Jomo Kenyatta International Airport’s Terminal 1-A. FILE PHOTO | NATION MEDIA GROUP As airlines push ahead full throttle with plans to reduce their huge wage bills amid falling demand for air travel, an international lobby now warns has warned that the carriers cannot slash the cost sufficiently to minimise severe cash burn to avoid bankruptcies.
International Air Transport Association (Iata) notes that even though airlines have taken drastic steps to reduce costs, around 50 percent of their costs are fixed or semi-fixed.
“The result is that costs have not fallen as fast as revenues. For example, the year-on-year decline in operating costs for the second quarter was 48 per cent compared with 73 per cent decline in operating revenues, based on a sample of 76 airlines,” notes Iata Director-General Alexandre de Juniac.
And with the fourth quarter looking gloomy and recovery not foreseen, at least in 2021, Iata has reiterated its call for government relief measures to sustain airlines financially and avoid massive job losses.
Total industry revenues in 2021 are expected to be down 46 per cent compared with 2019’s $838 billion (Sh91.2 trillion).
The previous forecast for 2021 had put the revenues plunge at around 29 percent compared with 2019, which was based on expectations for a demand recovery commencing in the fourth quarter of 2020.
Recovery, however, has been delayed by new Covid-19 outbreaks, and government mandated travel restrictions including border closings and quarantine measures.
Preserve cash
Locally, after the State ruled out any bailout earlier in the year, national carrier Kenya Airways has been cutting down on its workforce to preserve cash as demand for flying, especially on international routes remains low.
Recently, the airline announced that it is working on a new arrangement that will see KQ, as the airline is known by its international code, abolish monthly payment to pilots and instead pay them based on productivity.
The carrier is currently in negotiation with the pilots’ lobby and is hopeful of reaching a consensus.KQ has 414 pilots who form about 10 percent of the organisation’s work force but gobble 45 percent of the total payroll cost, highlighting the huge cost impact.The carrier is targeting to reduce the company’s overall total fixed costs and not just the personnel, by about 50 percent in response to the airline revenue projections. As such, the firm has already reduced its network and it will also be cutting on some of its assets.Kenya Airways has forecast […]
