As Avianca is moving forward in its Chapter 11 reorganization, one of the main discussion topics is reducing its workforce. Now, the Colombian airline has shed more light on the subject. Avianca expects to furlough up to 30% of its employees before 2022. What else do we know? Let’s investigate further.
Avianca will reduce its workforce by 30%. Photo: Daniel Martínez Garbuno/Simple Flying.
Avianca had a large workforce
Before COVID-19, Avianca had a workforce of over 20,000 employees. In that sense, the airline wasn’t efficient, said Adrian Neuhauser, CFO of Avianca, in an interview with La Tercera, a Chilean newspaper. He added,
“We think that Avianca post-COVID will be 30% smaller, which would mean to have a workforce of about 14,000 people in the long run.”
Avianca is trying to adapt to the future. Worldwide, the airline industry is shrinking due to the current COVID-19 crisis. Neuhauser added that Avianca grew too fast and put too much capacity for so little demand.
Additionally, Avianca is just restarting its operations across South America. Currently, it is flying at 10% of its original capacity due to South American governments’ restrictions in the last months. From Colombia, it is now flying to 21 domestic destinations and six international cities.
Avianca recently got approval for its DIP Financing for US$2 billion. Photo: Getty Images.
When will Avianca return to its pre-COVID levels?
Earlier this month, the Bankruptcy Court of the Southern District in New York approved Avianca’s Financing for US$2 billion. Despite that, one of the main questions is how long it will take for the air industry to recover its pre-COVID levels.
The answer to that question is different from country to country and even from airline to airline. For example, China has already resumed 100% of its domestic operations, although profitability will remain elusive while the long-haul connectivity is down. In Latin America, the country that could lead the recovery is Mexico, followed by Brazil. The remaining Latin American countries could take longer to recover.
Adrian Neuhauser said that if Avianca’s revenues grow by 5% during the following years, it will take five or six years to return to 2019 levels.
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During the first half of 2020, Avianca recorded a net loss of US$352 million. The third-quarter results of the airline won’t be much better. Avianca was grounded most of the third quarter. Only in September, it started operating from its two main hubs in Colombia and El Salvador.
Avianca is operating at 10% of its original capacity. Photo: Getty Images
The battle for the Colombian market share has just begun
Before COVID-19, Avianca had the most significant market share in Colombia. According to CAPA, in 2018, Avianca had a 57% domestic market share, followed by LATAM and Viva Air.
Now, Viva Air could seize the moment following the steps of other low-cost carriers in Latin America like Volaris and Viva Aerobus. Viva Air should look to increase its market share as Avianca and LATAM go through their Chapter 11 reorganizations.
Avianca, on the other hand, should prevent this. To maintain its market share, Avianca has to read the field of play correctly. Avianca must deploy the correct capacity at the right time. It has the benefit of having a large variety of aircraft to employ, from ATR regional planes to a large long-haul fleet. Currently, it has 62 jets in service and 77 parked, according to Planespotters.com.
What do you think of Avianca’s plans? Let us know in the comments.