State-owned airline South African Airways (SAA) on Monday reported an increase in profits of R581-million for its year ended March 31, 2010, compared with last year's return to profits of R402-million.

SAA CEO Siza Mzimela said that despite a difficult operating environment for the year, with the global airline industry showing a loss of $20-billion, the company was able to impose strict cost controls, while also experiencing a pick-up in regional passenger volumes.

The group's operating costs declined to R21-billion,compared with R24,5-billion in 2009, with the main contributors being a 25% decline in fuel costs and aircraft leasing cost declining by 30%, to R643-million, as a result of lower interest rates.

SAA also reported a strong improvement in cash generated from its operations to R1,7-billion for the year, compared with a R1,8-billion deficit the previous year. Of the R1,7-billion generated, R1,2-billion was used to repay debt.

Hedging losses, that have been the cause of financial distress for SAA in the past, had shown improvement, moving from a R1-billion loss the previous year, to a R120-million loss for the 2009/10 financial year.

Further, Mzimela pointed out that while passenger numbers decreased by 2,4% during the year, from 6,8-million passengers to 6,7-million passengers, the company was still able to operate at capacity by shifting passenger loads into the regional African market.

Domestic passenger numbers dropped by 6% and international passenger numbers by 5% for the year. However, the airline showed an increase of 9% in passenger volumes in the African or regional market.

"The African market proved to be a market with great potential for growth. Going into the next financial year, SAA will be looking to increase its market share on the continent. Currently, we are considering opportunities in Central and Western Africa, mainly through partnerships. Some of the options being considered include Dakar, Abu Dhabi and Accra."

The group's low-cost carrier subsidiary Mango boasts the highest level of narrow-body aircraft use in Africa, and reported a R18,5-million profit for the year.

Mzimela noted that other international carriers would also be looking at competing in the African market, which motivated swift action from the company.

SAA would also be looking at strengthening its alliances in the international domain.

FLEET REPLACEMENT

Meanwhile, Mzimela confirmed that SAA would take delivery of 20 new A320 aircraft, to the value of $1-billion.

She noted that it was important for the group to strengthen its balance sheet, seeing that it would not receive guarantees from the South African government to fund its fleet replacement programme.

Mzimela said that the group would work out an appropriate funding scheme in line with what its balance sheet allowed, which could include operating leases, sales and buy backs, and/or any other appropriate resolutions to bridge the funding gap.