You know
it really bothers me how our government wastes money and can’t use it properly
or efficiently. It’s bad enough with corruption
and luxurious spending, the tax payer doesn't see what
happens with most of the money. They claim there is no money to build houses,
maintain national roads or perhaps subsidize education. Yet they have
enough money to bail out certain companies where some of the MP's could have
direct interest.
Take this
for example companies like SAA have recently come back again to the government to
borrow money to bail them out, yet they still have expensive tickets compared
to your Kulula's, 1Time, subsidiary Mango and yet their service is dropping
quicker than their profit lines.
So to
quickly sum it up we basically have a company that has also been accused and
possibly penalized for price fixing, their service is dropping, they
are not the cheapest in the market and yet we (taxpayer/government) keep
bailing them out and lending them money.
The
carrier previously also sued its former CEO for spending R27.4-million on
a staff retention scheme and another R30-million on a golf sponsorship deal he
authorised with Argentinian golfer Angel Cabrera.
So now we
have reckless spending, service dropping, but they need more money.
What do
the people want? I think service at an affordable price would be something the
people would appreciate.
And how
do you get that? Economics has taught us that competition creates that. So here
is a very general idea.
The money
the government uses to subsidize such big companies like
SAA is actually the tax payer’s money to run the country. Yet as I stated
earlier the government claim they don't have the funds to 'subsidize our
roads and want to increase tolls, they can’t subsidize and improve our
public transport so most people still use their cars. Which are the
same cars that are damaging the roads that the government can’t maintain
without us being taxed more? They cause traffic and parking itself has become a
costly problem to companies and individuals because we all drive to work. It is
a bit of a vicious circle that comes back to how our government uses some of
the tax payer’s money to benefit the tax payer.
Now as an
idea what if the government lends SAA the money, however because SAA can’t
always physically cover the interest at times cash wise and its high, why don't
they just compensate or rebate SA residents somehow for the tickets to fly
domestically? This will increase sales for SAA, make them more competitive
price wise and perhaps prompt them to push their service up as they are now
cheaper which means they need numbers.
That
would benefit the SA resident because with their tax money they get cheaper
flights and a better service.
So let’s
do a quick scenario. Ceteris paribus SAA has about 20 domestic routes per day
and 20 flights per day between Johannesburg and Cape Town.
Their B737-800's can seat up to 210 passengers. But let’s assume
on average 120 people per flight because this is only for residents.
So that’s 2400 tickets per day let’s say.
Currently
SAA has a R1,3 billion subordinated loan already from the government, and the
R1,6 billion “going concern” guarantee it [SAA] obtained to underpin its cash
requirements after the auditor-general raised concern last year about its
ability to generate sufficient cash to fund operations. . Now they are asking
for about R6m again to fund operational costs. I’m also going to assume for the
sake of the argument that the guarantee money was also transferred to SAA
directly to freeze with the bank. That is about R2.9 billion capital of the tax
payer’s money. That's a lot of interest per annum to subsidize tickets.
Let’s
assume the lending is at the current repo rate which
is currently 5.5%. Without compounding the interest the interest
accrued in a year will be R159.8 million just on interest not compounded.
Now
assuming 2400 tickets per day to SA residents, and assuming 360 days
per annum we have 864,000 tickets per annum. That would make it a
"rebate" or discount of about R185 per ticket. Don t forget
we are assuming the interest is not compounded which it can easily
be compounded and we assume the repo rate stays at its low of 5.5%. So
these assumptions are conservative as the rebate can be higher than R185 per
ticket.
Depending
on the numbers this makes the price a little more competitive. As we know
in economics the higher the price, the less the quantities for obvious reasons.
This is because the higher price margin makes up for the lower quantities sold
come gross profit calculation. However they no long have that high margin to
compensate them for the lower quantities, which means they must now up their
service because Kulula, OneTime etc is available at the same if not cheaper
price. Quality has to improve to increase ticket sales because the price has
come down, the consumer, the tax payer benefits.
Now
obviously there is the down side to this because only a certain percentage of
the country benefits because not everybody flies and mostly the poor are the
ones that need that saving somewhere else of R185. They will unfortunately have
a less of a chance of benefiting from this.
But
without sounding harsh or selfish, majority of the taxes are paid by the people
who can afford to fly in the first place as they are in that higher tax
bracket. Maybe the idea of subsidizing elsewhere where the
bigger population can benefit? This was just a general idea of the
people getting something back since the government can’t manage funds and
budget affectively.
Who knows
maybe subsidizing the Gautrain tickets should be considered or perhaps get even
more efficient public transport should be the next options since they all ask
for government funding.
Your thoughts?