SAA struggles as oil price doubles
May 14, 2008
By Sibongile Khumalo and Sapa
Johannesburg - Soaring oil prices have cost SAA R950 million, putting pressure on the state-owned airline's margins.
Chief executive Khaya Ngqula said yesterday that the carrier had budgeted for oil at $65 a barrel for the current financial year. Oil has been on an upward trend since the beginning of the year, hitting $100 in March. Yesterday London Brent crude was at $124.65 (R942), almost double SAA's projection. Ngqula said this made it difficult to meet the margin target of 7.5 percent.
Industry analysts say oil has rocketed 25 percent since the start of this year and has doubled in the past 12 months.
But Ngqula said the underestimation of oil prices would not clip the carrier's wings. The fuel levy allowed it to charge a competitive surcharge on ticket fares to make up for the rising cost.
"Things have not been easy," he said. "But the company is in a better financial position than it was at this time last year."
He said the oil prices had driven a number of airlines, particularly in the US, into bankruptcy. Last year SAA reported a loss of R883 million. "I am happy to say we are solvent. Our restructuring has reduced costs by almost R1 billion."
Tony Twine, an Econometrix economist, said the SAA projections were not too low considering that the oil price was at $50 on January 21 last year. "The increases took everyone by surprise worldwide and all fuel-reliant industries are feeling the pinch. I believe we are on the late stages of the spike and the situation might stabilise towards the end of the year."
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