CHALLENGES GALORE AHEAD OF OPERATIONS RESTART AS THE AIRLINE’S FLEET SIZE IS SET TO SHRINK BY AS MUCH AS 30 PERCENT
(Posted 12th May 2020)
The extremely negative impact of the coronavirus crisis on the company’s financials and the ongoing very low demand for air travel urge Brussels Airlines to take substantial and indispensable measures to guarantee the survival of the company. To grant a future for Brussels Airlines, the carrier needs to structurally reduce its costs to a competitive level. In addition, to overcome the present unprecedented crisis, the company asks for support from both, its shareholder Lufthansa and the Belgian government. Within its turnaround plan, Brussels Airlines is structurally tackling its cost structure and optimizes its network by cutting marginally profitable and unprofitable routes, resulting in a fleet reduction of 30%. The overall size of the company, and as a consequence of its workforce, will be 25% smaller. As a socially responsible employer, Brussels Airlines will work together with its social partners to reduce the number of forced layoffs to an absolute minimum. The company is confident that with its turnaround plan it will be able to safeguard 75% of its employment and grow again in a profitable way as soon as the demand for air travel has recovered to a new normal, which is expected as of 2023. Achieving structural profitability is essential to secure the company’s future and new investments, while also being able to protect itself against possible new headwinds.
Across the world, the Coronavirus crisis is putting unprecedented pressure on airlines with a total revenue impact expected to exceed €240 billion. Incoming bookings dropped by more than 60% and cancellations reached record heights. As a consequence, many airlines across Europe and beyond are obliged to go for massive job cuts. Brussels Airlines is unfortunately not spared by the crisis. Since the temporary suspension of all its flights, which started on March 21st, the company loses one million Euro a day due to revenue losses and costs that cannot not be avoided, such as aircraft leasing and maintenance costs.
On February 28th the company announced for the first time an impact on the demand for air travel. The situation deteriorated week by week, with days where the number of cancellations exceeded the number of incoming bookings. Still today, demand is very low and according to analysts and experts, demand for air travel in 2021 is expected to be 25% lower than before the crisis and the industry can only count on a demand back at 2019-levels by earliest 2023.
“We started the year 2020 with positive results in terms of number of passengers and revenues; and for this summer, we planned a strong leisure offer as we could compensate part of the business we lost due to the bankruptcy of Thomas Cook Belgium. But the Coronavirus pandemic is hitting Brussels Airlines extremely hard. We had no other choice than to temporarily suspend our flights as of March 21st and introduce technical unemployment for the entire company. This unprecedented crisis has worsened our financial situation obliging us to take substantial and indispensable measures. The restructuring is urgently needed in order to survive the current crisis and to become structurally competitive in the future” said Mr. Dieter Vranckx, the CEO of Brussels Airlines
A turnaround plan focussing on the survival of the company and creating the base for structural profitability
The Brussels Airlines management is today presenting its turnaround plan to the social partners. With the plan, the Belgian airline wants to pull the company out of the crisis that severely hit the financials of Brussels Airlines. At the same time, the airline focuses on structural profitability in order to enable solid growth. The carrier therefore needs to reduce its overall costs, increase efficiency and productivity.
A sufficiently positive EBIT margin will allow the airline to secure its future, invest in its fleet and to further develop its hub at Brussels Airport. Furthermore, the Belgian home carrier will make sure to continue playing a pivotal role for the Belgian economy and to remain one of the core airlines within the Lufthansa Group.
The main measures of the turnaround plan are:
- The review of the network by focusing on the market needs and by optimizing the route profitability.
- The adaptation of the fleet according to the network optimization: from 54 to 38 aircraft (-30%)
- The reduction of the personnel costs by reducing the number of jobs by 25%
- Together with the social partners, the number of forced redundancies will be reduced to a maximum extent.
- The reduction of overhead, operational costs and the increase of operational efficiency, among others by improving productivity and further standardizing the fleet.
- The simplification of the employee reward set-up, aiming at remaining an attractive employer while controlling the future cost evolution.
Brussels Airlines’ intention is to investigate and explore as many solutions as possible to limit the number of forced layoffs. The company therefore invites its social partners to assess together all alternative measures allowing to reduce the social impact to a maximum extent; measures like seasonal contracts, pensions, part-time work, unpaid leave, volunteers who would seek their future elsewhere – to name just some options.
Until the crisis struck did Brussels Airlines fly daily from the European capital city to Entebbe in Uganda, with one of the flights routing via Bujumbura in Burundi while the remaining six services routed via Kigali in Rwanda.
When Uganda closed her airspace for passenger flights was Brussels Airlines compelled to withdraw from the route – and from Bujumbura and Kigali too – the first time in decades that a service disruption of this kind took place, apart from the one year gap after Swissair at the time pulled SABENA into bankruptcy and before first SN Brussels and then Brussels Airlines returned to the route.