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SAA Results Presentation and Future Strategy 31 October 2001

SAA Results Presentation and Future Strategy 31 October 2001. Agenda. SAA results for last 5 years YE March 2001 - an extremely challenging year Details of financial performance SAA future strategy “Perfecting the Basics” USA impact Summary. Results for the last 5 Years.

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SAA Results Presentation and Future Strategy 31 October 2001

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  1. SAA Results Presentation and Future Strategy31 October 2001

  2. Agenda • SAA results for last 5 years • YE March 2001 - an extremely challenging year • Details of financial performance • SAA future strategy “Perfecting the Basics” • USA impact • Summary SAA Results and Strategy 210901 ANV

  3. Results for the last 5 Years Contents of Results • Operating Statistics • Reported Net Profits/(Losses) • Including Asset Sales and significant items • Headline Earnings/(Losses) • Excluding Asset Sales and other adjustments • Adjusted Net Profits/(Losses) • Headline Results deduct/add once-off items • Balance Sheets SAA Results and Strategy 210901 ANV

  4. Results for the last 5 Years South African Airways has been a growing business Pax (Mil) LF (%) Cargo Ton Km (Mil) ASK’s (Mil) Fleet • 1997 4,9 64% 337 21,528 49 • 1998 5,1 64% 433 23,659 50 • 1999 5,3 65% 392 25,173 54 • 2000 5,8 62% 578 29,034 51 • 2001 6,1 67% 640 29,656 62 SAA Results and Strategy 210901 ANV

  5. Results for the last 5 Years Turnover improved significantly, however spiralling operating costs offset revenue improvements Turnover Operating Costs RM’s RM’s • 1997 6,070 6,506 • 1998 6,891 6,987 14% 7% • 1999 8,142 8,627 18% 23% • 2000 9,263 9,356 14% 8% • 2001 10,839 11,806 17% 26% SAA Results and Strategy 210901 ANV

  6. Results for the last 5 Years Reported Profits show a strong upward trend Reported Net Profits/(Losses) RM’s Year Ended: • 31 March 1997 (396) • 31 March 1998 (302) • 31 March 1999 10 • 31 March 2000 349 • 31 March 2001 408* * Subject to any adjustments that may be required by the actuarial valuation and audit of the Transnet Pension Fund SAA Results and Strategy 210901 ANV

  7. Results for the last 5 Years Reporting methodology • SAA has researched the airline industry to establish if a universal practice exists in publishing reported results: • Some airlines include profits/(losses) from aircraft sales in operating results (e.g. Swissair, Air France, Finnair, Lufthansa, etc) because regular turnover of the fleet is part of the business • Other airlines exclude profits/(losses) from aircraft sales to arrive at operating results, but include them only in the bottom line (e.g. airlines reporting under US GAAP - such as KLM, BA) • SAA has in the past (1997-2001) included profits/(losses) from sale of aircraft in its operating results • SAA has decided to present its results in-line with the GAAP headline earnings in order to provide full disclosure SAA Results and Strategy 210901 ANV

  8. Results for the last 5 Years Headline Earnings/(Losses) • To arrive at Headline Earnings/(Losses) (in terms of GAAP) adjust for the following: • Profit on Sale of aircraft and other assets • Profit on Sale of business operations • Other adjustments SAA Results and Strategy 210901 ANV

  9. Results for the last 5 Years Headline Earnings/(Losses) Reported Net Profits/(Losses) RM’s Headline Earnings/ (Losses) RM’s Year Ended • 31 March 1997 (396) (477) • 31 March 1998 (302) (289) • 31 March 1999 10 (269) • 31 March 2000 349 (32) • 31 March 2001 408 (735) SAA Results and Strategy 210901 ANV

  10. Results for the last 5 Years Adjusted net profits account for one-off items • Significant “One Time” and “Exceptional” items are deducted/added back toHeadline Earnings/(Losses) to arrive at Adjusted Net Profits/(Losses) • Revenue items (deducted) • Cost items (added back) SAA Results and Strategy 210901 ANV

  11. Results for the last 5 Years Adjusted Net Profits Reported Net Profits/(Losses) RM’s Headline Earnings/(Losses) RM’s Adjusted Net Profits/(Losses) RM’s Year Ended • 31 March 1997 (396) (411) (477) • 31 March 1998 (302) (253) (289) • 31 March 1999 10 (273) (269) • 31 March 2000 349 (83) (32) • 31 March 2001 408 (627) (735) SAA Results and Strategy 210901 ANV

