Kenya Airways sinks $9.5m in laying off workers
Thursday September 06 2012
Kenya Airways (KQ) will spend at least Ksh800 million ($9.5million) to lay off 578 employees as the company moves to cut staff costs in a bid to boost its profit margins. BD GRAPHIC
Kenya Airways (KQ) will spend at least Ksh800 million ($9.5million) to lay off 578 employees as the company moves to cut staff costs in a bid to boost its profit margins.
The national carrier said Thursday the intended layoffs would result in a cost saving of Ksh1 billion ($11.9million) per year.
“Most of the job cuts will be in our operational department affecting such positions as loaders. Already, 126 employees have opted for our voluntary retirement offer," Titus Naikuni, the company’s chief executive officer said in a press briefing in Nairobi.
KQ’s costs have been growing at a faster rate than its income, placing considerable pressure on the company’s profit margin.
The airline's net profit margins have fallen from a high of 9.7 per cent in 2005 to a low of 4.2 per cent last year, with analysts at Citi Group projecting margins to drop to 2.4 next year before peaking at 3 per cent with the arrival of the 787-dreamliners.
The drop in net margins have been as a result of increase in fuel and staff costs- the two biggest costs for the company.
Staff costs which have more than doubled over the last six years, having risen from Ksh6 billion ($71 million) in the year 2007 to Ksh.13.4 billion ($158.6 million) in 2012.
Cutting costs is important because KQ’s profits in the last financial year dropped by 53 per cent to Ksh1.7 billion ($20.1 million) pulled down by high staff and fuel costs.
Analysts at Renaissance capital had in a research note earlier this year expressed their concerns at the company’s high employee numbers.
“A thousand employees per 1 million passengers is an industry efficiency benchmark, and KQ lags behind this benchmark with around 1,500 employees per 1 million passengers,” read part of their research note to investors.
The cost of laying off the employees is expected to reflect in the profit and loss account of the airline for the six months period ended September 2012.
But with the airline still intent to say on course of its 10-year expansion plan in which it hopes to have tripled its current fleet of 35 aircraft, this means it will have to hire more staff, raising a few questions.
“The question is whether they were operating with the excess staff and when they hire will they hire on different terms,” said Eric Musau, an analyst at Standard Investment bank said.