At Kumho group, it’s all about cutting costs

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At Kumho group, it’s all about cutting costs

The day after Kumho Asiana Group Chairman Park Sam-koo finally regained control of Kumho Industrial, he announced an intensive corporate restructuring plan that includes cutting the number of routes that his airlines fly and downsizing the staff to get through difficult times.

The corporate restructuring is expected to take two years to complete.

“We’re in a desperate situation where an intensive overhaul is necessary not as a temporary prescription but for our survival,” said Asiana Airlines CEO Kim Soo-cheon. “If we turn our mentality and attitude back to when we were a start-up and put all our efforts in, by the time our normalization measures come to an end in 2017, we will be a company that has secured sustainable growth with regained competitiveness.”

Under the restructuring plan, the nation’s second-largest airline plans to readjust the routes it flies.

The company plans to gradually move 11 routes, including feeder routes to Japan and midnight flights to Southeast Asia, to its newly approved budget airline, Air Seoul. Air Seoul’s license was approved by the government in October and will start business in the second quarter of 2016.

Additionally, it will stop flights to Vladivostok, Russia, in February as well as to Yangon in Myanmar and Bali in Indonesia in March.

It will cut the number of branch offices from 151 to 106. In Korea, 23 branches will be cut to 14, while 128 overseas branches will be reduced to 92.

The airplanes themselves will undergo changes. First class will be replaced with business class in all aircraft except the large A380. Business class on long flights will be upgraded to seats that fully recline. Meanwhile, the company will be upgrading its first-class service on the A380 traveling to Los Angeles, New York and Frankfurt.

The company said it has plans for a premium economy class for the A350 in 2017.

The airline is cutting its workforce and benefits given to high-ranking executives. One of the biggest changes is outsourcing of its ticketing and reservation department as well as airport services. This includes installing automation systems at airports. The company stressed that it will minimize layoffs and try to maintain some job security by reassigning employees and reducing the number of new hires. But it did say it was accepting voluntary early retirements and applications for sabbaticals starting early next year.

High-ranking executives will no longer be provided with company cars, and salaries are being chopped. The airline said that through such management efforts, it hopes to generate 160 billion won ($136 million) in savings annually.

Asiana has been struggling due to various factors, including the outbreak of Middle East respiratory syndrome last summer. The virus has had a larger impact on Asiana then its main rival, Korean Air, since Asiana has more routes to China and Southeast Asia than Korean Air. Rising competition from budget airlines has been eating into its revenues and profits.

In the first nine months of the year, Asiana saw its earnings drop 6.1 percent compared to the same period a year ago to 3.89 trillion won, while operating profit saw a steeper decline of 23.6 percent year on year to 17.2 billion won.

This is a stark contrast to budget airlines. During the same period, Jeju Air saw its revenue increase 20 percent year on year to $453.4 billion won. Operating profit surged 140 percent to 47.4 billion won.

While Chairman Park has realized his dream of reclaiming Kumho Industrial, considered a de facto holding company, he still has 570 billion won to pay off in debt that he borrowed to pay off Kumho Industrial’s creditors.


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