It was a familiar situation. I was in a group of 15 people checking in at Cape Town International two Fridays ago for our late-afternoon SA Airways return flight to Johannesburg.
Despite arriving just over an hour before departure, we were told the flight was over booked and that we were among 30 passengers who would have to take later flights.

But when? The next SAA flight was also full. And the one after that. In the pre weekend rush, other airlines were unable to help. One of our party had to catch an international connection at OR Tambo. What could we do? SAA staff shrugged their shoulders. It wasn’t their problem. We were on our own.
Eventually, after much arguing, and a confrontation between a passenger and an airline official who said he was overdue for his tea break, our party was scattered among later flights. As a result, no doubt passengers booked on these were prevented from travelling.

Deliberate overbooking to counter the financial effect of “no-show” passengers (why shouldn’t they forfeit their money, like hotel guests?) is a hateful practice but one that is rife among airlines. It’s how airlines deal with it that defines them. On this occasion, as so often, SAA did itself no favours.

SAA chair Cheryl Carolus pinpoints staff training as pivotal to SAA’s renaissance. The airline has made too much use of labour brokers. “Temporary staff are not good for customer satisfaction. That comes from pride and joy and security and quality control. Airline travel is frustrating enough as it is. You don’t need bad experiences to make it even worse. There will always be delays and over booking but, if we keep people informed and do our best to help, it reduces resentment.”

Despite winning countless international airline awards, SAA is no stranger to resentment. CEO Siza Mzimela, who took charge in April, says ruefully: “When someone mentions Virgin or Emirates, people say, ‘What a good airline’. But when the name SAA comes up, the reaction is often: ‘Oh dear, what have they done now?’”

Not without reason. SAA is embroiled with the competition commission over allegations of price collusion. It has previously been fined heavily for unfair competition. There have been strikes and shortages of key staff. The airline even failed to pay bills from suppliers, threatening their future.

A number of Mzimela’s predecessors are known more for extraneous activities than their management of the airline. American former CEO Coleman Andrews left with a R232m golden handshake in 2001, the same year the airline posted a R700m loss. And Khaya Ngqula, who was fired in 2008, is being sued for R37m after an independent audit by KPMG found evidence of wasteful and fruitless expenditure on retention bonuses and sports sponsorships.

Carolus says: “We took the investigation as far as we could. Now it’s in the hands of the courts.” Other SAA staff may also face further disciplinary proceedings. “We continue to find things that were bad management. There has been some wilful wrongdoing, some cavalier activities and some grey areas.”

One might ask what the board and sole shareholder, the SA government, were doing while all this was going on. Having a shareholder with an eternal willingness to underwrite losses was no inducement to financial and strategic accountability. Carolus is reluctant to talk about previous boards, though it is clear oversight was lacking. “I’m prepared to put my head on a block and say 90% of the things uncovered in the KPMG report would not have happened if there had been proper governance.”

Like Carolus, who has a reputation as a no-nonsense businesswoman, current board members such as JSE CEO Russell Loubser and Shell SA chairman Bonang Mohale are unlikely to make the same mistake.
Mzimela shares a similarly straightforward attitude. She also has the advantage, unlike some previous CEOs, of knowing the airline industry. Her initial eight years at SAA included responsibility for many of its operational activities. Appointed to head SA Express in 2003, she inherited an airline that was technically insolvent. She handed it back this year in relatively rude health.

That’s good news for government which, says Carolus, has made it clear it will no longer be “blackmailed” into bailing out SAA. “That doesn’t mean it won’t provide funding. But there is a difference between capitalisation and bail out. Previous managements have gone to government saying, ‘We will go bankrupt if you don’t bail us out.’ That’s putting a gun to government’s head. That won’t happen in future.”

She adds that in its constant need for bail outs, SAA behaved “like an unrehabilitated alcoholic. Every time you say it’s the last time, and then, before you know it, you are back in the shebeen.”
Carolus says there is a “refreshing” government attitude now towards SAA. That even applies to the “P” word: privatisation. The debate is not an immediate priority but, she says: “We have been discussing what is the best ownership of SAA and its subsidiaries. It is pleasing that the question no longer appears to be an ideological issue. Some people who argue for state ownership border on religious fanaticism. We have moved out of that space. Government’s view is now determined by what makes business sense.”

It would be naive to think the fanatics won’t reappear if the privatisation issue moves to the front of the queue. But it won’t be just yet. This year’s unexpected 45% increase in net profit, to R581m, was welcome but it will take many more years of growth before potential suitors are interested. British Airways is often held up as the model of airline privatisation but the process to get it into shape took eight years.

