INTEGRATED REPORT 120 5 ABOUT THIS REPORT Scope and framework This integrated report is published in line with the King Code on Corporate Governance (King III of 2009), and with reference to the frameworks defi ned by the International Integrated Reporting Council (IIRC) and the Global Reporting Institute, as well as the regulations prescribed by the Companies Act No 71 of 2008 (Companies Act) and the Public Finance Management Act No. 1 of 1999 (PFMA). Our second integrated report, it reviews the economic, social and environmental performance of South African Airways for the period between 1 April 2014 and 31 March 2015. The report combines the framework elements of a sustainability report with those of a conventional fi nancial report, with the aim of providing suffi cient insight to enable stakeholders to form a broad view of the organisation’s performance and its ability to create and sustain value in the context of its environmental, social and economic challenges. NOTES TO THE CONSOLIDATED SOUTH AFRICAN AIRWAYS GROUP 1 SOUTH AFRICAN AIRWAYSINTEGRATED ANNUAL GROUP REPORT 2015 1 ANNUAL FINANCIAL STATEMENTS INTEGRATED ANNUAL REPORT 2015 for the year ended 31 March 2015 CONTENTS 02 ABOUT SAA 02 Highlights Mandate, Mission and Vision 03 Our Values 04 History, Structure and Strategy 05 Recognition of Excellence 06 SAA at a Glance 06 Aviation Operating Context 07 Where We Fly 08 GOVERNANCE 08 Chairperson’s message 10 Board 12 Board Committees 14 Compliance 15 STRATEGY 15 Cost Compression 16 Long-Term Turnaround Strategy 16 90-Day Action Plan 17 Six pillars 18 Outlook emanating from the 90-Day Action Plan 19 Acting Chief Executive Officer’s Message 22 Executive Leadership 28 OUR BUSINESS 28 The Business and the business model 29 Challenges 30 Legal, Risk and Compliance 32 Shareholder and Stakeholder relations 36 Human Resources 38 Transformation 39 Procurement 41 Information Technology Services 44 Operations 48 Commercial 51 Voyager 52 Cargo 54 Subsidiaries 62 Environment and Sustainability 64 Outlook 66 Annual Financial Statements HIGHLIGHTS OF 2015 R30 billion Total annual revenue 9,2 million Passengers carried ABOUT SAA OUR MANDATE MISSION The SAA mandate as defined in the SAA Act, No 5 of 2007 was included in the company’s 2013 Long-Term Turnaround Strategy (LTTS). To deliver commercially The mandate requires the airline to ‘engage in passenger airline and cargo transport services, air charter services and other related services’ sustainable world-class in support of the state’s desire ‘to promote air links with the Republic’s main business, trading and tourism markets within the African continent air passenger and aviation and internationally’. The airline is required to pursue this mandate in a manner that is financially sustainable, while being compliant with services in South Africa, the applicable operational regulations and legislation in the country, inclusive of laws and regulations aimed at transformation, skills development and African continent and our employment equity. tourism and trading partners. South Africa, the African continent, and the wider world are thus all VISION defined as the scope of the airline’s “ Africa’s leading operations in the interests of world-class airline.” promoting both the trade and leisure segments of the aviation industry. This mandate, with its commercial and developmental imperatives, serves as the basis for SAA’s vision and mission, and the values which underpin the company’s structure and operations. SOUTH AFRICAN AIRWAYS GROUP INTEGRATED ANNUAL REPORT 2015 3 R790 Awards million Cost compression savings 8 90-Day New R9 route to Abu Dhabi Action Plan launched billion Successful Annual contribution to implementation country’s GDP OUR VALUES Safety Customer-focused Integrity Adopting a zero-defect philosophy Striving to meet the unique Practising the highest standards and striving for zero safety incidents needs of customers (internally of ethical behaviour in all lines of through proper training, work and externally) by tailoring work and maintaining credibility practices, risk management and each interaction to suit their by ensuring that SAA’s actions adherence to safety regulations at specifi c needs. consistently match its words. all times. Valuing its people Accountability Excellence in performance SAA is committed to their Taking responsibility for individual Setting goals beyond the best, satisfaction, development and and team actions, decisions and reinforcing high-quality performance well-being by treating them with results by establishing clear plans standards and achieving excellence respect, dignity and fairness. and goals and measuring progress by implementing best practices. against them. ABOUT SAA CONTINUED HISTORY, STRUCTURE AND STRATEGY SAA operations