Air France-KLM ready for more network cuts if recovery lags

Air France-KLM is ready to cut capacity by more than the previously announced 20 per cent if the coronavirus recovery falls short of expectations, chief executive Ben Smith said on Friday.

Mr Smith was speaking to analysts after the Franco-Dutch airline group posted a $1.8 billion (Dh6.6bn) second quarter operating loss on Thursday and outlined a cautious ramp-up of services for the remaining summer months.

"The Air France-KLM group will reduce its global capacity by a minimum of 20 per cent in 2021 compared to 2019 levels," Mr Smith told analysts.

"We will continue to evaluate if further adjustments are required."

Air France-KLM, which has received $11.8bn in bailout loans backed by the French and Dutch governments, is cutting jobs at its two main carriers while sticking to ambitious fleet-replacement plans.

KLM announced 1,500 more layoffs on Friday, weeks after Air France moved to reduce its headcount by 7,580.

Shares in Air France-KLM fell 1.9 per cent amid a European sector-wide decline led by IAG, which was down 7.1 per cent after the British Airways parent said it was moving ahead with a $3.10bn capital increase.

The beginnings of a European recovery from the Covid-19 pandemic, which brought air travel to a virtual halt, now appear threatened by new localised outbreaks and restrictions.

Paying back aid during a sluggish recovery from aviation's worst crisis "will prove a monumental challenge for the group", said Bernstein analyst Daniel Roeska, who questioned whether investment and labour cuts went far enough.

Air France-KLM finance executives "will have a busy decade", Mr Roeska predicted, "refinancing the state-backed loans, selling the silverware [and] possibly going for several equity raises".