Air France-KLM loss gives first taste of coronavirus impact

PARIS (Reuters) – Two weeks of coronavirus shutdown were enough to hit Air France-KLM (AIRF.PA) with an 815 million-euro ($880 million) first-quarter operating loss, the airline group said on Thursday – predicting demand could take “several years” to recover.

FILE PHOTO: Logo of Air France KLM Group is pictured on the first Air France airliner’s Airbus A350 during a ceremony at the aircraft builder’s headquarters of Airbus in Colomiers near Toulouse, France, September 27, 2019. REUTERS/Regis Duvignau

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 7 billion euros in French-backed rescue aid and Dutch pledges for a further 2 billion to 4 billion, expects to reduce monthly cash burn to 400 million euros in the second quarter thanks to cost-cutting and state-funded furloughs that save 350 million euros 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 5.02 billion euros in the first quarter. Its net loss widened to 1.8 billion euros from 324 million, also swollen by a 455 million-euro 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 amortization (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.

Reporting by Laurence Frost in Paris; Editing by Matthew Lewis

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