Airlines in Europe are freezing recruitment and investment in an emergency effort to protect profitability as the coronavirus spreads rapidly around the world, hitting passenger demand. Dutch carrier KLM, part of the Air France-KLM group, is delaying investment in IT and real estate projects, slashing travel expenditure and cutting back on hiring staff.
German airline group Lufthansa also announced plans on Wednesday for a hiring freeze, offering unpaid leave to employees and more part-time work. The emergency measures come amid a sharp rise in infections outside China in recent days, with South Korea particularly badly hit along with Italy.
The moves come just days after the international airline trade body warned that global air travel demand could fall for the first time in more than 10 years, cutting the industry’s revenues by almost $30bn. In a letter to internal management, seen by the Financial Times, KLM’s chief financial officer warned that the impact of the coronavirus will have a very significant impact on the airline’s revenues.
“The coronavirus that has impacted significantly traffic to our Chinese and other Asian destinations, may now also impact the rest of our network with Italy being the first European country with a high number of confirmed cases,” wrote Erik Swelheim. “We urge you all to reduce your cost levels to a minimum level to ensure safe operations. Budgeted expenditure is no longer a justification to spend, only ‘must-do’ expenditure is allowed,” he wrote. The letter was first reported by Reuters.
Lufthansa said on Wednesday that it was too early to estimate the impact on earnings. The carrier has cancelled all flights to and from the Chinese mainland, and also trimmed its service to Hong Kong following lower passenger demand. Last week, Air France-KLM group warned that coronavirus could hit profits by up to €200m, assuming China flights gradually resume in the course of April.
However, Andrew Lobbenberg, an aviation analyst at HSBC, wrote in a note on Wednesday that “the widening of the outbreak across Asia, and most recently into northern Italy, makes the company’s estimate redundant.” He added: “It very hard to assess how long and how significant an impact we should expect.”
In the US, Delta Air Lines announced plans temporarily to reduce the number of weekly flights between the US and Seoul’s main airport in response to a jump in the number of coronavirus cases in South Korea. The airline is offering to waive change fees for customers who wish to adjust their travel plans for flights between the US and South Korea and Italy, which have seen a jump in cases in the past week, and China.
US rivals American Airlines and United Airlines are also offering change fee waivers on flights to South Korea. United on Monday suspended its full-year guidance because of the impact the coronavirus might have on demand for air travel. Meanwhile Russia is banning most flights to South Korea and will extend restrictions on its more than 4,000-km border with China in an attempt to stop the spread of the coronavirus.
Tatiana Golikova, the deputy prime minister, said on Wednesday the country would stop all air traffic to South Korea except for Moscow-Seoul flights on state carrier Aeroflot. Aurora, an Aeroflot subsidiary in Russia’s far east, will be allowed to operate charter flights until all Russian citizens have left South Korea, Ms Golikova said, according to Interfax.
Russia will also recommend that its citizens avoid visiting Italy and stop most visas issued to Iranian citizens. Flights from Iran and South Korea will pass through a terminal at Moscow’s Sheremetyevo airport already set aside to handle restricted air traffic from China.