Wasting taxpayer’s money is not going to fly…

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.

Besides the administration and management of such a system, it’s just a thought, just an idea on how we can try be innovative with tax payers money in a way that can benefit some if not most of them. I think the government and all companies should be thinking outside the box and try different things even though there is a possibility of failure because if you're not failing every now and again, it's a sign you're not doing anything very innovative. What I am saying may not be logical, but innovation is not the product of logical thought, although the result is tied to logical structure.

Your thoughts?