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Kenya Airways staff take 75 per cent pay cut as corona grounds airline

BUSINESS
By Macharia Kamau | March 22nd 2020

Kenya Airways has been dealt many curveballs in the recent past. None, however, has had a more crippling impact than the coronavirus, which has seen the airline suspend two-thirds of its flights as of Friday. Many of the flights that are operational have been scaled down and even running near empty, effectively wiping out revenues.

And the worst is yet to come; with Covid-19 threatening to temporarily shut down the airline’s operations, a disaster for the airline which has not turned a profit since 2012.

The airline has cancelled 65 per cent of its flights and KQ is already seeing a scenario where it will be forced to suspend operations. On Friday, the airline’s chief executive Allan Kilavuka told staff that suspending operations is not a far-fetched thought but a most likely possibility should the current trend continue.

The chief executive, who has just been confirmed and is expected to take the reigns as substantive chief executive on April 1, announced a raft of measures to enable the airline continue operations. These include temporary pay cuts, with some of the employees staring at a 75 per cent reduction. Kilavuka will start his new job by taking an 80 per cent pay cut.

He noted the measures, which also include unpaid leave, would in the short term enable the company avoid laying off staff.

The airline is expected to soon announce that its losses for the year to December 2019 have worsened as it publishes its full year financials. It reported Sh8.5 billion loss for the six months to June 2019.

In a statement in December, it issued a profit warning indicating that its losses might further sink by at least by 25 per cent.

“So far, we have reduced approximately 65 per cent of our flights, and this is changing by the hour. Our passenger numbers are also reducing exponentially and have greatly impacted our revenues,” said Kilavuka in the communication to staff.

“The reality is that should this trend continue – and current indications show that it will – we will have to make the difficult decision to temporarily suspend our operations. Consequently, we will have to place 50 per cent of our aircraft on long term storage, while the rest will undergo maintenance.”

An insider noted that the proportion of suspended flights may have increased since Friday, with the situation fast evolving.

KQ employees will have to do with pay cuts of between 25 per cent and 50 per cent, depending on their level, with low cadre employees being handed a slight reprieve and taking the lower cuts while the middle level staff get the 50 per cent cut. Staff will also be required to take unpaid days off work.

“With effect from April 1, 2020, all employees at grade H06 and above will be on a one week paid and three weeks’ unpaid leave. All employees at H05 and below will be on two weeks paid and two weeks’ unpaid leave,” he said.

“If you are required to be on duty, you will be on 25 per cent or 50 per cent pay subject to your grade.”

Management team will have to do with bigger pay cuts. The chief executive had last week said he would take a 35 per cent pay cut but in the email, he now says he will take an 80 per cent cut. Other members of leadership will be subject to a 75 per cent cut.

He noted that the pay cuts announced earlier had “been superseded as the situation has evolved significantly. They (management) will now be subjected to a 75 per cent pay cut and I will get an 80 per cent pay cut.”

The pandemic could scuttle the turnaround plan that the airline has been implementing.

It also complicates the process of nationalisation of the airline, which is expected to entail a complex plan that includes the formation of a holding company that will own KQ and other aviation agencies as well as hiving off the Jomo Kenyatta International Airport from Kenya Airports Authority (KAA) into a standalone company. KQ has suspended many flights as well as reduced scheduled flights to countries that have high cases of Covid-19. This has been due to a combination of factors all relating to the pandemic that include government’s orders last week, decline in traffic as well as travel restrictions in other countries.

Suspended flights include those to major hubs such as Guangzhou, China, where small traders go to buy manufactured goods that can be flown in cargo planes. China is where the virus was first reported. This was the first casualty and came after concerns that continued flights exposed the country to the virus, with China then being the epicentre of Covid-19.

The airline then suspended flights on the Rome-Geneva route on March 12 as Italy continues to bear the brunt of the pandemic. After China, Italy has the next highest number of confirmed cases. Other routes that have been suspended include Bangkok, Djibouti and Khartoum. More routes are being added to the list by the day.

Jambojet, KQ’s low cost carrier last Tuesday suspended its flights to Kigali and Entebbe (Uganda), the two regional flights it operates so far, citing a decrease in airline passengers on the international routes.

KQ is in the company of numerous airlines sharing in the misery across the world that have to grapple with reduced traffic and travel restrictions as governments wary of importing more cases of the coronavirus take caution. Closer home, South Africa – which last made a profit in the 2010/11 financial and RwandAir have cancelled all flights while Uganda Air has suspended nearly all its flights.

South African Airlines on Friday suspended all its regional and international flights, which could pile more pressure to Kenya’s aviation sector to take more radical measures to prevent more cases of coronavirus coming into the country through its airports.

Uganda Airlines, which was relaunched last year, has been forced to suspended most of the few flights it operates most of them in the region. It, however, reduced frequencies to Nairobi.

Rwanda took a more radical move, closing its Kigali airport to all passenger aircraft. The country earlier this week suspended all flights to and from Kigali for 30 days beginning Friday in its bid to contain spread of Covid-19. The suspension affected its national carrier RwandAir. The ban will however not apply to cargo flights.

The Africa Airlines Association (AFRAA) noted that casualties of the Covid-19 pandemic includes not only airlines that have reported reduced revenues but ones that have ceased operations.

AFRAA wants African governments to consider bailouts, tax breaks and other forms of compensation for the inevitable losses, which would enable the industry recover once the pandemic has been contained and even eliminated.

“Demand for air travel has been negatively affected by the Covid-19 outbreak, which has resulted in airlines making losses due to substantial schedule changes, travel restrictions and cancellations. AFRAA strongly recommends that African airlines engage their stakeholders to develop an all-inclusive proactive response strategy that addresses the adverse impact of the Covid-19 on their business to ensure airlines recover effectively to support key economic sectors,” said Abderahmane Berthé, AFRAA Secretary General

African airlines have lost an estimated Sh440 billion in revenues as at March 11 due to cancelled flight and low passenger numbers, according to the International Air Transport Association (IATA). IATA noted that the impact of Covid-19 would be far much worse than other major events of the last two decades, including the global financial crisis in 2008 and the terrorist attack on the World Trade Centre in 2001.

The lobby is also pitching to African governments on behalf of its members, asking them to include aviation sector in their different plans that are aimed at steering private sector players out of the murky situation they have been driven into by the disease.

IATA in a statement Friday urged governments in Africa and the Middle East to provide emergency support to airlines during “the evaporation of air travel demand resulting from the Covid-19 crisis”.

Globally, IATA estimates, airlines will need Sh20 trillion ($200 billion) in emergency aid. “Airlines are fighting for survival,” said Alexandre de Juniac, IATA’s Director General and CEO.

“Many routes have been suspended in Africa and the Middle East, and airlines have seen demand fall by as much as 60 per cent on remaining ones. Millions of jobs are at stake. Airlines need urgent government action if they are to emerge from this in a fit state to help the world recover, once COVID-19 is beaten.”

Covid 19 Time Series

 

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