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An Outsider’s Analysis of SAA and the Airline Industry

On a recent flight on South African Airways (SAA), I browsed through their in flight magazine (Feb 2005). The new CEO, Khaya Ngqula, wrote a short one page article on the launch of a new internal initiative to bring SAA back to profitability after years of loss making, including the past 2 years in which it has posted R15 billion losses. (Those losses are paid for by the South African tax payer, since SAA is a state-owned asset).

The article starts off with following analysis: “The airline industry is facing a period of deep uncertainty and risk, with increased fuel and production prices, uncertain medium-term economics in the key US and China markets, low barriers to entry and the emergence of new Low Cost Carriers, and unstable currency markets.â€?

Uncertainty is the new reality

The thing that struck me was that his comments made it sound like this “new� environment had been a surprise for SAA, and that it was a temporary situation in which they operated. That couldn’t be further from the truth. The operating environment Ngqula outlines is SAA’s current reality, and it won’t be changing soon. The amazing thing is that they seem to have only just worked this out.

The articles goes on to outline a number of strategies being put in place at SAA. The problem is that there was a feeling that these were temporary “fix it� measures, rather than radical new approaches to doing business in the 21st century. SAA cannot afford to simply paper over the cracks and make short-term quick fix decisions. SAA, and the airline industry as a whole, needs a radical rethink.

Just not true

Having said that, one could also argue with Ngqula’s analysis of the environment. It is too easy for companies that are doing badly to simply hold their hands in the air and say, “What do you expect? It’s a tough operating environment at the moment.�

For example, he refers to major currency fluctuations. Well, in the past 2 years that’s just not true. The Rand has been fairly stable for 2 years now, and unless a major, unpredictable event occurs is likely to stay at around current levels for the foreseeable future. However, like all companies with forex exposure, SAA needs to learn to handle unexpected events.

His references to uncertainty in China and the USA is just not true. Of all the things one can be reasonably certain of these days, China’s emergence as a global player seems a good bet. The growth of the Chinese tourist market is probably one of the most solidly anticipated trends in the next 10 years – its almost a certainty. Ingoing and outgoing Chinese tourists are set to sky rocket in the next few years. Is SAA targeting this growth market, or just pleading “uncertainty�? And what does it mean that the US market is “uncertain�?

The emergence of Low Cost Carriers should have been no surprise – they’ve been around for decades in the US, and have taken Europe by storm in the 1990s. The real problem is not the low cost carriers – it is SAA’s inability to compete. SAA attempts to differentiate by giving food on flights. Yet, a stale sandwich ‘with cheese’ and a drink would have cost about R20 on one of the LCCs, where one has to buy one’s own food. Other than that, there appears to be very little difference between the services. I have been just as late (with no explanations), had baggage just as damaged and late arriving (with no explanation), parked just as far away from the terminal and needed to be bussed in, and sat in just as small seats between just as many fat and smelly co-passengers, on SAA as on the LCCs.

Don’t blame the LCCs, SAA – get your own house in order. The LCCs are just showing how much the flying public has been ripped off all these years.

Differentiate or die

The only differentiator of any noteworthiness is the Frequent Flier miles you get on SAA, and not on the LCCs. But this is a sham, too. The pricing of seats on SAA (and to be fair, on most airlines) is a complete mystery. You can have about 12 different classes of ticket for one seat on a plane. I was recently told that I had booked an X-class seat, and so could not be upgraded. The point is that I had purchased the economy seat online, where no indication was given of what class I as buying, and no option provided for me to purchase any other class ticket at the time.

In fact, in the same magazine I was reading, a letter from a reader makes a good point about low-rated (X & V class) seats – that those people who book well in advance (usually frequent fliers who are well organised) are prejudiced because they purchase cheaper seats. Of course, frequent flier miles are all but useless since the airlines allocate so few seats for redemption, and so few seats for upgrades, and limit the classes from which upgrades can be made.

In an environment in which you and your competitors are selling the same stuff, at the same price, to the same people, in the same way, why should anyone buy from you? What’s your competitive differentiator? SAA needs to focus on finding that, rather than moaning about the obvious in their operating environment.

WHAT TO DO/LESSONS FOR OTHER INDUSTRIES:

1. Know the customer – know what they REALLY want. How do you know? Why not trying asking them? Who should you ask? In the airline industry, frequent fliers would be ideal – and you have them trapped in airports and lounges on a regular basis. But I have never, ever been asked my opinion. What a wasted opportunity for the airlines. Are you speaking to YOUR customers in your industry?

2. Provide real benefits – customers will pay for REAL extras; e.g. Pay extra for seats with leg room; pay to access lounges at airports; pay more for decent food. What value adds can you give YOUR customers, and how much do you think they would pay for it.

3. Be understandable – no one knows what a fair value is for a flight – one seat can have 12 different prices/conditions attached to it. If people don’t know what they’re paying for, they won’t act as smart customers.

4. Take care of the periphery – Security procedures at airports, baggage handling and traffic control issues ARE the airline’s issue. Airlines cannot simply claim that “there’s nothing we can doâ€?. Get service level agreements! What about your industry? Most companies spend fortunes on training reception staff, but outsource security, so customers get a bad greeting and become tense in the carpark.

5. Treat customers with respect – whenever there is a problem or delay with the airlines, its always “for technical reasons� – what does that mean? “Switch off electronic devices� is a common command – yet travelling in the US, you know you can phone from the runway, and we know it doesn’t “interfere with the flight instruments� since many people leave their phones on by mistake and planes don’t come falling out the sky. The latest on SAA is to tell us that it “is an offence to interfere with the duties of the crew and if you do we will prosecute you� – this may be true, but isn’t there another way to say it? And finally, if you offer a service then make sure it works – I cannot tell you how many times I do NOT get the pre booked seats I took time to pre-book. In YOUR industry, what implicit and explicit promises are you making, and then breaking?

6. Expect uncertainty – its not going away.

To answer the question I asked about what your competitive differentiator is, I would say that these days its less and less about WHAT you sell, and more and more about WHO you are. Companies like SAA need to do a much better job in presenting more of WHO they are to their customers. So should you.

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