KLM reports an operating loss of €768 million in the first half, will cut upwards of 5,000 positions

KLM issued this financial statement:

The dramatic consequences of the COVID-19 outbreak for the airline industry are more pronounced in KLM’s figures for the second quarter as opposed to the first quarter. Cargo business is performing well, but passenger operations have yet to display any form of structural recovery despite the fact that KLM gradually and carefully expands its network.

Passenger numbers fell by 95% in the second quarter of 2020, from over 9 million to less than half a million. Operating income amounted to a loss of €493 million. During the same period in 2019, we earned €270 million in profit.

The figures for the first half-year reflect a marginally more favourable picture, because KLM performed well in January and February before the outbreak of the COVID-19 virus. Nonetheless, KLM’s turnover almost halved to a figure of €2.8 billion in the first six months of 2020 in comparison with the same period in 2019.

Operating income amounted to a loss of €768 million for the first half-year, compared to a profit of €223 million for the same period in 2019. A decline of almost €1 billion.

Capacity fell by more than 50%, coupled with a decline in passenger numbers of more than 60% to a figure of 8.1 million for the KLM Group as whole. Of this figure, KLM transported 6.7 million passengers and Transavia 1.4 million. Cargo performed relatively well: cargo volume amounted to 229,550 tonnes, representing a 22.3% decline. Despite reduced (belly) capacity, flights to a range of destinations only carried cargo instead of passengers. Cargo was also carried in the cabins of passenger aircraft.

“These financial results serve to highlight the huge impact of this unprecedented crisis for the airline industry and KLM in particular. A loss of €800 million for the first six months of the year is the worst financial setback ever experienced in KLM’s history.
In the months ahead, KLM will continue to expand its European and intercontinental network. This is an important step towards recovery, albeit both limited and cautious. The road to recovery will be long and fraught with uncertainty. Even though we have already done a lot, further far-reaching measures will unfortunately be unavoidable.
And, despite this unbelievably difficult period and equally challenging circumstances, KLM’s employees are still doing everything possible to serve our customers. I appreciate this greatly and have enormous respect for everyone’s efforts.”
KLM President & CEO Pieter Elbers

 

KLM is in the throes of a crisis of unprecedented magnitude. Since the outbreak of the COVID-19 virus at the start of 2020, numerous measures have already been taken to deal with the current circumstances. Expectations are that the road to recovery will be long and fraught with uncertainty. This means that KLM’s structure and size must be rigorously adjusted even further in the years ahead.

Consequently, a total of 4,500 to 5,000 positions in the entire KLM Group (expressed in FTEs) will cease to exist.

In the wake of the coronavirus outbreak, KLM gradually began reducing the size of its network in February to operate less than 10% of its original number of flights by the start of April. In the second quarter, only 15% of the original number of flights were operated. In July, 30% of the original flights were operated and load factors are lagging behind. As a result, while the network is again being gradually and carefully expanded, revenues are lagging far behind.

Prospects for the airline industry – and KLM in particular – are uncertain. Different countries are now beginning to tighten their more relaxed travel restrictions. This is making customers more cautious when it comes to booking a ticket. In all scenarios, demand is only expected to recover by 2023 or 2024 at the earliest. The degree and speed of recovery will depend on a number of factors including the development of the virus, economic recovery and customer travel behaviour.

Adjusting to the new reality

Government support in the form of a direct state loan and guaranteed bank credit facilities amounting to a maximum of €3.4 billion will enable KLM to navigate the crisis in the forthcoming period. KLM is extremely grateful for this support provided by means of the loan. In order to guarantee KLM’s existence in the longer term, the airline must adapt its size to the new reality. KLM therefore finds itself compelled to reduce its workforce down to the number needed for the planned operation in 2021/2022. Of the current total of 33,000 FTEs in the entire KLM Group, the workforce must be reduced by 4,500 to 5,000 FTEs to 28,000 FTEs in the course of 2021.

KLM’s size is already becoming smaller – and will continue to be reduced – based on the current measures, which include the non-renewal of temporary contracts (1,500 FTEs) and the Voluntarily Departure Scheme (2,000 FTEs). Additionally, natural attrition (500 FTEs) through retirement and the like in 2020 and 2021 will also contribute to the reduction needed.

Hence, despite the measures already taken, even fewer people will be needed at KLM in the years ahead. Additionally, for positions on the ground we also need to deal with some mismatch in functional skills and capabilities.

Unfortunately, for this reason and taking into account the mismatch, alternative solutions will have to be found for ca. 1,500 positions. This relates to up to 500 ground positions, 300 cabin crew positions and 300 cockpit positions and approximately 400 positions at KLM subsidiaries and Air France-KLM group functions.

Given the high level of uncertainty, KLM keeps open the possibility of further reductions in case the production levels will be revised further down for 2021/2022 than the -20% planned now.

Trade unions and Works Council

KLM’s reorganisation plans tie in with organisation-wide changes at Air France KLM. In the forthcoming period, KLM will be cooperating closely with the trade unions to draft a social plan for each collective labour agreement domain and subsidiary, as well as maintaining close consultation with the Works Council about further defining the reorganisation. This will include a more detailed specification of the conditions set by the Dutch government on issuing the financing package. Expectations are that this will be finished in its entirety in the course of October.

Leave a Reply (you must be registered reader with a real name to comment)

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.