Air France-KLM warns of bigger losses as it slashes capacity amid lockdowns

Suban Abdulla
·3 min read
The rise in coronavirus infections pose a threat to network airlines already hammered by the pandemic and long-haul travel collapse. Photo: AFP via Getty Images
The rise in coronavirus infections pose a threat to network airlines already hammered by the pandemic and long-haul travel collapse. Photo: AFP via Getty Images

Franco-Dutch airline group, Air France-KLM (AF.PA) has reported a €1.05bn ($1.2bn, £945m) quarterly operating loss and warned of worse to come as amid tougher COVID-19 travel restrictions.

Shares in the company fell after it unveiled a 67% drop in Q3 revenue to €2.52bn on Friday. The carrier blamed the new second lockdown in France which came into effect on Friday and will last for at least a month.

“The gradual closure of international borders in the second half of August and the resurgence of the pandemic strongly impacted our results in Q3,” chief executive Ben Smith said.

The Air France-KLM chief exec said the company “expects” a challenging Q4, with “current forward booking sharply down compared to last year.”

Air France-KLM also said that it will slash its schedule for this quarter as European governments implement tougher measure to curb rising COVID-19 cases. Air France is expected to operate less than 35% of its year-earlier capacity in Q4, with KLM running about 45% of its schedule, compared with 36% and 50% respectively during Q3.

Meanwhile, net debt at the carrier increased by €1.34bn over the quarter to €9.31bn.

The depressed revenue picture was largely consistent across its network airlines, low-cost unit Transavia and its maintenance operation. Across all passenger markets, the “expected traffic recovery” was disrupted by tighter travel measures in the second half of the quarter.

Cargo was a rare bright spot, with revenues up 32% to €676. That failed to offset a 77% revenue drop in network passenger operations to €1.32bn.

Air France-KLM confirms that it continues to implement restructuring plans aimed at cutting costs across its units. It has €12.4bn in liquidity, thanks largely to a French and Dutch government-backed bailout.

On the demand side, Air France-KLM expects to rebound to 90% to 95% of pre-coronavirus levels in 2021.

Air France-KLM five-day share chart. Graph: Yahoo Finance
Air France-KLM five-day share chart. Graph: Yahoo Finance

READ MORE: Coronavirus: British Airways owner IAG slashes 10,000 jobs as it plunges to £5bn loss

Smith added: “We have accelerated the implementation of cost reduction and cash preservation measures. We are also working closely with our partners on various means, such as rapid detection tests, that would allow traffic within the best sanitary conditions for our customers and employees.

“Beyond these immediate necessary measures, we are engaged in a more profound transformation of our Group, with the objective of exiting this crisis in a stronger position, ready to address the future challenges of our industry. Air transport will continue to connect people and cultures, but we foresee changes in customers’ expectations that we anticipate too.”

The rise in coronavirus infections pose a threat to network airlines already hammered by the pandemic and long-haul travel collapse.

It comes after, British Airways owner International Consolidated Airlines Group (IAG.L) vowed to continue slashing costs after posting a €6.2bn pre-tax loss for the first nine months of the year, compared with a profit of €2.3bn a year ago, due to COVID-19.

IAG has so far slashed 10,000 jobs across the company in a cost-cutting exercise, with most of the losses occurring across British Airways and Aer Lingus. The group also owns Iberia and Vueling.

Watch: Major airlines face up to likely winter blues