with its lucrative routes to the USA.
Will it be enough to save the airline?
Over the past six years, SAA has notched up some $1.6bn of losses. As a result, it was placed into special administration at the end of last year, and was told it would not get any more government bailouts. Not after the last one anyway.
As such, the airline has been busy selling off aircraft, cutting unprofitable routes and is even mulling selling its coveted London Heathrow slots. It is undertaking a massive fleet refresh too, phasing out inefficient aircraft like its A340s for newer, more efficient types such as the A350. With fleet renewal firmly in motion, it seems a case of ‘right place, right time’ for the beleaguered airline.
While Dongwana has framed these small blessings as a positive thing for the airline, you have to wonder if they really outweigh the negatives. Airlines with poor financial health are dramatically more exposed to the effects of the coronavirus panic, particularly in regard to their ability to absorb the drop in travel demand.
SAA’s exposure to the worst coronavirus outbreak areas is somewhat limited. It previously cut routes to Hong Kong and Guangzhou as part of its February route reforms. Now, its international routes are to the US, Australia, Brazil, Dubai, London and two destinations in Germany. Right now, there are no travel restrictions from South Africa to any of these countries, which is certainly cushioning the blow.
Nevertheless, widespread concern over coronavirus has meant fewer people are traveling, and as such SAA will be struggling on that front, even if it can operate all its flights. It remains to be seen whether it can push through the current headwinds to a brighter future.