0 Presentation to the Parliamentary Portfolio Committee June 2007

1 Contents Vision and Core Values Background Market Position Strategic Focus Current Fleet & Network Domestic Strategy Regional Strategy Financial Performance and projections

2 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

3 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)

4 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)

5 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

6 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

7 Staff Numbers SAX employs a total of 687 employees Demographics PDI (48% male, 52% female) White (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

8 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

9 Current SAX Route Network Livingston Vic Falls SAX operates to 7 regional destinations and 11 domestic destinations with over 120 flights per day

10 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

11 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

12 Cape Town - Bloemfontein SAX had no competition on the Cape Town – Bloemfontein route until Mango began operations on 1 st December 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

13 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

14 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

15 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

16 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

17 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

18 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

19 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

20 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

21 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

22 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

23 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 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

24 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

25 Thank you