European airlines are bracing themselves for deeper losses, slashing flights and urgently demanding more help for the industry in the face of tough new travel restrictions to try to curb the resurgent Covid-19 pandemic.
Air France-KLM said on Friday that it would cut flights for the rest of the year and warned that earnings would fall further after a €1.05bn operating loss in the third quarter. Its net loss was €1.7bn, mainly because of a €565m restructuring charge linked to plans to cut jobs, including about 9,000 by the end of the year.
Shares in Air France-KLM fell 3.6 per cent in morning trading on Friday in Paris on the news.
The group, which was formed by the merger of Air France and KLM of the Netherlands in 2004, had been praised for the first stage of a turnround initiated before the pandemic by new chief executive Ben Smith. But shares are now down more than 70 per cent this year in the industry turmoil caused by Covid-19.
Airlines are now focused on cutting costs and raising cash to help them survive the huge fall in passenger numbers.
Luis Gallego, chief executive of British Airways’ owner International Airlines Group, said on Friday that while co-ordinated Covid-19 testing could “open routes, stimulate economies and get people travelling”, he did not believe passenger numbers would recover until at least 2023.
“We urge governments to adopt the initiatives already developed by the aviation industry, such as pre-departure airport testing, and to introduce air corridors on major routes,” he said.
Air France-KLM is working on rapid testing plans for departures from Paris and Amsterdam.
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IAG reported an operating loss of €5.95bn in the first nine months of the year. Its three biggest markets of the UK, Spain and Ireland have all imposed new restrictions to combat a rise in infections, while transatlantic travel has also been badly hit.
As France began its second national lockdown on Friday, which will last at least a month, Air France-KLM said revenues in the third quarter fell 67 per cent compared with the same period last year to €2.5bn.
Earnings before interest, tax, depreciation and amortisation came in at a €442m loss, close to analysts’ estimates, but Air France-KLM warned it would be “substantially lower” in the fourth quarter.
The group is slashing its flight schedule in the fourth quarter, with plans to run less than 35 per cent of the capacity it had in the same period last year. KLM will run 45 per cent.
IAG had already announced plans to cut capacity to 30 per cent and Germany’s Lufthansa will run at only 25 per cent.
Air France-KLM’s net debt increased by €1.3bn in the quarter to €9.3bn, while its liquidity position was €12.4bn, compared with €14.2bn at the end of June.
Daniel Roeska, analyst at Bernstein, said the group’s current liquidity “is more than enough to make it to next summer. But . . . in our view, Air France needs traffic to start recovering by summer 2021 or it will have to answer the question how it can secure more funds.”
Air France-KLM has taken on billions in loans either directly from or backed by both the French and Dutch governments, which are shareholders. It is also in discussions about raising equity.
IAG had more than €5bn in cash by the end of September, and total liquidity of €9.3bn, including proceeds of a capital raising last month.
It said its directors had a “reasonable expectation” that it had enough cash for the foreseeable future, although it added it might have to raise more, depending on how the pandemic affected demand.
Stephen Furlong, an analyst at Davy Research, estimated that IAG had enough liquidity to last about another 16 months in a “lockdown” scenario with very limited passenger numbers.
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