Air France-KLM Warns of $216 Million Hit From Coronavirus

(Bloomberg) -- Air France-KLM warned the coronavirus outbreak will wipe as much as 200 million euros ($216 million) from earnings, hammering home the financial impact of the crisis even thousands of miles from its epicenter in China.

The estimate includes losses from halting flights to the Asian nation this month and next, and assumes that services will resume in April, the Paris-based company said Thursday. An extended delay would escalate costs still further. The shares fell as much as 5.7%.

“It’s a severe effect,” Chief Financial Officer Frederic Gagey said on a conference call. “We were quite satisfied with the month of January. All that changed quite brutally with the declaration of an epidemic in China.”

Some 80% of the impact is related to China, followed by Hong Kong, Taipei and Manila, he said during an analyst presentation, adding that there could be some fleet redeployment during the summer months if needed.

Air France-KLM is the first of Europe’s long-haul airlines to post earnings since the gravity of the epidemic became clear, leading carriers around the world to cut links to a country that’s been a key profit driver. UBS estimates the Paris Charles De Gaulle airport hub will be hit hardest in the region because France is such a draw for the Chinese, who spent almost 3 million nights in its hotels last year.

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Gagey said the severe acute respiratory syndrome epidemic in 2002 and 2003 affected the transportation industry for five to six months. As things stand, occupancy levels are lower on long-haul flights through May, so that unit revenues -- a measure of average fares -- will decline in the first quarter, according to the statement.

Cargo demand has also been hit, Air France-KLM said, as China imposes travel curbs to contain the disease, affecting exports.

The impact of the virus is “in line with our earlier thoughts,” Sanford C. Bernstein analyst Daniel Roeska wrote in a note, adding that despite the virus there is “cautious optimism” about the results.

Hong Kong-based Cathay Pacific Airways Ltd., among the carriers hardest hit by the novel coronavirus outbreak, said Monday that first-half earnings will “significantly down” as a result of the health scare.

Among Air France-KLM’s European peers, British Airways parent IAG SA is due to report earnings Feb. 28, followed by Deutsche Lufthansa AG on March 19.

Key Earnings Highlights:

• Air France-KLM’s operating income fell 19% to 1.14 billion euros in 2019, hurt by higher fuel costs and a drop in cargo profit.
• The Air France and KLM brands both suffered a slide in profitability for the full year, though margins at the Dutch arm remained 6 points ahead at 7.7%. The difference is a long-standing source of tension between the two.
• The company didn’t provide 2020 earnings guidance but said its fuel bill should fall by 300 million euros from the 2019 level.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

To contact the editors responsible for this story: Katerina Petroff at kpetroff@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Tara Patel

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