By Lee Hyo-sik
Korean Air, the country’s flagship carrier, has decided to cut the size of its manpower through a voluntary retirement program amid surging international oil prices, the weakening of the Korean won and other unfavorable global economic conditions.
Airline industry experts say that the airline has turned more pessimistic about its business outlook, adding the introduction of the voluntary retirement scheme, the first since 2006, is a preemptive step to better deal with an expected slump.
They also say Korean Air is trying to cut labor costs by dismissing senior employees, while hiring thousands of entry-level workers.
In response, the airline refuted such claims, saying the retirement program had been planned for quite some time. It said the scheme aims to provide long-time workers with opportunities to retire with handsome financial compensation and pursue other goals in life.
Severance pay
Korean Air said Tuesday that it began receiving early retirement applications from employees who are aged over 40 and have been on its payroll for more than 15 years.
“We will accept applications through the end of October. Those who retire will receive severance pay equal to a two-year salary and retirement funds. We will not force any employee to quit. It is 100 percent voluntary,” a Korean Air spokesman said. “The scheme is designed to make our workforce more flexible and increase labor productivity.”
Korea’s largest airline used a voluntary retirement program in May 2006 when it struggled with high oil prices. In 2003 and 2004 when severe acute respiratory syndrome (SARS) swept the globe and the U.S. invaded Iraq, the company also reduced the size of its labor force by encouraging workers to retire.
In 2006, Korean Air dismissed 20 percent of its workers when it sustained losses amounting to hundreds of billions of won.
Airline industry watchers call the Korean Air’s latest move rather odd, given its stellar performance last year and in the first half of 2011.
Outlook negative
In 2010, Korean Air’s revenue soared to a record-high of 11.46 trillion won amid surging demand. Its operating and net profits reached 1.1 trillion won and 468 billion won, respectively.
“The introduction of the voluntary retirement program indicates that Korean Air has turned more pessimistic about the macroeconomic outlook. It should be seen as a preemptive move to cope with difficulties ahead,” said an industry official who declined to be named.
He said the upcoming business conditions for airlines and other industries, which are sensitive to economic cycles, have deteriorated due to the European debt crisis, and an economic slowdown in the United States and China. “Oil prices surged and the Korean won has weakened against the dollar. Given all these unfavorable factors, Korean Air has decided to tighten its belt. An effective method to reduce costs is to let senior workers go and hire entry-level employees,” the official said.
In the first half of this year, Korean Air hired 1,700 pilots, flight attendants and other workers. The airline plans to employ 1,000 more in the second half, saying it needs more workers to operate new airplanes.
The company plans to add seven new planes, including two more A380s, to its fleet by the end of 2011. A total of 14 new planes will be put into operation next year.
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