The COVID-19 or Coronavirus crisis has continued to spread in recent days, leading many countries to take increasingly stringent measures in an attempt to slow the rate of spread of the epidemic. Some countries have imposed constraints on the movement of travellers from France, the Netherlands, or more broadly from Europe.
Subsequently, the Air France-KLM Group is obliged to gradually reduce its flight activity very significantly over the next few days, with the number of available seat kilometres (ASK) potentially decreasing between 70% and 90%.
“This reduction in capacity is currently scheduled to last two months, and the group will continue to monitor the evolution of the situation daily and adjust it if necessary,” the group announced in a press statement.
As a result of this reduction in capacity, Air France will ground its entire Airbus 380 fleet and KLM its entire Boeing 747 fleet.
To deal with this difficult situation, the group has already taken several strong measures to secure its cash flow including that additional savings measures have been identified, which will generate €200m in 2020.
Besides, an initial review of the investment plan has reduced the capital expenditure plan by €350m, to which will be added the impact of the decline in activity on the value of maintenance investments.
Air France and KLM will be consulting with their elected employee representatives on measures to take into account the impact of the expected decline in activity, including a project to implement the partial activity.
Finally, last week, the Air France-KLM Group drew a revolving credit facility for a total amount of €1.1 bn and KLM drew a revolving credit facility for a total amount of €665m. As of 12 March, the group and its subsidiaries had more than €6bn in cash and cash equivalents
Despite the measures taken, the deterioration of the environment linked to the epidemic and the sharp reduction in its activity today leads the group to forecast a sharply deteriorated financial trajectory compared to the outlook presented at the publication of its annual results. Indeed, the Group estimates that the drop in revenues from the passenger business resulting from the reduction in capacity will only be offset by around 50% by the drop in variable costs before cost-savings measures.