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Flight Centre SA is cutting ties with SAA: Here's why

This is the first time the group, which is said to be the country's largest travel specialist, has had to issue a stop-sell on the national carrier.

Picture: South African Airways

JOHANNESBURG - Travel group Flight Centre has cut its ties with South African Airways (SAA) for now, citing ongoing concerns about the airline's financial stability and the unwillingness of their travel insurance providers to continue covering SAA.

On Thursday, the travel group said it would stop selling the airline's tickets to its customers. This is the first time the group, which is said to be the country's largest travel specialist, has had to issue a stop-sell on the national carrier.

This decision comes as SAA recovers from a weeklong strike, which cost the airline over R50 million daily. The also airline couldn't pay its workers their full salaries this week.

Treasury still hasn't released the R2 billion guarantee the airline desperately needs to stay afloat. Now, the country's biggest travel agent is cutting its ties.

Flight Centre said it took the decision to stop selling SAA tickets because it was concerned about mixed messages from the government about whether the airline would be bailed out.

It also said insurance companies working with the group were no longer willing to cover SAA under their travel supplier insolvency benefit, due to doubts over the long-term viability of the airline.

This move is expected to have a huge impact on the state airline.

President Cyril Ramaphosa has made turning around ailing state companies such as SAA a priority as he tries to revive economic growth and steady the country’s public finances after a ruinous decade under his predecessor, Jacob Zuma.

He has found it hard to make much headway, given fierce opposition from unions and a broad cross-section of society that is deeply suspicious of moves that could weaken the hand of the state in the economy.

But there have been some signs recently that officials are starting to take a tougher line on loss-making state entities.

Public Enterprises Minister Pravin Gordhan said that the government could provide no more financial support to SAA, after more than R20 billion rand ($1.4 billion) of bailouts in the past three years.

SAA has pleaded for the government to sanction more state guarantees to allow it to unlock new bank loans, but so far those guarantees haven’t been forthcoming.

Earlier this month SAA said it could cut almost 20% of its 5,000 employees.

Investors and ratings agencies want to see evidence that the government is serious about tackling runaway spending.

Additional reporting by Reuters.

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