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Presentation to the Parliamentary Portfolio

Committee

June 2007

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Contents

Vision and Core Values

Background

Market Position

Strategic Focus

Current Fleet & Network

Domestic Strategy

Regional Strategy

Financial Performance and projections

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Vision

To be the most successful

regional airline in Africa

Mission

To provide the best service to our customers whilst optimising profits

Our Vision, Mission and Values

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Background

South African Express (SAX) was established in 1994 as a regional feeder airline

to South African Airways

SAX operates predominantly on routes that are secondary within South Africa

and the region, e.g. Bloemfontein, Kimberley, Richards Bay, George and

Gaborone, Botswana. These routes cannot be served viably with larger aircraft

SAX has suffered from historical under-capitalisation. It was highly geared,

having a share capital of only R100 and therefore became reliant on Transnet

guarantees

The majority of SAX customers (75%) are business travellers commuting

between major hubs and on secondary routes (the Hub-and-Spoke system)

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Three categories of airlines

Full Service Network Carriers (FSNC) operating mainline services on larger routes (e.g. South African Airways, BA/Comair and Nationwide)

Legacy carriers with large hubs

Segment customers into two groupings according to their sensitivity to timing of departure.

o Time sensitive Business Pax (mostly insensitive to price) and

o Time Insensitive Leisure / Discretionary pax that are very price conscious

High costs resulting from high labor costs and hub inefficiencies

Enjoy revenue premium driven by loyalty schemes, network and service product advantages

Low cost carriers (LCCs) (e.g. Mango, Kulula.Com and 1Time)

Single class service offering with minimal frills and simplified systems

No hubs or interlining of traffic

High productive use of aircraft, labor and facilities (frequency of operation increase units by which costs are recovered)

Regional carriers (e.g. South African Express and Airlink )

Feed and distribute pax traffic to and from mainline carriers at their hubs

Operate point to point service in less dense markets with smaller gauge aircraft

May be independent or partially spun off from mainline parent

SAX is positioned as a regional/feeder carrier within the South African Network. Although SAX is adopting low cost approaches as a regional carrier, SAX is not a low cost carrier (LCC)

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Regional carriers

Regional carriers mainly operate on shorter distance domestic and regional

lower density routes with smaller gauge aircraft

Less vulnerable to currency fluctuations

Less dependent on leisure travel which can be impacted by the economic cycle

Less vulnerable to general concerns accompanying, international terrorism instability

and safety demands on large African airlines

Regional carriers operate on a principle of higher frequencies with smaller

aircraft than mainline carriers

Incur substantially lower level of start-up losses on new routes than mainline

carriers

Regional carriers are ideal for development of profitable operations on thinner

routes within the African context

Despite economic environment and fluctuations in expenses, regional airlines

have shown great resilience by reporting solid operating profits

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Strategic Focus

Profitability is essential

Continue to build a strong regional and feeder airline

Identify opportunities for new secondary hubs in the African region where services are

well suited to the 50 to 70 seater gauge aircraft

SAX is amenable to co-operation with other African airlines to pursue joint venture

opportunities

This will add to the hub status of the OR Tambo International Airport and will provide

additional feed to SAA’s international network

Apply a low cost focus without necessarily adopting no frills model

Reduce distribution costs. Increase internet bookings

Promote e ticketing to reduce ticketing costs

Build efficiencies in aircraft maintenance

Re-negotiate terms of the engine overhaul contracts

Re-engineer process of management of spares

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Staff Numbers

SAX employs a total of 687 employees

Demographics

PDI - 373 (48% male, 52% female)

White - 314 (75% male, 25% female)

SAX plays an important role in training young commercial pilots. To

date 52 cadet pilots have passed through SAX

SAX still employs the first woman pilot to fly for a South African

commercial airline

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Current Fleet

Fleet size of 18 aircraft

7 Dash 8 aircraft (50-seater)

9 CRJ aircraft (50-seater)

2 Q400 aircraft (74-seater)

Daily average utilisation per aircraft is 09 hours 21 minutes

The gauge of the current fleet operated by SAX is more efficient and

profitable than larger gauge aircraft

SAX’s breakeven passenger number is significantly lower than the load

required on a 120-seater A319 aircraft

Furthermore, SAX’s turboprop aircraft are able to physically operate

into smaller airports such as Richards Bay which cannot be operated

with larger aircraft

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Current SAX Route Network

Livingston

Vic Falls

SAX operates to 7 regional destinations and 11 domestic destinations with over 120 flights per day

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Domestic Routes

Johannesburg – Kimberley

Johannesburg – Richards Bay

Johannesburg – Hoedspruit

Johannesburg – Bloemfontein

Johannesburg - George

Johannesburg – Nelspruit

Johannesburg – East London

Cape Town – East London

Cape Town – Port Elizabeth

Cape Town – Bloemfontein

Durban – Port Elizabeth

Durban – East London

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Johannesburg – Bloemfontein

This is a predominately a business route for SAX

SAX operates 9 times daily utilizing a fleet mix of between 50 to 70-

seater aircraft depending on peak and off peak times. Schedule begins

at 06h00 ending at 21h00

1Time operated the route using a 157-seater aircraft once per day.

However, 1Time stopped services on this route 16 March 2007 due to

the market demanding more frequency and flexibility than cheaper

fares

Other carriers such as Nationwide have attempted to offer services

between Johannesburg and Bloemfontein but terminated operations

after only a three week operation

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Cape Town - Bloemfontein

SAX had no competition on the Cape Town – Bloemfontein route until

Mango began operations on 1st December 2006. Mango remains SAX’s

only competitor

The majority of passengers are business travellers, with Mango on the

route the leisure market has shown substantial growth as Mango

targets predominantly the leisure market with lower fares

SAX currently flies 3 daily services between Cape Town and

Bloemfontein compared to one flight by Mango

SAX utilizes a 50-seater aircraft while Mango’s aircraft has a capacity of

186 seats

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Johannesburg – George

SAX operates 3 frequencies daily between Johannesburg and George.