SAA is far from that stage. Combined, its two successive years of profit amount to exactly half the losses of the two previous years. The airline has a history of feast-and- famine results and, with the international aviation industry still struggling to recover fully from recession, SAA continues to operate in a difficult market.
The latest quarterly airline business confidence index from the International Air Transport Association (Iata) shows most airlines remain nervous about industry prospects in 2011. In September, Iata forecast 2010 industry profits of US$8,9bn, followed by $5,3bn next year.

SAA says passenger and cargo load factors are showing steady improvement but remain below ideal levels. Mzimela complains that competition is keeping passenger fares below economic rates.
Carolus says this year’s improvement in SAA profits was “an important psychological marker for SAA staff. It may have been still small in terms of where we have to go, but it was a huge confidence booster — a ‘Phew!’ moment for all of us. There is palpably better morale now people believe the improvement is sustainable.”

Ironically, it can be argued that the turnaround is the result of policies introduced by the disgraced Ngqula. Though airline operations head Chris Smyth was acting CEO for just over a year until Mzimela’s appointment, it was Ngqula’s initiatives that started the process. These initiatives included staff and management cuts, the sale of some divisions, and the decommissioning of unproductive aircraft. Carolus says: “None of us wants to downplay the contribution of those who were here before.”
The airline has managed to reduce long-term debt and improved its debt: equity ratio from 14:1 to 8:1. Mzimela says: “We are still far from where we should be. How many businesses would be able to operate on that? It has to be one of our big focuses.”

She is making no rash promises about results in the airline’s current financial year, to March 2011. “It will be difficult from a financial perspective,” she says. “Last year we were aided by a huge drop in fuel prices. We believe we are on track for another profit this year but the currency is not helping at the moment. We’re certainly not looking at another 45% increase.”
Even with profit margins hovering between 2% and 3% — barely a quarter of the 10% target set by Ngqula three years ago before the global recession wrecked the aviation market — Mzimela believes the airline has embarked on a long-term, sustainable profit path. As a result, she is confident SAA will not need government guarantees to get market funding for the 20 Airbus A320s due for delivery between 2013 and 2015.

Like Carolus, however, Mzimela says talk of privatisation and of “profitability at all costs” must take account of SA’s particular circumstances. Some foreign airlines flying to and from the country have taken up less than half their flight allocations. As national carrier, SAA has a responsibility to ensure the country’s travel needs are met. “I’m not saying an airline should be allowed to be a constant drain on resources but we are at the end of the southern hemisphere .”

To base everything on profits and automatically cut non performing routes would invite geographic and business isolation. That doesn’t mean the airline won’t take tough decisions. This month it scrapped flights between Durban and Cape Town after long-term losses and relinquished the route to low-cost subsidiary Mango.

Mzimela says there are no immediate plans to scrap other routes, or to change the current mix of inter continental destinations. Africa is another matter. She is anxious that the airline should increase flight frequencies and destinations across the continent.

The desire is not for reasons of African solidarity but for profit. SAA’s African routes are mostly high-load and high- profit. Carolus says: “A lot of SA companies are going into Africa so that’s where we should be looking. There’s also a huge future for tourism travel, which is often started by business travel.”
Long term, Mzimela wants Africa to account for half of SAA’s business. “I support the vision of SAA as an African airline with international reach.”

Whether through bilateral agreements or airline partnerships, she believes there are several African routes ripe for SAA. The immediate obstacle is that, several years after talks began on deregulating Africa’s skies, it still hasn’t happened. “We seem unwilling to open our markets to each other yet we are willing to open them to European airlines. I find it frustrating that there is not more regional co-operation.”

Part of the problem is the desire of developing countries to have their own airlines. It’s a source of national pride, even though a number have gone bankrupt in the past three years. Mzimela says: “I suppose if you are trying to build an airline, you will see SAA, Kenya Airways or EgyptAir as a threat. The problem starts with the idea that everyone should have their own airline.”

Carolus and Mzimela want the airline to draw a line under the scandals and under performance of the past and to be known purely for the quality of its service. “Everything that went wrong before was the result of bad leadership,” says Carolus. “The public must realise SAA is not peopled exclusively by skelms.”
Both say public criticism of the airline should be seen positively. According to Mzimela: “The reason people pay so much attention is because they feel they own it and they have high expectations.” Carolus adds: “South Africans set the bar high. That’s a good thing. I don’t think we want to set our bar to the lowest common denominator. We shouldn’t lower our expectations of anything in our country.”

However, she suggests a little less arrogance might not go amiss. SAA run-ins with competition authorities suggest a bullying attitude that does not sit well with the public.

“As the biggest, you define how business is done in the sector. If people fly with you, it must be because they want to, not because we have killed the competition. We need to be smarter instead of using a blunt instrument.”

Management and board members have been meeting in recent weeks to plot a formal long-term strategy. Officials expect to announce some of their plans within days.