PowerPoint Template

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28 March 2013
SAA LONG-TERM TURNAROUND STRATEGY (LTTS) BRIEFING
FOR PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES

• AGENDA
• Overview of development process
• Document Structure
• Strategic Objectives
• Main Thrusts Expected Outcomes
• Key Decisions Implementation focus

10 September 2013
Agenda
Introduction
Context
Our Strategy
Supporting Processes
LTTS Implementation
Questions Comments
Commercial in Confidence
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Introduction
The most comprehensive inclusive strategy
development process in SAAs history
Necessitated by Commercial reality, informed by
explicit Shareholder requirements

• Inclusivity
• Benchmarked

• Sustainability
• Governance

• Actionable
• Validated

• Stakeholder focussed
• Immediate

Process
Outcome

• Extensive staff engagement 400 suggections
  received
• SAAs first holistic long-term strategy, drawing
  on 7 of the Worlds top 10 consulting groups
  peer group comparisons
• SA Express DPE involvement throughout
• Proven strategy development framework applied
• Board led
• Independently validated
• 20-year outlook horizon
• Immediate benefits clear path to profitability
  
• Explicit emphasis on accountability addressing
  weaknesses and
• Submitted to the Minister on 2 April 2013 and to
  Cabinet in August.

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Context
Context informs South African Airways required
relevant Strategic response
Internal strengths weaknesses and Market
realities culminate in

Problems to be addressed and Opportunities
to be pursued

• High cost base expensive Assets unproductive
  People
• Sub-optimal capital structure
• Poor Stakeholder management
• Strong African footprint, operations Brand

• New collective Group Vision Mission
• Creation of Integrated Airline Group
• Implementation of new Network, Alliance Fleet
  Strategy
• Developing a Whole of State policy framework
• Immediate roll-out of human capital development
  interventions
• Implementation of new Financial Plan
• Implementation of business infrastructure
  service interventions
• On-going focus on cost efficiency
• Executive implementation accountability

Problem Statement
Opportunity Statement
Assessment

• Sub-optimal route network International losses,
  Regional threat Domestic pressure
• Failure to address geographic disposition
• Long-term weakness of Balance Sheet high cost
  structure
• Cultural deficiencies leadership volatility
• Governance of subsidiaries and processes lack
  maturity
• Poor implementation record
• Poor decision support systems
• Preceived Mandate conflict
• No holistic aviation policy approach

• Increased liberalisation of markets
• Airline market consolidation
• Shifts in global air traffic
• Commoditisation of short-haul air travel

• Value destructive Business Model

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Our Strategy Vision, Mission Strategic
Objectives
Mission, Vision Strategic Objectives provides
clarity of purpose to South African Airways
Brought to life, every day and in every way, by
the values that we exhibit
Objectives
Vision
Mission
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Our Strategy Strategic Objectives
Our 5 new Strategic Objectives provide clarity
for the Shareholder, Board Management
SAA has to balance support for our National
Development Agenda with commercial sustainability

• Support for South Africas National Development
  Agenda
• Growth will materially build on SAAs current
  contribution
• Facilitating trade tourism to major partners
  and African states (26 intra-African routes)
  through direct passenger and cargo services
• R 8.6 billion annually contributed to South
  Africas GDP and supporting 35 000 jobs in the
  general economy and a further 44 000 in tourism
  (2012 Oxford Economics Study)
• Aviation is a key enabler for the National
  Development Plan
• Continued improvement in transformation profile

• Commercial sustainability
• Net Operating Profit
• Net positive cash flow from operating activities
• DPE NT, in consultation with SAA, are reviewing
  the financial model and requirements for the
  business

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Our Strategy Strategic Objectives
Our 5 new Strategic Objectives provide clarity
for the Shareholder, Board Management
Achieving the other 3 objectives are also
critical to our long-term sustainability

• Providing excellent customer service
• A new SAA passenger Customer Service Experience
  Framework has already been developed and is being
  implemented Voyager is under-going major
  changes
• SAA Cargo, SAA Technical Air Chefs all have
  customer service improvement initiatives underway

• Achieving consistent, efficient effective
  operations
• SAA will build on its already outstanding safety
  and on-time performance records
• A new Shareholder Engagement Model being
  developed and a new approach to reputational
  management and internal/external communications
• Major inititiaves underway to improve labour
  productivity, recruitement and retention,
  succession planning and organisational design

• Foster performance excellence
• Driving accountability, by linking performacne
  management to reward recognition and
  consequence management
• A new Enterprise Performance Management system
  will be developed, which will greatly improve
  Management Information Systems

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Our Strategy force integration and
accountability through structure

• Provides structure for asset and capital
  deployment coordination
• Provides mechanism for ring-fencing and/or equity
  flexibility
• Single point of oversight with operational
  specialisation across the aviation value chain

Structure serves as an enabler to more
effectively achieve our Strategic Objectives
Structure is also a mechanism for improved
Governance
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Our Strategy we need to address our major
competitive challenges
Sub-optimal route network
The Network, Alliance Fleet Strategy is at the
core of any airline strategy