  12. Results for the last 5 Years What do the Headline Earnings/(Losses) and Adjusted Net Profits/(Losses) show? The “core business” of SAA improved from the year ended 31 March 1997 to the year ended 31 March 2000 ...However... It declined significantly in the year ended 31 March 2001 SAA Results and Strategy 210901 ANV

  13. Agenda • SAA results for last 5 years • YE March 2001 - an extremely challenging year • Details of financial performance • SAA future strategy “Perfecting the Basics” • USA impact • Summary SAA Results and Strategy 210901 ANV

  14. The challenges of YE March 2001 YE March 2001 was particularly challenging for SAA • Fuel price • Rand devaluation • Implementation problems with B737-800 • Long-haul product not competitive • Excess capacity on European routes • Difficulty with implementation of Africa strategy SAA Results and Strategy 210901 ANV

  15. The challenges of YE March 2001 Hedge gains offset, but did not eliminate fuel cost increase Budget 2,009 R(m) SAA Results and Strategy 210901 ANV

  16. The challenges of YE March 2001 US Dollar strength increased costs more than revenues Rand devaluation: • Year Ended 31 March: 1997 1998 1999 2000 2001 • Actual Average Rand/US$ R4.49 R4.72 R5.87 R6.16 R7.39 • Year-on-year Change 5% 24% 5% 20% • Actual Average Rand/GBP£ R7.55 R9.18 R9.89 R10.50 R11.46 • Year-on-year Change 22% 8% 6% 9% • SAA’a revenue is earned in a basket of currencies which historically offset US$ operating cost increases as a result of the devaluation of the Rand • The strengthening of the US$ against major European currencies caused SAA’s historical natural hedge to diminish • Steps are being taken to redress this imbalance SAA Results and Strategy 210901 ANV

  17. The challenges of YE March 2001 B737-800’s have not yet delivered gains expected... • Implementation problems - revenue/cost impact • Business class seats • Pilot training • Airport handling • Cargo/Baggage Handling • Delayed installation of winglets temporarily increased fuel use • Ownership cost greater due to Rand devaluation, but offset by interest earned on surplus cash Negative Impact (R152M) SAA Results and Strategy 210901 ANV

  18. The challenges of YE March 2001 ...But progress has already been made in tough operating environment • Route network extended to over 600 destinations through alliances with world class airlines • Yield management system improved • Sales organisation enhanced • Strong cost controls introduced • Fuel Hedge program continued • Strong Balance Sheet 2001 2000 • Free cash R2,0B R1,5B SAA Results and Strategy 210901 ANV

  19. Frankfurt NewYork Zurich London Atlanta Dubai Hong Kong São Paulo Sydney Perth Extensive Network Built on Strong Bi-lateral Alliances, the SAA Network Serves Over 600 Destinations Johannesburg/Cape town SAA Results and Strategy 210901 ANV

  20. Agenda • SAA results for last 5 years • YE March 2001 - an extremely challenging year • Details of financial performance • SAA future strategy “Perfecting the Basics” • USA impact • Summary SAA Results and Strategy 210901 ANV

  21. Details of financial performance Deriving Headline Earnings from Reported Profits SAA (Pty) Ltd SAA a division of Transnet Ltd 31/03/01 31/03/00 31/03/99 31/03/98 31/03/97 RM RM 408 349 10 (302) (396) Reported Net Profits/(Losses) • Headline Earnings Adjustments • Profit from sale of assets • Sale of land to ACSA • Sale of four A300 aircraft • Sale of one B747 Freighter • Sale of two A320 aircraft • Sale and leaseback of ( x ) B737-200’s • Sale and leaseback of two B747-400’s • Sale and Leaseback of one B747-300 • Sale of Ground Support Equipment business unit • Sale of other assets • Sale of Duty Free operation • Payments for Branding & Codeshare - SA Airlink • Phase out costs on A300 and A320 fleets • Write down of Equant NV shares • Write up of Equant NV shares • Impairment of assets 13 (1,562) (202) (130) (81) (28) (93) (148) (194) (391) (760) (81) (129) 5 (26) (30) 13 (100) (35) 299 130 (179) (148) 25 Headline Earnings/(Losses) (735) (32) (269) (289) (477) SAA Results and Strategy 210901 ANV

