03. 05. 2010 - The Government of the Czech Republic Approved the Czech Airlines Restructuring Plan
Prague 4 May 2010
The Government of the Czech Republic yesterday approved the plan for restructuring Czech Airlines, which comprehensively addresses the functioning of the company in the next three years. It involves an extensive set of measures aimed at a realistic transformation of the Airline into a truly stable commercial entity. The main concept is to emphasise the core business and change the transportation network model.
“We very much value the position of the Government of the Czech Republic, here at Czech Airlines. It shows understanding for the current situation of the Airline in a broader context and, above all, its future potential. We view yesterday’s resolution as supporting the direction in which Czech Airlines has been going since October 2009, as well as a confirmation of the restructuring steps thus commenced,” said the Chairman of the Management Board and President of Czech Airlines, Miroslav Dvořák, adding: “Financial prognosis models indicate that the proposed measures, taken as a whole, will lead to the renewal of the company’s stability and its long-term viability. Unless an unforeseen event should occur, we expect that we will be able to look forward to a profitable Czech Airlines in 2012.”
The Czech Airlines restructuring plan represents an extensive set of measures that are to be gradually implemented up to 2012. “The plan is the outcome of the firm commitment to put the company on its own feet. There are a number of individual steps that follow one upon the other and are interconnected. Overall, it involves the rationalisation of the activities of the company, by setting up an appropriate transportation network and aircraft fleet, by revenue management and a number of cost-cutting measures, as well as through financial restructuring to cover past losses,” said Miroslav Dvořák.
Emphasis on the Core Business
The restructuring plan confirms the direction taken towards establishing a holding arrangement of the company. The parent company Czech Airlines will increasingly focus primarily on its main line of business – scheduled air carriage. Through subsidiaries, it will operate and offer highly specialised and professional services in other areas. In addition to its existing subsidiaries, Czech Airlines is considering hiving off certain other sections, those which demonstrate the potential of being able to function on their own commercially. A confirmed plan is the separation of charter carriage, and under consideration are the hiving off of technical maintenance and, for example, the Czech Airlines Training Centre.
Change in the Transportation Network Model, Appropriate Scope of the Aircraft Fleet
A significant modification of the network of destinations served is a significant component of the restructuring. The number of unprofitable routes will be reduced; this effect will first be evident in the 2010/2011 flight schedule.
“Unlike with previous restructuring approaches that were based primarily on cost cuts, the main point of the present restructuring strategy is a new transportation network concept. The changes will be carefully thought out and calculated, and they will naturally reflect the current market developments. The number of routes operated with our own aircraft may drop by up to 30% by 2012. The least profitable routes will be cut, but revenue per the so-called passenger-mile and overall efficiency will go up,” said Miroslav Dvořák.
In addition, Czech Airlines’ fleet will be appropriately adapted to the new number of destinations offered, with its structure being simplified and made more efficient. Like the offer of destinations, the fleet may also be reduced by up to 30% by 2012. The Airline will use a single type of narrow-fuselage aircraft - Airbuses. In this regard, the fleet will be upgraded with the addition of eight previously ordered Airbus aircraft. On the other hand, all Boeing aircraft will be gradually sold off by the end of 2012. The reduction of the number of aircraft will also reflect the natural development of the aircraft fleet, determined by, among other factors, the termination of lease agreements.
A number of revenue management initiatives are proposed in the restructuring plan, both in passenger carriage and ancillary activities. These include an improvement of the pricing system and so-called revenue management methods, so as to take full advantage of the potential of the O&D system (an Origin & Destination dynamic pricing system) introduced in the last quarter of 2009.
Cost cuts will attend all changes in the company. They will involve a reduction in operating costs, the costs of support activities, and costs related to leasing, information technologies, telecommunication, and a number of other areas. Following the completion of the route network adaptation and the aircraft fleet reduction in 2012, another round of cost reductions will follow, primarily in administrative support.
“It is clear that the number of the company’s employees will be gradually reduced. But we will not scratch with a sharp pencil, so to speak. An important factor will also be the minimisation of the social impact of the changes effected. We will publish the resulting headcount as an aggregate. But we will definitely calculate the savings coming from personnel changes in the order of tens of millions of crowns,” said Miroslav Dvořák.
There are many individual initiatives and steps involved in the restructuring plan, and they are of various scopes. They are based on carefully calculated models that have been built in accordance with a conservative and cautious approach to market development predictions. Czech Airlines is, however, also prepared to adapt its offer and capacity to any changes in the development of the surrounding environment.
Czech Airlines Press Spokesperson