Air France-KLM loss gives first taste of coronavirus impact

Monday, 11 May 2020 00:00 - - {{hitsCtrl.values.hits}}

PARIS, REUTERS: Two weeks of COVID-19 shutdown were enough to hit Air France-KLM with a EUR 815 million ($880 million) first-quarter operating loss, the airline group said last week – predicting demand could take “several years” to recover.

In the month of March, there was an “abrupt plunge in revenue that will obviously extend through the second quarter”, Chief Financial Officer Frederic Gagey warned.

Many major airlines have sought government help as they struggle to slash costs and conserve cash in response to the unprecedented global crisis.

Air France-KLM, which has received EUR 7 billion in French-backed rescue aid and Dutch pledges for a further 2 billion to 4 billion, expects to reduce monthly cash burn to EUR 400 million in the second quarter thanks to cost-cutting and state-funded furloughs that save EUR 350 million a month.

But operating losses will widen “significantly” in April-June with 95% of flights expected to remain grounded by a combination of travel restrictions designed to contain the pandemic and collapsed demand.

Capacity will still be down 80% in the third quarter, the group predicted, with customers returning only gradually.Air France-KLM’s revenue fell 15.5% to EUR 5.02 billion in the first quarter. Its net loss widened to EUR 1.8 billion from 324 million, also swollen by a EUR 455 million impact from over-hedged fuel.

While the initial virus outbreak in China impacted Asia traffic early in the quarter, the full effect of European lockdowns and travel bans was not felt until the second half of March.

The group now expects a full-year loss in operating earnings before interest, tax, depreciation and amortisation (EBITDA) – the first in its history, CFO Gagey said.

Demand is “not expected to recover to pre-crisis levels before several years”, the company also warned.

Formally withdrawing its pre-crisis 2020 guidance, Air France-KLM said it now planned to reduce its aircraft fleet by 20% in 2021. Chief Executive Ben Smith will present an updated “transformation plan” to investors within months, it said.