July 31, 2020 / 9:23 AM / 12 days ago

UPDATE 1-Air France-KLM ready for more network cuts if recovery lags

(Adds detail, analyst, background)

By Laurence Frost

PARIS, July 31 (Reuters) - Air France-KLM is ready to cut capacity by more than the previously announced 20% if the coronavirus recovery falls short of expectations, Chief Executive Ben Smith said on Friday.

Smith was speaking to analysts after the Franco-Dutch airline group posted a 1.55 billion euro ($1.8 billion) 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% in 2021 compared to 2019 levels,” Smith told analysts on Friday. “We’ll continue to evaluate if further adjustments are required.”

Air France-KLM, which has received 10.4 billion euros 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% by 0904 GMT amid a European sector-wide decline led by IAG, which was down 7.1% after the British Airways parent said it was moving ahead with a 2.75 billion euro 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”, Roeska predicted, “refinancing the state-backed loans, selling the silverware (and) possibly going for several equity raises”. ($1 = 0.8447 euros)

Reporting by Laurence Frost Editing by David Goodman

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