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Air France-KLM slashes year-end capacity on pandemic surge

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Air France-KLM will drastically slash its schedule this quarter as European governments implement tough new measures to combat a resurgence of Covid-19.

[PARIS] Air France-KLM will drastically slash its schedule this quarter as European governments implement tough new measures to combat a resurgence of Covid-19.

Air France will offer less than 35 per cent of year-ago capacity, the Paris-based company said on Friday, well below a previous forecast of 65 per cent, as measured by available seat kilometres.

The carrier blamed a failure of demand to pick up and the French government's decision to implement a lockdown barring people from traveling except in extenuating circumstances.

"We expect a challenging fourth quarter 2020, with current forward booking sharply down compared to last year," chief executive officer Ben Smith said in a statement. The carrier expects "substantially lower" results than the third quarter's 442 million euro (S$705.1 million) loss before interest, taxes, depreciation and amortisation.

The blood-letting at Air France-KLM comes after a record loss the previous quarter, and adds to financial pressure ahead of talks between its biggest shareholders, the French and Dutch governments, on a recapitalisation plan. Air France-KLM has said it will have to raise new equity, and is aiming for a plan by May amid tension over the partnership between the two European nations.

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"We're working on this intensively," chief financial officer Frederic Gagey said on a conference call. "Strengthening equity can be done in many ways."

SUMMER LETDOWN

Leisure travel had picked up for Air France-KLM and its peers during the summer months when infection levels dropped. But the surge in cases since then has put the brakes on any recovery.

British Airways owner IAG, which is also reporting results on Friday, said last week it will operate no more than 30 per cent of its usual schedule this quarter, with Deutsche Lufthansa targeting a maximum of 25 per cent. Discount carriers are also cutting back. While the industry has been clamouring for an easing of restrictions like quarantines and improved coordination of virus testing, the latest moves by France and Germany to keep populations at home point to more pain.

"The results are without a doubt very bad because the impact of the crisis is major," Mr Gagey said.

The third-quarter net loss at Air France-KLM narrowed sequentially to 1.67 billion euros from the prior three-month period, when the first wave of the pandemic struck. The results include restructuring charges for staff departures.

JOB CUTS

French arm Air France has accelerated a job-cutting plan to include the equivalent of 8,500 positions through 2022, it said on Friday. Dutch unit KLM plans to eliminate as many as 5,000 slots through 2021.

At the end of September, Air France-KLM had 12.4 billion euros of liquidity and credit lines at its disposal, a drop from 14.2 billion euros at the end of June. The figures include a 10.4 billion euro rescue package of loans and guarantees from the French and Dutch governments that has led to a ballooning of debt.

The bailout offered a lifeline for the carrier, which ranked second in Europe after Lufthansa in terms of passenger traffic last year.

One bright spot for the airline was an increase in demand for cargo, with unit revenue more than doubling. Mr Gagey said the company is using its six freighter aircraft and has used passenger jets for cargo-only flights.

BLOOMBERG

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