George, is mainly a leisure market which is highly seasonal

SAX utilises a fleet mix of between 50 to 74-seater depending on peak

and off peak times

Competitors are Nationwide Airlines, Kulula.com, 1Time and Airlink

The range and gauge of our current fleet is cost effective and has

proven to be more profitable than when SAA operated this route

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East London Market

Johannesburg – East London:

SAX operates 2 daily flights to East London utilising a 50-seater aircraft. SAX

schedule and its utilization of a smaller gauge aircraft are ideal for the business market

into and out of East London

SAA operates larger gauge aircrafts on this route, SAX has positioned its schedule at

off peak times for the mainline carriers and where the market conditions could be best

met by SAX gauge aircraft

Competitors on the route is 1Time and BA Comair

Cape Town – East London

SAX operates this route daily utilizing a 50-seater aircraft. This is the optimum aircraft

for this route due to market size

Majority of travel is business travel, and as such the schedule, frequency and service

provided by SAX have maintained and protected market share

The sole competitor on this route is the low-cost carrier 1Time who only operate on

Fri, Sun and Mon mainly to capture the leisure market

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East London Market (ctnd.)

Durban – East London:

SAX operates 4 daily frequencies using a 50-seater aircraft and the gauge of

aircraft is the most profitable aircraft that can service this market

1Time was operating on this route, but have since stopped operations

effective 15 April 2007

SAX schedule offers flexibility to passengers due to the timing of its

scheduling

Business travellers constitute 75% of travel on this route

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Port Elizabeth – Durban

Competitors are Nationwide and the low-cost carrier Kulula.com

SAX operates 4 daily flights with a 50-seater aircraft while Kulula.com only has 1 flight per day

SAA operated this route prior to SAX commencing this operation, due

to the size of aircraft it proved to be costly for the mainline carrier The

size of SAX’s aircraft allows for faster turnarounds and more frequency

and benefits from economies of scale

The range of the schedule allows for more frequency and additional

capacity which are key on majority business travel routes

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Port Elizabeth – Cape Town

SAX currently operates 8 daily frequencies between the route utilizing a

50-seater

Competitors include Nationwide and two low-cost carriers: Kulula.com

and 1Time

SAA operated this route prior to SAX commencing this operation, due

to the size of aircraft it proved to be costly for the mainline carrier

The size of SAX’s aircraft allows for faster turnarounds and more

frequency and benefits from economies of scale

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SAX Domestic Strategy

SAX’s strategy in the domestic market is to consolidate its network and

grow frequency on routes such as Bloemfontein, Richards Bay and

Kimberley

Fares are not projected to increase due to pressure from low fares

airlines, however since SAX has adopted low cost carrier principles of

cost containment, the lower fare tickets will not cause a major impact to

profitability

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Current Regional Routes

SAX has a greater role to play in providing intra-Africa operations which are safe and reliable

SAX currently operates to Botswana, DRC, Mozambique, Zimbabwe and Namibia

Johannesburg – Gaborone

Johannesburg – Windhoek

Johannesburg – Walvis Bay

Johannesburg – Lubumbashi (DRC)

Johannesburg – Victoria Falls (to commence middle of financial year)

Cape Town – Windhoek

Cape Town – Walvis Bay

Cape Town – Maputo

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Johannesburg – Lubumbashi

SAX commenced flight to Lubumbashi in November 2004 and is

currently flying three frequencies a week

The competitor on the route is Hewa Bora Airways operating on Day 1,

4 and 7. The market has an unfavourable perception of the competitor’s

safety and reliability

The route has proved to be very profitable and SAX has applied for

additional frequencies to meet the demand of the Johannesburg -

Lubumbashi route to bring the total frequencies to 5 per week

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Johannesburg – Gaborone, Botswana

SAX is the only South African carrier operating to Gaborone based on

the single-designated bilateral

SAX operates 5 daily frequencies from Johannesburg to Gaborone

SAX’s current competitor is Air Botswana who operate 4 daily

frequencies

The bilateral mentions possibilities of an open-sky policy between

South Africa and Botswana as of May 2007

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Johannesburg – Windhoek and Walvis Bay

SAX operates 2 daily flights to Windhoek ideally suited for the market in

the mornings and afternoons where SAA are not able to get optimum

loads

The SAA/SAX brand has a loyal customer base in Walvis Bay and

Windhoek due to the frequency and the offering of seamless service

Competitors on the route are Air Namibia and Kulula.com

The range of the schedule allows for more frequency and additional

capacity which are key on majority business travel routes

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Cape Town – Windhoek

SAX operates this route utilising a 50-seater which has proven to be the most optimum aircraft due to the market size

The competition on the route is Air Namibia utilising a 737-200 aircraft type

Majority of travel is business travel, and as such the schedule,

frequency and service provided by SAX have maintained and protected

market share

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Competitive Advantages

SAX is ideal for the lower air traffic demand in Africa and due to its

fleet, size and experience of operating secondary routes, will succeed.

SAX has a favourable market perception, mainly due to :

Right gauge aircraft to operate profitably in developing these new routes as

a feeder

Adequate frequency into hubs as the aircraft utilised by SAX is better placed

to implement such a strategy because of its competitive advantage provided

by smaller gauge aircraft which will provide the required frequency

Sourcing of aligned strategic partners in terms of joint ventures and

partnership.

No perceived threat to home carriers and gauge precludes it from pursuing

African routes

Lower break even load factor required thus operation can be profitable quite

quickly

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Thank you