European Travel Recovery Lag Pushes Air France-KLM Further Into Red

So far there are little signs of a recovery of air travel which is still being expected by the Air France-KLM – according to its current sales, by this summer, the airline group said while reporting a larger operating loss for the first quarter.

The stocks of the group dropped after the company confirmed its plans of raising more capital within months.

For the currently underway second quarter, operations at about 50 per cent of its capacity prior to the Covid-19 pandemic is expected to be conducted by Air France-KLM and expected to see it grow to 55 to 65 per cent for the third quarter between July and September.

“We’re waiting to see the first effects of vaccination,” the group’s Chief Financial Officer Frederic Gagey said. He added that with customers waiting till the last minute to make a booking, there is “no noticeable improvement so far” in demand as witnessed by the company.

While airlines in the United States and China are already benefitting from the rebound of these two economies, the scenario is opposite for the airlines of Europe as they wait for the vaccine roll out in the bloc to pick up speed which is hoped to result in relaxation on curbs and an anticipated recovery of air travel.

Last week, while being able to narrow down its losses for the first quarter because of a 19 per cent reduction in its workforce, its forecast for capacity enhancement for 2021 was cut by Lufthansa.

Air France-KLM reported an increase in its operating losses for the quarter to 1.18 billion euros ($1.42 billion) compared to 815 million in the same period a year ago when the business of the company was only partially affected by the pandemic. For the first quarter, the company reported a 57 per cent drop in revenue at 2.16 billion euros.

“The Q1 results showed the impact of depressed demand in the face of ongoing lockdowns and travel restrictions,” Liberum analyst Gerald Khoo said.

In an April share issue the group raised 1 billion euros in which the share of gthe French government in the airline was doubled to 28.6 per cent after the group had taken a 10.4-billion-euro government-backed bailout last year.

The company is currently waiting for an European Union approval for a conversion of 1 billion euros in Dutch support after it had previously converted a 3 billion-euro French government loan into hybrid capital.

It would not need further cash injections, Dutch arm KLM said on Thursday. However, further capital is planned to be raised by Air France-KLM which would help the company to transform its debt and state support “gradually transformed into market-credible products”, said the company’s CFO.

Goodbody analyst Mark Simpson said that till such time, the focus of investors “will remain on its balance sheet, with today’s update confirming (that) additional costly financing and/or a further dilution for existing shareholders is imminent”.

(Adapted from Nasdaq.com)

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