• Our long-haul international network is
  under-performing financially
• Our regional (African) network continues to
  perform well, however competition is steadily
  increasing
• The domestic market is challenging, however our
  dual-brand model of SAA/Mango leaves us well
  placed to respond to a commoditising market
• Mango continues ot perform well and can play a
  greater role for the Group in the years ahead
• SAA Cargo continues to perform well and can can
  also play a greater role for the Group

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Our Strategy align efforts while retaining
unit-level focus
Subsidiary and Business Unit Strategies must be
aligned to the Group objectives
Plans of Action enforce accountability for
delivery

• SAA Technical focussed on
• Integration of SA Express Technical, synergy
  extraction with Denel and In-sourcing of
  high-value services
• African expansion and continuation of existing
  Turnaround Plan
• SAA Cargo focussed on
• Full implementation of transfer pricing and
  Process enhancements to improve efficiency
• Top-line revenue growth
• SA Travel Centre focussed on
• Growth in SAA revenue contribution and Expansion
  of African footprint
• Enhacement of franchisee value proposition
• Voyager focussed on
• Cost-effective enhacements to redemption options
• System rejuvenation
• Air Chefs focussed on
• Product enhancements, customer wins
• Process improvements and loss control

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Supporting Processes the bridge between strategy
action
Supporting processes are focussed on Efficiency
and Effectiveness, reducing cost and ensuring
service consistency
Balanced Scorecards serve as instrument to
translate strategy to tangible actions

• Human Capital Performance management, succession
  and accountability emphasis
• Sales and Distribution Increasing reach through
  cross-Group leverage and specfic segment focus
• Operations Continued focus on safety and
  operational integrity, along with automation and
  cost compression
• Information Technology Modernisation of business
  support infrastructure, MIS direct
  service/sales channels
• Environment Focus on meeting compliance
  requirements
• Marketing Brand standardisation and rebuilding
• Communication pro-active, commercialy orientated
  messaging to highlight the value SAA adds to
  South Africa
• Customer service Alignment of processes, systems
  and people to deliver consistent service
  externally benchmarked
• Procurement Compliance emphasis and focus on
  service level management and enterprise
  development
• Governance and Risk Focus on full PFMA
  compliance through improvements in planning
  activities
• Stakeholder relations Development of an
  integrated Stakeholder relations function within
  SAA

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Supporting Processes the Financial Plan
All Strategies, Plans and Processes culminate in
a Financial outcome
The projected Finance Plan outcomes indicates a
financially sustainable business

• Contain current Shareholder value depletion
• Redress deficiencies in the Groups capital
  composition
• Equip the Integrated Airline Group with an
  appropriate fleet
• Realise organic growth in retained earnings
• Optimise the groups Balance Sheet

Approach
Objectives

• Containment maintaining liquidity and solvency
• Alignment address group capital structure
• Refinement strategies and plans aimed at
  sustained growth
• Growth full benefits of new wide body fleet and
  resumption of international network
• Optimisation and growth funding further
  expansion and growth (internally generated
  capital and reserves)

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LTTS implementation will transition SAA to a
sustainable business model
These are the attributes of successful major
change programmes

1. Organisational clarity on the way forward and
   everyones role.
2. CEO ownership long-term tenure.
3. Executive (Change Leader) stability.
4. All actions are informed by the strategy.
5. Good market intelligence reaches the leadership
   and informs decision support.
6. Once decisions are made they are rarely
   second-guessed.
7. Very effective rapid implementation.
8. High visibility of implementation progress for
   all stakeholders.
9. Alignment of performance and reward.
10. On-going strategy revalidation informed by the
    competitive landscape.

LTTS Implementation attributes of successful
major change programmes
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LTTS implementation will transition SAA to a
sustainable business model
Future SAA Corporate Plans will include an LTTS
Implementation Plan, including all KPIs agreed
with the Shareholder
2013-16 Corporate Plan LTTS Amendment
LTTS Implementation alignment to PFMA cycle via
annual Corporate Plan
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LTTS Implementation quick wins already achieved
There have already been some quick LTTS
implementation wins
Already supporting the more effective achievement
of our 5 Strategic Objectives

• SAA SAA Cargo African growth SAA capacity
  increases on existing routes (from 6-7 weekly
  flights to Accra already operating, new
  schedules in place for Mauritius (8-9 weekly,
  September) Dar es Salaam (11-12 weekly,
  October) Lusaka (18-19 weekly, October) and
  Kinshasa (4-6 weekly, November). Evaluations
  also being completed on increased capacity to
  Harare, Ndola and Windhoek
• Mango operating to Zanzibar (weekly from
  September) and received two more aircraft and
  increasing domestic scale (operational from 8
  September)
• Combined SAA/Mango response to Fastjet market
  entry
• Etihad and TAM code-share agreements (building
  non-metal capacity
• Nigerian National Carrier project added to West
  Africa Hub options (Shareholder engagement
  required)
• New SAA Customer Experience Framework approved by
  Group EXCO and being implemented
• Higher utilisation of the fixed capital cost base
  (aircraft), from September, will further reduce
  unit cost
• Further ( R 100 million) Cost Compression
  Programme savings (currently being audited)

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Long-Term Turnaround Strategy
Questions Comments