  22. Details of financial performance Fleet strategy • To release aircraft equity, where the future value of such aircraft is under threat • To retain the proceeds for investment in future fleet requirements • This strategy has been followed in respect on the following fleets: • Boeing 737-200 (13 aircraft) • Boeing 747-400 (2 aircraft) • Airbus A300’s (4 aircraft) • Airbus A320’s (2 aircraft) SAA Results and Strategy 210901 ANV

  23. Details of financial performance Aircraft assets were sold for good commercial reasons Boeing 747-400 price development Boeing 737-200 price development US$ MM - 2nd Half 2000 US$ MM- 2nd Half 2000 • 737 values dropping due to future noise abatement regulations • 747 values dropping as major airlines reduce average aircraft size • Aircraft sales versus guaranteed exit in future from ageing aircraft fleet • A300’s and A320’s sold as part of 737-800 fleet renewal program SAA Results and Strategy 210901 ANV

  24. (627) (83) (253) (411) (273) Details of financial performance Deriving adjusted profits from headline earnings SAA (Pty) Ltd SAA a division of Transnet Ltd 31/03/01 31/03/00 31/03/99 31/03/98 31/03/97 RM RM Headline (loss) Earnings (735) (32) (269) (289) (477) (441) (197) (139) (7) (7) • Revenue items • Forward Sales releases (Historic) • Voyager Revenue - Accolades Program • FEC rollover profits related to B777 order • Atraxis outsourcing inducement • Airchefs dividends received • Apron Services Management Fees • Restructure of leases in respect of two B747-400’s • B767 Reimbursement for under performance • Cost items • Retrenchment costs • Settlement costs (expatriates) • Engine overhaul outsourcing • Spares write-off - obsolete spares write-off • Spares write-off - A320 and A300 spares write-off • Veer.com write-off • Pension Fund conversion costs • Other provisions • Interest on Pension Fund Debentures (300) (100) (62) (117) (35) (20) (7) (7) (2) (102) (39) 549 146 43 73 135 14 76 92 109 45.3 136 51 79 106 55 25 43 73 43 Adjusted Profits/(Losses) after significant items and Headline Earnings/(Losses) adjustments SAA Results and Strategy 210901 ANV

  25. Details of financial performance Balance sheets for last 5 years SAA Results and Strategy 210901 ANV

  26. Details of financial performance Cash flow SAA Results and Strategy 210901 ANV

  27. Agenda • SAA results for last 5 years • YE March 2001 - an extremely challenging year • Details of financial performance • SAA future strategy “Perfecting the Basics” • USA impact • Summary SAA Results and Strategy 210901 ANV

  28. Future Strategy Key challenge for the future Return SAA to profitability How ? SAA Results and Strategy 210901 ANV

  29. FutureStrategy Strategy of “Perfecting the Basics” SAA Results and Strategy 210901 ANV

  30. Future Strategy Key Deliverables • Revamp customer service • Sustained revenue growth • Optimise alliances • Implement Africa strategy • Cost reductions • Improve operating efficiencies • Renew long haul fleet • Manage currency and fuel exposure • Staff development SAA Results and Strategy 210901 ANV

  31. Key Deliverables Revamp customer service • Know our customers • Customer focus groups • Give customers what they want • Revamp gate to gate service and product to deliver seamless and differentiated customer service • Implement business class seating in short haul fleet • Implement product upgrades on key long haul routes • Plan future long haul fleet Regain Premium Market share SAA Results and Strategy 210901 ANV

  32. Key Deliverables Revamp customer service continued... • Optimise frequencies, schedules and aircraft type; eliminate multi-stop services • Offer maximum connectivity from existing alliances • Attract new alliance partners to extend global access SAA Results and Strategy 210901 ANV

  33. Key Deliverables Sustained revenue growth Passenger 2002 YTD growth - 26,7% % Revenue Growth Domestic 15 Regional 54 International 27 SAA Results and Strategy 210901 ANV

  34. Key Deliverables Sustained revenue growth Passenger 2002 Yields 2002 R 2001 R Domestic 729 633 Regional 1,616 1,280 International 3,335 3,083 SAA Results and Strategy 210901 ANV

  35. Key Deliverables Sustained revenue growth Passenger 2002 Load Factors 2002 % 2001 % Domestic 67,4 65,5 Regional 64,5 66,6 International 69,2 64,7 SAA Results and Strategy 210901 ANV

