Monday, May 9, 2016

Aerolineas Argentinas 2016 subsidy cut from US$ 1 billion to US$ 420 million to US$ 260 million

Newly-appointed Aerolineas Argentinas / Austral CEO Isela Costantini, who was designated as the carrier's new leader at the beginning of this year, determined in an analysis of the company's finances with senior staff, that maintaining the operation that she took over from previous Aerolineas CEO Mariano Recalde would require approx. US$ 1 billion (thousand million) in continued subsidies in calendar year 2016.

Consulting with new Argentine president Mauricio Macri's chief of staff Marcos Pena, other senior officials, and labor leaders at the airline, cost savings opportunities were identified to bring the subsidy down to US$ 420 million. However, upon further analysis, Pena has recently indicated that the subsidy must come down to US$ 260 million.  Making matters worse, it is estimated that in the January - March trimester, Aerolineas already received US$ 100 million, which would leave only US$ 160 million for the remainder of the year.     

So far, Costantini has managed to maintain the peace with labor union leaders by avoiding staff cuts through the introduction of new service, especially out of Cordoba (COR) and Rosario (ROS), Argentina's second and third-largest cities respectively, on new nonstop point-to-point domestic routes that avoid routing via Buenos Aires.    

The biggest savings that the company could achieve from modifying existing operations is widely viewed to be long-haul intercontinental services to the US, Italy and Spain which consistently lose large amounts of money. Cutting them back or eliminating them altogether and disposing of the large and expensive aircraft that serve these routes would go a long way to reducing the need for subsidies but doing so would likely create significant problems with Aerolineas' powerful unions due to the job losses that such cuts would entail, especially because the long-haul routes pay flight crews the highest wages.  


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