“Bringing the World to Africa and taking Africa to the World”

“Bringing the World to Africa and taking Africa to the World” GEARING FOR GROWTHPresentation to Select Committee on Labour and Public EnterprisesOctober 2006

Agenda • Financial Overview • Industry Overview • Strategic Overview (including Network plans and STAR alliance) • Conclusion and way forward

Financial Overview Highlights • Passenger numbers up 4.5%, but yields down (3%) • Capacity increased 5.6% • Load factors constant at 70% • Total revenues up 13.0%, with Passenger revenue flat up only 0.8% • Costs (excluding fuel) increased by 5.5% • Fuel costs increased by 51.5% • Bambanani initiatives bearing fruit ~ R500m of savings achieved • Successful sale and leaseback of two Airbus A340-600 aircraft • Positive cash flow from operating and investing activities • R1.6 billion repaid to Transnet

Financial Overview Income statement – R’m • Airline revenues up 2.1% • Release of air traffic liabilities up ~R400m due to new systems implementation • Margins weakened due to a decline in yields and increase in fuel cost • Bambanani initiatives mitigated margin weakness • Air Tanzania - discontinued operations NOTE: 2005 were restated for IFRS

Financial Overview Income statement – R’m • Once-off costs, mainly legacy costs and exogenous factors, negatively impacted SAA FY2006 results …….

Financial Overview Balance sheet – R’m • Post Recap Balance Sheet assumes R4bn Recap • Non-current assets decreased due to Sale & Leaseback of A340-600’s • Net asset value declined after SAA repaid Transnet R1.6 billion of the R4.0 billion Compulsory Convertible Subordinated Loan • Transnet will convert the balance of R2.4 billion to Ordinary Equity • R1.4 billion aircraft related debt repaid during the year

Financial Overview Cash flow statement – R’m • Efficient working capital management resulted in decrease in net working capital of R1 billion • Sale & Leaseback proceeds of R1.3 billion • R1.4 billion aircraft related debt repaid • R1.6 billion of Transnet’s CCSL repaid

Financial Overview ~12% drop vs. FY0405 ~12% drop vs. FY0405 Impact of strike . . . .on revenue . . . .on passenger numbers

Financial Overview Financial risk management • Currency risk management….. • SAA exposed to currency risk from foreign revenues earned, foreign expenses incurred and aircraft financing transactions • SAA hedges between 50% and 75% of exposure on a 12 month rolling basis • Currency risk also managed through cash collection and conversion strategies • Jet Fuel …… • Jet fuel is SAA’s largest expense • SAA hedges 40% - 60% of its jet fuel price exposure on a 12 month rolling basis • Interest rate risk…. • SAA interest rate exposure arises from aircraft financing structures • SAA manages its interest rate exposure through adjusting fixed vs floating ratio and USD vs ZAR ratio of its aircraft financing portfolio

Financial Overview Unbundling & Recapitalisation • Unbundling from Transnet….. • Sale of SAA from Transnet to DPE concluded for R2.05 billion • Suspensive conditions to be fulfilled by 31 December 2006, mainly • PFMA legislative requirements • Approvals from 3rd parties & replacement guarantees • Resolution of E Class Shareholder matter • SAA Recapitalisation…. • SAA will be raising R3.2bn - R4.0bn equity to restructure its balance sheet • position SAA for future growth and expansion • lower cost of capital • improve gearing and cover ratios • mitigate currency risks

Industry Overview Key themes - Global • 2005 was a turbulent year for the airline industry • Global airline industry losses approx US$6 billion in 2005 (IATA estimates) • Oil price is wild card, cutting into airlines’ efficiency gains and profit • Oil prices are volatile and remain uncertain • Airlines need to: • Reduce cost and improve efficiencies • Consolidate and join global alliances • Low Cost Carriers continue to be a threat to legacy carriers

Industry Overview Key themes - Africa • Increased competitive threat (AF/KLM/KQ, EK) • Increased partnering and code-share • BASA constraints (e.g. Nigeria, Angola, Yamoussoukro Declaration) • Strong market growth • Franchise opportunities • Aircraft maintenance opportunities • Increasing Cargo opportunities

Industry Overview Key themes - South Africa • Strong pax growth – (only 5% of South Africans fly) • LCC position strengthening • Competition intensity driving yields down • Fuel costs bite • Strong voice of Labour • Growing online bookings

Strategic Overview Strategic Initiatives • SAA strategy and specific initiatives SAA Corporate Strategy Domestic Africa International Cargo SAAT Low Cost Carrier Legacy Carrier Cost Reduction Bambanani II Subsidiaries and Non-Core Functions (Re-engineer, Retain, Sell)

Strategic Overview Network strategy • Domestic/SADC - Launch low cost offering for leisure and new travellers- Premium offering for business passengers • Africa - Partner with African carriers – Ghana, Nigeria- Increase point-to-point flying • International - Consolidate network in partnership with Star Alliance- Lie flat seats- Focus on tourists- Increase direct services- Reduce costs

Strategic Overview Strategic Achievements …..FY2006 • Historic admission to the Star Alliance • Bambanani II embedded across the organisation • IT system implementation complete – Amadeus, Pegasys, Rapid • Strong leadership and management team in place • Marketing achievements – ATP, SAA Tennis Open, SAA Open …..FY2007 • Improved pricing and revenue management • Improved customer experience • Voyager Credit Card • Strong SAA Cargo growth to achieve R4.5bn turnover by 2010 • SAA Technical pursuing partnerships, 3rd party business & Freighter conversions • 2010 World Cup preparations • Launch of LCC

