INTEGRATED REPORT 2014 CONTENTS MISSION, VISION AND CORE BUSINESS 2 HIGHLIGHTS 3 SAA STRUCTURE AND OPERATIONS 4 SAA OPERATIONS AT A GLANCE 6 ABOUT THIS REPORT 8 • Compliance management programme 8 • Public Finance Management Act non-compliance 8 • Impact on the organisation of SAA internal audit 9 • Compliance policy statement 9 CORPORATE GOVERNANCE AND ACCOUNTABILITY 10 • Board of directors 10 • Board committees 10 • The Shareholder’s Compact 10 • Strategic initiatives 11 • Key performance indicators (KPIs) and evaluation 11 CHAIRPERSON’S MESSAGE 12 ACTING CHIEF EXECUTIVE OFFICER’S MESSAGE 14 LEADERSHIP 16 • Board of directors 18 • Group executive committee 20 MANDATE, STRATEGY, PERFORMANCE 24 • The Long-Term Turnaround Strategy 24 THE DEVELOPMENTAL MANDATE 28 • Human resources 28 • Procurement and the developmental mandate 33 • Corporate social investment 33 THE COMMERCIAL MANDATE 36 • Environment 36 • Stakeholders and communications 37 • Performance management 39 • Enterprise risk management 40 • Costs 42 • Operations 43 • Commercial 45 • Awards 48 • Africa strategy 48 • Cargo 49 THE YEAR UNDER REVIEW: STRATEGY AND PROGRESS 51 SUBSIDIARY REVIEWS • Mango 52 • SAA Technical 58 • Air Chefs 62 • SATC 66 SOUTH AFRICAN AIRWAYS GROUP INTEGRATED ANNUAL REPORT 2014 1 Since its adoption in 2013, the Long-Term Turnaround Strategy or LTTS, has become the basis for the considerable effort being made to turn South African Airways around. It is this strategy, that together with the Shareholder’s Compact constitutes the framework against which performance is being measured. To this point progress is being registered, structures have been put in place, and concerted action is being taken to ensure that in the short, medium, and long term the airline will continue to implement the imperatives of its strategy and it will continue to strive for success in its goal of gaining altitude. SOUTH AFRICAN AIRWAYS GROUP 2 INTEGRATED ANNUAL REPORT 2014 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS For the year ended 31 March 2014 MISSION To deliver commercially sustainable world-class air passenger and aviation services in South Africa, on VISION the African continent and To be Africa’s leading for our tourism and trading world-class airline. partners. CORE BUSINESS The movement of people and goods by air. CORE VALUES Safety Adopting a zero-defect philosophy and striving for zero safety incidents through proper training, work practices, risk management and adherence to safety regulations at all times. Customer-focused Striving to meet the unique needs of customers (internally and externally) by tailoring each interaction to suit their specific needs. Integrity Practising the highest standards of ethical behaviour in all lines of work and maintaining credibility by ensuring that SAA’s actions consistently match its words. Valuing its people SAA is committed to their satisfaction, development and well-being by treating them with respect, dignity and fairness. Accountability Taking responsibility for individual and team actions, decisions and results by establishing clear plans and goals and measuring progress against them. Excellence in performance Setting goals beyond the best, reinforcing high-quality performance standards and achieving excellence by implementing best practices. THE SCOPE OF THIS REPORT This integrated report, published in line with the King Code on Corporate Governance (King III of 2009), reviews South African Airways’ (SAA) economic, social and environmental performance for the period between 1 April 2013 and 31 March 2014. This report combines elements of a sustainability report with a conventional financial report. The aim is to provide sufficient insight to enable stakeholders to form a comprehensive view of the organisation’s performance and its ability to create and sustain value, in the context of its environmental, social and economic challenges. SOUTH AFRICAN AIRWAYS GROUP INTEGRATED ANNUAL REPORT 2014 3 2014 HIGHLIGHTS R453 million R25 million R48 million Cost compression Air Chefs (YoY) Closure of savings improvement Bujumbura/Kigali R69 million R113 million R80 million Improvement on Regional operations Qantas code-share domestic operations improvements renegotiated R9 billion Contribution of 0,3% of the country’s GDP in 2013 SOUTH AFRICAN AIRWAYS GROUP 4 INTEGRATED ANNUAL REPORT 2014 SAA STRUCTURE AND OPERATIONS HOW WE FLY Through our operations, we facilitate trade and tourism with our major partners and contribute in this way to economic growth in South Africa. Strategy SAA Cargo Air Chefs The Long-Term Turnaround Overseeing and transporting Preparing and delivering all food Strategy (LTTS) developed to turn freight domestically and and beverage requirements for around commercial performance, internationally. The