Air France-KLM Said to Move to Cost-Cutting Crisis Mode on Virus

(Bloomberg) -- Air France-KLM Chief Executive Officer Ben Smith is preparing new cost-cutting measures to protect the carrier from what he called an “extraordinary situation” stemming from the coronavirus epidemic.

In a video sent to staff Friday and described by employees, Smith said the airline is putting planned investments under review in a bid to lower spending. Other steps include redeploying some of the planes previously flying on routes to China and halting external hiring for some operations, according to the people, who asked not to be identified commenting on internal discussions.

A suspension of flights to China will likely be extended beyond the end of March, Smith told employees, according to the people. The CEO also said long-haul capacity has already been reduced by 6% and the effects are expected to be “significant.”

Airlines are feeling the financial brunt of the outbreak, which began in China and has spread to 52 countries and territories. The industry is expecting the first annual decline in global passenger demand in 11 years, and lost revenue of about $30 billion, according to the International Air Transport Association. Major carriers have canceled flights to China and international events are being pulled, weighing on business travel plans.

Air France-KLM last week warned the outbreak will wipe as much as 200 million euros ($220 million) from earnings. British Airways parent IAG SA said Friday that it couldn’t provide a financial forecast this year due to plummeting demand in Asia rippling across Europe. IAG warned it would reduce capacity by 1% to 2% in 2020. Other rivals have said they would cancel flights amid receding sales.

The epidemic could jeopardize Smith’s plans for external growth. The CEO has previously said the company was reviewing investment opportunities to participate in industry consolidation.

©2020 Bloomberg L.P.

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