Strategic Overview Network plans • SAA is planning growth in key International and Regional markets between now and the end of 2007 • Growth in the short term will be driven by increased utilization of the existing fleet (increasing the return on assets for our shareholders) • SAA will commence operations to five new markets • Central Africa (2), West Africa (1), North America (1) and Europe (1) • SAA will increase capacity in the four markets in the short term • Supplementary flights will be operated over periods of peak demand to strategic markets • SAA would also like to add capacity to Luanda, Lagos and additional flights to Accra however bilateral agreements prevent this

Strategic Overview Network plans October 29; 2006 • Operate Washington – Johannesburg non stop • Add one additional Johannesburg - Mumbai flight • Add one additional Johannesburg - Accra flight • Increase Johannesburg - Livingstone from 3 to 7 flights to per week • Increase Johannesburg - Sao Paulo capacity (by 574 seats per week) • Retime Johannesburg - Entebbe flights to overnight increasing aircraft utilization) • Cancel flights to Kigali (to be replaced with Rwandair express codeshare) • Codeshare with Egypt Air between Johannesburg and Cairo (Tuesdays, Thursdays, Saturdays and Sundays) • Additional capacity between Johannesburg and Cape Town and between Johannesburg and Durban .(to be operated at peak times) – [planned additional 56 flights between 20 Nov and 1 January – schedules to be finalised within next few days]

Strategic Overview Network plans November ; 2006 • Two extra flights between Johannesburg and East London on Fridays and Sundays and the return flight will be on the same days. The extra flights will depart as SA481 from Johannesburg at 18h50 to arrive in East London at 20h20. The return flight, SA484 will depart from East London at 2050 to arrive in Johannesburg at 22h20 • Note: As of August: Business Class reintroduced on East London and Port Elizabeth flights • Air India codeshare implementation December; 2006 • Operate supplementary flights: to London, Frankfurt and Perth (December06 – January07) • Thai Airways, Air Mauritius, Air Malaysia codeshare implementations

Strategic Overview Network plans January; 2007 • Commence new destination: Point Noire, Congo • Commence new destination: Bamako, Mali • Terminate Johannesburg – Zanzibar flight (to be replaced with Air Tanzania codeshare) • Swissand SAS Scandinavian codeshare implementation February 1; 2007 • Commence new destination: Libreville, Gabon • Add two additional Johannesburg – Maputo flights April 1; 2007 • Commence new destination: Johannesburg – Chicago (3 flights per week) • Add one additional Johannesburg - Entebbe flight • Final decision on the continuation of Johannesburg – Zurich operations • Commence one daily Johannesburg–Cape Town flight from the International Terminal

Strategic Overview Network plans July 1; 2007 • Commence new destination: Johannesburg – Munich (3 flights per week) • Operate supplementary flights: to Frankfurt (July - August) September 1; 2007 • Operate supplementary flights: to Paris (Rugby world Cup) November 1; 2007 • Increase frequency to daily Johannesburg - Chicago • Increase frequency to daily Johannesburg - Munich • Increase frequency to daily Johannesburg - Mumbai • Increase frequency to daily Johannesburg - Perth • Final decision on the continuation of Johannesburg – Paris operations

Strategic Overview STAR Alliance The global STAR network that SAA can leverage

Strategic Overview STAR Alliance: Highlights & Key initiatives • Internal reviews as part of the Star Alliance Strategy Realignment Process for the definition of all Minimum Requirements was completed (Assets Review). • Collocation – in London (LHR airport) and Paris (CDG airport). • After joining Star Alliance, SAA released 12000 Voyager seats in June 2006 linked to joining Star Alliance. • Round the World Fares (RTW), for the month of Jul’06 the total Revenue received of R1,2 mil from 283 coupons • Star Alliance Airport Audit was conducted end Sep/Oct 2006 • Visit Southern Africa Campaign postponed till January 2007 due to inability of all carriers to participate effectively. • Star Alliance Upgrade Awards (SAUA), the Business case is currently in progress • Interline Ticketing – in progress, will be implemented within 1 year, paperless transactions • SITA cost savings $657,139 as at Jun’06, for the period Mar 2005-Dec 2005

Strategic Overview STAR Alliance: Codeshares

Strategic Overview STAR Alliance During June 06 the first STAR alliance customer satisfaction survey in which SAA participated was completed, with SAA scoring above the STAR average. These benchmarks are valuable tools to enhance our service offering to the clients

Strategic Overview Product improvements • As of October SAA introduced its premium lie flat bed on all its long haul routes • The premium class experience: • Offers comfortable duvets and big pillows. • Amenity kits that are being redesigned for more variety and a stronger African look and feel. • Menus have been improved to incorporate the creations of foremost South African chefs. • In-flight entertainment offers a selection of block buster movies, documentaries, comedies, PC Games and music compilations. • SAA has refitted the seats in economy class on the new Airbus A340s to between 33 and 34 inches for increased comfort. • The selection of the meal offering on domestic routes has been refreshed and introduced following our tasting sessions for customers at Johannesburg International Airport.

Agenda • Financial Overview • Industry Overview • Strategic Overview • Conclusion and way forward

Conclusion and Way forward • Looking forward, SAA will focus on the following strategic initiatives: • Realising Star Alliance benefits • Continued focus on Bambanani II • Improving Customer Service • Implementation of Network strategy - Low-cost carrier, Legacy business, International business • Gearing Cargo and SAA Technical for growth • Restructure, Retain or Sell Subsidiaries and Non-Core Functions • Recapitalising SAA & Finalising Unbundling from Transnet

“Bringing the World to Africa and taking Africa to the World” Thank youQ & A

“Bringing the World to Africa and taking Africa to the World”

“Bringing the World to Africa and taking Africa to the World”

Presentation Transcript