Group carried SAA and Mango as well as for SA fulfil mandates and obligations Express and other airlines. to the shareholder, and address 132 000 tonnes stakeholder concerns. of freight in the year under review, about one quarter of Mango freight carried by all airlines to, from and within South Africa. Providing profitable, no-frills, efficient and effective low-cost Operations Approximately 90% of Group air cargo transfers are delivered travel options in South Africa Planning and executing all airline- as belly-freight on international and increasingly in the region, related logistics. flights, with the rest delivered by carrying SAA Cargo freighters. Additionally, 2,2 million SAA moves approximately 60% domestic passengers in the of all air cargo in South Africa. Commercial year under review. Flying passengers to destinations in South Africa, Africa and around the world. The Group is a major SAA Technical contributor in linking South SA Travel Centre Responsible for maintenance, Africa with the rest of the world, A network of franchises responsible repair and overhaul (MRO) of connecting South Africa directly to for sales, ticket distribution and aircraft and components. 38 26 tourism marketing. cities across countries. Providing over 47 250 seats each week, equivalent to a third of all international flights arriving and departing South Africa every week. SOUTH AFRICAN AIRWAYS GROUP INTEGRATED ANNUAL REPORT 2014 5 CORE BUSINESS Airlines and associated functions: SAA and Mango, SA Travel Centre SAA’s core business can Aircraft maintenance, repair and overhaul (MRO): SAA Technical be simply stated as the Logistics: SAA Cargo, Air Chefs movement of people and Loyalty: SAA Voyager goods by air. In realising its mission, and facilitating the Group’s core activities, Within this broad framework, and across its four subsidiaries; Mango, there are various functions SAA Technical, Air Chefs and SA Travel Centre, the entire Group depends and capacities delivered by upon a range of critical supporting process areas: specialised entities within Finance Marketing, communication the Group structure, all Human capital development and customer services falling within four distinct Sales and distribution Procurement types of activity: Information technology Corporate social investment Environment Legal, risk and compliance Voyager Human resources Alliance and code-share agreements Ensuring passengers are well- Proactive, practical, creative SAA is a Star Alliance member and rewarded for their loyalty to SAA. and enterprising in leading and has code-share agreements with implementing transformation, nine global airlines. With these and maximising skills and prioritising other airline partners, SAA is able to productivity. offer 186 destinations in Routes South Africa, Africa and the 62 countries world brought safely and reliably Aircraft on six continents. within reach. The right aircraft for the right skies: acquisition of modern, fuel efficient aircraft is a fundamental aspect of the strategy to turn Environment Pilots commercial performance around. Moving towards a greener, World-renowned for their more efficient and cost effective professionalism and high operating universe. standards of flying skills. Procurement Ensuring that shareholder as well as commercial concerns are Cabin crew addressed through the efficient and transformative development Highly-trained, a true representation of the supply chain. of diversity and transformation within the Group. SOUTH AFRICAN AIRWAYS GROUP 6 INTEGRATED ANNUAL REPORT 2014 SAA’S OPERATIONS AT A GLANCE 6 26 38 1 269 CONTINENTS COUNTRIES DESTINATIONS STAR ALLIANCE (inclusive of tag routes) DESTINATIONS 25 52 9,3 11 491 132 000 INTRA-AFRICAN FLIGHTS A MILLION EMPLOYEES TONNES OF ROUTES DAY BETWEEN PASSENGERS WORLDWIDE CARGO FLOWN JOHANNESBURG (7,1 million SAA, AND CAPE TOWN 2,2 million Mango) (36 SAA, 16 Mango) – inclusive of Lanseria operation SOUTH AFRICAN AIRWAYS GROUP INTEGRATED ANNUAL REPORT 2014 7 SOUTH AFRICAN AIRWAYS FLEET 1 11 6 11 6 A340-200 A319-100s A320-200s B737-800s A330-200s 8 9 3 A340-300 A340-600s B737-Freighters 11 A319-100s 8 MANGO B737-800s SOUTH AFRICAN AIRWAYS GROUP 8 INTEGRATED ANNUAL REPORT 2014 ABOUT THIS REPORT Covering the period between 1 April 2013 and 31 March 2014, this report is published in accordance with the King Code on Corporate Governance (King III of 2009) and in line with international frameworks such as those developed for integrated reporting by the IIRC and GRI. Globally the concept of integrated reporting and supervisory requirements as assessed is taking hold as the norm for disclosing to in the regulatory universe. shareholders and stakeholders the extent Compliance with internal policies and scope of an organisation’s approach