South African Airways will fail to achieve a profit margin of 7.5 percent by next March due to soaring oil prices, CEO Khaya Ngqula warned on Tuesday.

"We know that with the current oil price we won't be able to achieve that. It will be less than that but we are still a viable organisation," Ngqula told reporters in Johannesburg.

"The oil price is a wild card in the airline industry and that is what we have to live with."

Ngqula was updating the media on SAA's turnaround strategy. The airline posted huge losses last year and was thrown a R1.3-billion lifeline by government with promises of more, subject to its return to profitability.

The CEO insisted that the restructuring programme was on track and that SAA was now a profitable operation, if the R1.56-billion once-off cost of the turnaround strategy was excluded.

More realistic goal

Chief Financial Officer Kaushik Patal said a profit margin of between three percent and six percent by the end of March 2009, as opposed to its goal to achieve 7.5 percent, would be more realistic.

"We are well on our way to break even and to move towards a profit margin next year," said Patal.

"We are watching every cent we are spending in this organisation," added Ngqula.

Reacting to media reports that SAA management received R72-million in bonuses while the airline is under financial pressure, Ngqula said the amount quoted in the media was incorrect.

"It was not R72-million, it was R6-million and there will be more of this going into the future because your best people are always poached and you have to be able to compete.

Challenge is to retain skilled staff

"It is useless to restructure if you have nobody to run the company. The key challenge is to retain skilled staff," Ngqula said.

Updating the media on the restructuring programme, Ngqula said SAA's staff complement had shrunk by nearly 2000 in the year ending March 2008. This was mainly employees who took voluntary severance packages and 869 resignations due to the uncertainty of the restructuring process.

This has saved the airline more than R630-million.

"We have shrunk the airline but we are more effective," said Ngqula.

Grounding six Boeing 747-400s

A key element of the restructuring was the grounding of its fleet of six Boeing 747-400s. SAA was paying between 30 and 60 percent above current market lease rates. The grounding of the aircraft cost the company R1.56-billion.

"This once-off restructuring cost will push the airline into the red for 2007/2008," Ngqula said.

SAA plans to lease six more aircraft in 2008 and 2009 to replenish its fleet and will send out requests for proposals from Airbus and Boeing in 2010 to consider the purchase of more planes.

SAA posted an R883-million loss, with operating costs of R21.3-billion outstripping income, at R20.6-billion, for the year ending March 2007.

Sapa