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.