National carrier Kenya Airways will continue to incur a huge wage bill after it decided to reduce the number of employees it had planned to lay off as part of its turnaround strategy.
Downsizing was among the initiatives identified in the airline’s Operation Pride turnaround strategy that was expected to bring in an additional Sh20 billion in revenue.
The firm said following an evaluation of its human resource, it had decided to only shed 101 employees, as opposed to the 600 who would have been declared redundant or transferred to other sections of the company had it stuck to the earlier plan.
The struggling airline said factors such as natural attrition, where employees leave the firm through retirement, quitting to pursue other interests, or other grounds would enable it to reduce staff to the desired headcount.
The airline said it also factored in future growth needs in deciding to partially implement the rightsizing exercise.
The airline said retaining a higher number of employees had come at a cost, with the number of employees that are permanently employed going down by 7.5 per cent while those hired on contract basis had shot up by 20 per cent.
“In March 2016, the business announced its intention to carry out rightsizing exercise in line with the Operation Pride turnaround exercise aimed at delivering $200 million (Sh20 billion) in value from different initiatives. This exercise was anticipated to result in approximately 600 members of staff either being declared redundant or being deployed elsewhere within the business, should their terms allow,” said outgoing Chief Executive Mbuvi Ngunze in the company’s annual report to shareholders.
“After consultation with all relevant parties and stress-testing the accuracy of the rightsizing estimates to ensure all possible ways of retaining staff taking into account the attrition levels, as well as securing the airlines long-term operational efficiency, the exercise was carried out in two phases – July, 2016 and January 2017 – with a total of 101 staff separating from the business.”
During the financial year to March 31, 2017, KQ spent Sh11.55 billion in salaries paid to its 3,582 employees, a slight reduction compared to the Sh12 billion paid last year when the staff number stood at 3,870.
Total staff costs for the year, including social security benefits, stood at Sh15.5 billion.
In addition to the 101 employees who left KQ under the rightsizing exercise, a further 188 employees left the airline for other reasons, bringing the total to 289.
The airline has been grappling with hefty losses and in the financial year to March 31 this year reported a loss after tax of Sh10.2 billion, an improvement compared to a loss of Sh26.2 billion reported over the same period last year.