commenced in February 1934 after the South African Government took over the assets and liabilities of Union Airways. Since then, SAA has remained 4 2 100 percent state-owned except between 1999 and 2002, when Swissair held 20 Subsidiaries Major business percent of the equity in the company. units Today SAA has a highly vertically The airline has two major business units within the group: integrated Business Model, with SAA Mango Mango, a global best-practice low cost carrier (SOC) Ltd as the (LCC) primarily operating in the South African domestic market, also progressively parent company performing a role as a feeder airline to SAA. SAA Cargo holding 100 percent SAA Cargo, a cargo air transportation business with capacity primarily sourced of the equity in four from the belly-space of SAA’s passenger subsidiaries: aircraft fleet. SAA Technical (SAAT) SAA Technical (SAAT), Africa’s largest aircraft Voyager maintenance, repair and overhaul (MRO) Voyager, Africa’s strongest airline business. revenue-based loyalty programme. Air Chefs Air Chefs, a catering business operating in Johannesburg, Cape Town and Durban. South African Travel Centre (SATC) South African Travel Centre (SATC), a retail travel business with franchises in South Africa and other African states. A strategic decision has been taken to divest from this business. SOUTH AFRICAN AIRWAYS GROUP INTEGRATED ANNUAL REPORT 2015 5 RECOGNITION OF EXCELLENCE SAA is recognised globally for its quality customer service, security and safety record, and the airline received a number of awards during the year under review. 2014 2015 MAY JANUARY Voted the Coolest Domestic Airline in the Sunday Best Airline in Africa and Best Business Class Times Generation Next Awards. to Africa awards from top US travel magazine Business Traveller. JULY Selected among the top ten in the World’s FEBRUARY Best Business Class Airline Catering category Four-star rating by Skytrax, the independent at the 2014 World Airline Awards. global airline rating organisation, for the thirteenth Best Airline Staff Service Africa award for the consecutive year. third time at the Skytrax World Airline Awards MARCH ceremony in London. African Cargo Airline of the Year award at the AUGUST STAT Times International Awards for Excellence First place in the Domestic Airline category in the in Air Cargo. Sunday Times Top Brands 2014 awards. SEPTEMBER First place in both the African Long-Haul Airline and African Regional Short-Haul Airline categories at the 2014 Business Traveller Africa Awards. ABOUT SAA CONTINUED SAA AT A GLANCE R30 billion 65 8 total annual revenue, aircraft domestic with the airline ranked thirty-eighth SAA 52, Mango 10, destinations globally, and second in Africa. and SAA Cargo 3. SAA 5, Mango 7, with some markets served by both airlines. 9 25 131 000 tonnes international regional of cargo carried destinations destinations annually by SAA served by SAA. SAA 24, Mango 1. Cargo 8,43 percent of the company’s 11 million revenue for the year under review. 11 476 staff employed meals prepared by the group annually by Air Chefs. 33 percent of staff are represented 1 million in labour groups at SAA and 25 percent at SAA Technical. air-frame million maintenance man 9,2 passengers carried hours per annum at 2,49 million SAA Technical. annually Voyager members. SAA 6,7 million, Mango 2,5 million. THE AVIATION OPERATING CONTEXT Aviation is a highly-complex capital-intensive industry, prone to periodic external shocks such as civil unrest, war, volcanic ash clouds, security breaches and epidemics, and has been operating on historically low revenue margins of three percent. SAA and its subsidiaries operate in highly competitive global markets with the core airline market rapidly liberalising and consolidating resulting in growing levels of competition. The airline is also facing strong competition in a steadily commoditising domestic market, an increasing level of competition in the regional African market and intense competition in the international market. Mid-hemisphere airlines are capitalising on African market liberalisation and anticipating above global average GDP growth for the continent, so they continue to build capacity and network reach aggressively. Historically, SAA has been highly exposed to fluctuating oil prices and a weakening currency. Approximately 60 percent of the company’s SOUTH AFRICAN AIRWAYS GROUP INTEGRATED ANNUAL REPORT 2015 7 PER operating expenditure is foreign audited financial period. These were the WHERE WE FLY currency-denominated, with only 40 percent key findings: With a well-established international, of revenue in strong foreign currencies. • On its international routes in FY2015 SAA regional and domestic network, SAA, As a result, any weakening of the rand contributed