SAA’s woes are making the travel industry skittish

The cash-strapped national airline South African Airways (SAA) is in desperate need of the government to decide whether or not it will continue to pump money into it.

The airline needs over R1 billion to keep running its operations. It has failed to make a profit since 2011— and this has prompted three insurance companies to stop covering tickets issued by SAA against insolvency.

The whirlwind has not stopped there for the group, as travel agencies distance themselves from it, by refusing to sell SAA tickets.

So where to from here?

Independent aviation economist Joachim Vermooten believes that the government needs to be decisive on the issue, in order to help soften the blow that is currently knocking down the struggling airline from all sides.

“The crucial issue is that the government ultimately has to decide what to do with SAA. Either it needs to operate it at a profitable commercial basis, or it needs to go out and fund the airline with enough money that can cover the losses that are incurred,” Vermooten says.

This makes it a tricky matter, as President Cyril Ramaphosa has called for the continuous bailouts to end. He said this to preserve the country’s last investment-grade credit rating.

SAA spokesperson Tlali Tlali declined to comment regarding anything concerning SAA, saying he would comment in due course.

Why is everyone off-boarding SAA?

Vermooten says that the main concern for the travel insurers is that SAAs’ risk outlook and potential bankruptcy is worsening.

Now, this has also made travel agencies be fearful because the requirements travel insurance options for many of their customers which is no longer available on SAA flights.

This then means that the risks involved for them and their clients, is too much, and that is why as Flight Centre SA removed themselves from the equation because they need to alleviate that risk.

He adds that this does not mean that the relationship between SAA and the travel agent has been ruined.

“I think once that [insurance issue] is restored they should not have difficulties,” Vermooten says.

He suggests that the airline salvages itself by selling some of its subsidiaries or equipment that is not used, to generate income very quickly.

Not business as usual, unfortunately

Business people, travelling on SAA will be most affected because their companies have trajectory policies that require that a travel insurance cover is available.

“It will mostly affect domestic business travel and international travel, visual flight rules (VFR) won’t be affected much.”

“With about 25% to 30% of the international traffic. With also business class traffic, and that also is very much heavily affected by these types of requirements,” Vermooten says.

He says there is a requirement to submit guarantees at the Air Services Licensing Council (ASLC) and International Air Service Council (IASC).

“But that has not really been effective, because if you are an individual passenger you do not have the direct right to such a guarantee,” Vermooten says.

He says that though there is an option to buy travel insurance with the different airlines,  it does not cover the insolvency of the airline should it goes bust.

This is an ongoing story.

Brought to you by Moneyweb