Air France-KLM massive losses reignite cultural tensions in group
Air France-KLM reported a net loss of €1.8 billion in the first quarter. Ben Smith, the CEO of the Franco-Dutch airline group, will begin discussions with French unions on staff cuts. The financial crisis rekindled tensions between employees of the two airlines.
The carrier recorded an operating loss of €815 million over the first three months of the year. Passenger traffic fell by 20.1% and unit revenue by 6.9%. The group warns that the second-quarter results will be much worse. Air France-KLM withdrew its forecast for the rest of the year.
"The Air France-KLM Group had a promising start to the first quarter in line with the objectives of the strategic plan presented in November 2019,” said Benjamin Smith. “However, the acceleration of the Covid-19 crisis in March had a strong impact on the Group's first quarter results”.
As a way to alleviate the financial impact of the coronavirus crisis, Ben Smith announced that a meeting will be held in June 2020, with French unions to discuss workforce reductions. Voluntary departures offered were not enough, and layoffs are now inevitable.
The fleet should also be reduced, with a 20% decrease in seats. Air France, which recently received 7 billion in state aid from France, made a commitment to renew its aging aircraft for more efficient alternatives. The return into service of the A380 after the crisis is being questioned. Air France already planned to retire the superjumbos by 2022.
The company expects a slow recovery of the activity in the summer of 2020, as border restrictions will be progressively lifted. Capacity should be reduced by -95% for the second quarter of 2020 and -80% for the third quarter compared to 2019.
KLM thinking of divorce?
The financial situation due to the coronavirus crisis reignited tensions between the Dutch and the French airlines. A few days before the quarter results were published, KLM Works Council hinted that a split between the two carriers would be beneficial, as it did not believe Air France was able to restructure and improve its efficiency, Financieele Dagblad reports.
The news sparked outrage among the unions of the French national carrier. They published a joint statement in which they reminded that when Air France bought KLM in 2004, the Dutch airline was nearly bankrupt. They then listed several advantages that KLM enjoyed since then: an access to the French market, profitable business contracts, shared services of sales and revenue management teams. “Not a single euro has ever been transferred from KLM to Air France,” adds the unions. “It is therefore incorrect to think that KLM “supports” Air France.”
They conclude: “Air France has repeatedly proven that it has the determination and the means to survive and has already shown its commitment to make itself over. In the difficult period we are experiencing, it should be time for unity rather than fears and divisions.”
Tensions within the group are not unheard of. Since his arrival in a group in crisis in September 2018, Smith’s ambition of seeing Air France and KLM unify through common aircraft orders, alliances and flight programs, faced criticism by the Dutch airline, especially since it consistently reported superior financial results compared to its sister company, while being twice smaller.
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