  36. Key Deliverables Sustained revenue growth Cargo 2002 YTD growth - 14,6% % Revenue Growth Domestic (2,2) Regional 34,1 International 16,4 SAA Results and Strategy 210901 ANV

  37. Key Deliverables Sustained revenue growth Technical • Planned growth of R250M • SwissAir MD11 D-checks (12) • Lufthansa B747 D-checks (2) • 1,000,000 manhours committed by Boeing as part of the B737-800 acquisition SAA Results and Strategy 210901 ANV

  38. Key Deliverables Optimise Alliances • Maximise benefits • Growth in yields achieved • Better connectivity • Increase in destinations served (600) • Relationships with all major global alliances • Star Alliance • one world • Sky Team • Qualiflyer • Audit underway SAA Results and Strategy 210901 ANV

  39. Key Deliverables Implement Africa Strategy • Develop hub strategy for East and West Africa • Resume operations to US$ markets • Kinshasa • Livingstone • Ndola • Increased capacity and frequency (54% revenue growth) SAA Results and Strategy 210901 ANV

  40. Sal Lagos Abidjan Accra Entebbe Nairobi Kigali Comores Dar Es Salaam Ndola Luanda Lilongwe Vic Falls Lusaka Blantyre Harare Mauritius Windhoek Bulawayo Gaborone Maputo Walvis Bay Manzini Durban Maseru Build SAA’s position as the leading airline in Africa Great Opportunity African Open Skies JNB Cape Town SAA Results and Strategy 210901 ANV

  41. Key Deliverables Cost reductions • Cut general costs by R250M • Reduce catering costs through product simplification (R40M) • Bistro bag • Rand procurement i.s.o. US$ procurement • Toilet bags • New fleet will reduce maintenance costs • Distribution costs • Commissions reduced by 2% (R70M from 2003) • Overrides limited to 60% of prior year (R30M from 2003) • Renegotiate labour agreements for FDC • Restrict use of expatriates and consultants (R250M) Minimum savings expected R600M SAA Results and Strategy 210901 ANV

  42. Key Deliverables Improve operating efficiencies Shorthaul • Optimise B737-800 implementation • Split B737-800 and B737-200 fleet • Install new business class seats • Retrofit winglets to achieve fuel savings • Lease out off peak surplus capacity (Transavia - R20M) • Reduce turn times on domestic schedule from 60 to 30 minutes • Free up 4 aircraft (R100M saving in ownership cost) SAA Results and Strategy 210901 ANV

  43. Key Deliverables Improve operating efficiencies Longhaul • Millenium product • Complete implementation on B747-400 fleet • Regain competitiveness • New fleet • RFP scheduled for 26 September 2001 • Reduce DOC’s (to significantly offset ownership costs) • Enhance reliability • Increase utilisation • Crewing efficiency • Improve cargo capacity • Additional lift for domestic and regional SAA Results and Strategy 210901 ANV

  44. Key Deliverables Manage currency and fuel exposure • Total commitment - US$1,3 B • Covered - US$1,0 B • MTM ±R500 M US$ Commitments: Jet Fuel: • Covered 70% • Objective 100% • Expected cash flows US$3 M per month • Implementing hedging strategy for domestic uplifts • Expected savings (R15 M) SAA Results and Strategy 210901 ANV

  45. Key Deliverables Staff development • Restrict use of consultants (R130M) • Fast track talented individuals • SwissAir training • Utilise industry training programs • Proper succession planning to reduce reliance on expatriates • Reward for performance • Incentive programs being developed SAA Results and Strategy 210901 ANV

  46. YTD Results 2002 SAA Results and Strategy 210901 ANV

  47. Agenda • SAA results for last 5 years • YE March 2001 - an extremely challenging year • Details of financial performance • SAA future strategy “Perfecting the Basics” • USA impact • Summary SAA Results and Strategy 210901 ANV

  48. USA Impact • R1,8B turnover generated out of the USA • Too early to quantify impact • Team currently analysing situation • Freeze placed on employment • Insurance impact (R70M) SAA Results and Strategy 210901 ANV

  49. Agenda • SAA results for last 5 years • YE March 2001 - an extremely challenging year • Details of financial performance • SAA future strategy “Perfecting the Basics” • USA impact • Summary SAA Results and Strategy 210901 ANV

  50. Summary Strategy of “Perfecting the Basics” will return SAA to profitability SAA Results and Strategy 210901 ANV

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