(Bloomberg) -- Air France-KLM warned demand for air travel will take several years to recover, hammering home the devastation being wrought on the aviation industry by the coronavirus pandemic.
The Paris-based carrier scrapped its full-year outlook on Thursday and forecast a “significantly higher” loss in the second quarter than in the first three months of the year. The impact of fuel “over-hedging” drove the first-quarter net loss to 1.8 billion euros ($1.94 billion), according to a statement.
“We are very uncertain about what lies ahead,” Chief Financial Officer Frederic Gagey said on a conference call. The carrier is expecting capacity to remain down 95% this quarter and 80% lower in the third quarter as travel slowly starts to resume during summer.
For 2020, Air France-KLM expects earnings before interest, taxes, depreciation and amortization to be “significantly negative,” likely marking the first full-year loss by that measure since the French and Dutch airlines combined in 2004.
The carrier, which ranks second in Europe after Deutche Lufthansa AG in terms of passenger traffic, is poised to receive as much as 11 billion euros in loans and guarantees from state shareholders France and the Netherlands. The bailout offers a lifeline as the industry faces its worst-ever crisis, which the International Air Transport Association estimates could lead to half of the airlines worldwide going bankrupt without government help.
While Gagey said the state loans and guarantees will provide a “relatively large” margin of comfort for the carrier, a prolonged and deep crisis would “necessarily evoke questions about our equity.”
Air France-KLM said last month it may raise new equity once it has better visibility on post-crisis traffic levels, and the French state has indicated its intention to examine the conditions under which it might participate in such an operation to increase its capital.
The European Union has approved 7 billion euros in funding from the French state, which is destined for Air France. The Dutch government has said it plans to provide between 2 billion euros and 4 billion euros to the KLM arm, with specifics still being worked out.
Among Air France-KLM’s European peers, British Airways parent IAG SA is also due to report earnings Thursday, followed by Lufthansa later this month.
- First-quarter operating loss 815 million euros vs. negative 286 million euros a year earlier
- Operational cash burn brought down to about 400 million euros a month in second quarter
- Fuel “over hedge” is expected to total negative 455 million euros for the remainder of 2020, caused by capacity reductions and lower fuel consumption forecasts
- A fleet repositioning including structural capacity reduction of at least -20% in 2021 compared to pre-crisis 2019 level
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