Air France-KLM Slashes Year-End Capacity on Pandemic Surge

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Air France-KLM will slash its schedule this quarter as European governments implement tough new measures to combat a resurgence of Covid-19 infections.

The shares fell after Air France-KLM said Friday that its French arm will offer less than 35% of year-ago capacity and KLM about 45%. That’s well below a previous forecast of 65% for the Paris-based group.

The carrier blamed a lack of demand and the French government’s decision to implement a new lockdown barring people from traveling except in extenuating circumstances.

That will lead to “substantially lower” results than the third quarter’s 442 million-euro ($516 million) loss before interest, taxes, depreciation and amortization, Air France-KLM said.

The cutback deepens the financial pressure on Air France-KLM ahead of talks between its biggest shareholders, the French and Dutch governments, on a recapitalization plan. The carrier has said it will have to raise new equity, and is aiming for a plan by May amid tension over the partnership between the two European nations.

“We’re working on this intensively,” Chief Financial Officer Frederic Gagey said on a conference call. “Strengthening equity can be done in many ways.”

Summer Letdown

Leisure travel had picked up for Air France-KLM and its peers during the summer months when infection levels dropped. But the surge in cases since then has put the brakes on any recovery.

British Airways owner IAG SA also reported results on Friday, after warning last week that it would operate no more than 30% of its usual schedule. State furlough programs and outright job cuts helped keep costs down, but the airline group declined to give a full-year forecast. Deutsche Lufthansa AG has previously said it will target a maximum of 25% capacity this quarter.

Air France-KLM shares slid as much as 4.7% and were down 3.8% as of 9:10 a.m. in Paris. IAG declined as much as 2.6%, and was off almost 1% in London. The companies have lost more than 70% of their value this year.

The industry has been clamoring for an easing of travel restrictions, but the latest moves by France and Germany to curb movement suggest more pain.

The third-quarter net loss at Air France-KLM narrowed to 1.67 billion euros from the prior three-month period, when the first wave of the pandemic struck. The results include restructuring charges for staff departures.

Job Cuts

French arm Air France has accelerated a job-cutting plan to include the equivalent of 8,500 positions through 2022, it said Friday, adding that Dutch unit KLM plans to eliminate as many as 5,000 workers in 2020.

At the end of September, Air France-KLM had 12.4 billion euros of liquidity and credit lines at its disposal. A 10.4 billion-euro rescue package of loans and guarantees from the French and Dutch governments has led to a ballooning of debt.

With cost controls limiting the cash burn, Air France-KLM “should be able to make it to next summer, but after that will be dependent on a traffic recovery,” said Daniel Roeska, an analyst with Sanford C. Bernstein.

Wrangling continues over the Dutch part of the rescue. Finance Minister Wopke Hoekstra is set to reject a KLM cost-cutting plan and withhold the next tranches of the existing 3.4 billion-euro package, Dutch daily De Telegraaf reported on Friday, citing sources close to the government.

One bright spot for Air France-KLM was an increase in demand for cargo, with unit revenue more than doubling. Gagey said the company is using its six freighter aircraft and has used passenger jets for cargo-only flights.

©2020 Bloomberg L.P.

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