Germany's Lufthansa and Amsterdam-based KLM have both offered unpaid staff leave and put a freeze on hiring to tighten their belts. (Cecilia Fabiano/AP)
Airlines shaken by the spread of COVID-19 outside of China have rushed to cut costs, as warnings of a pandemic have increased concerns about the impact on the aviation industry.
Germany's Lufthansa and Amsterdam-based KLM have both offered unpaid staff leave and put a freeze on hiring to tighten their belts, while Virgin Australia has dropped seven planes from its fleet, saying that pilot redundancies were likely.
"We urge you all to reduce your cost levels to a minimum level to ensure safe operations," KLM Chief Financial Officer Erik Swelheim wrote in a message to executives first reported by Dutch news agency ANP. "Only 'must-do' expenditure is allowed."
Lufthansa will be turning away cabin crew trainees without jobs and "offering employees unpaid leave, effective immediately." (Ralph Orlowski/Reuters)
The "very significant" revenue impact of the COVID-19 crisis will be only partly offset by lower fuel and other costs, Swelheim added in the letter, released later by the carrier.
Lufthansa will be turning away cabin crew trainees without jobs and "offering employees unpaid leave, effective immediately," it said in a statement on Wednesday.
"It is not yet possible to estimate the expected impact of the current developments on earnings," the company said.
Air France-KLM said that its losses related to COVID-19 should not exceed $217 million if flights resume in April, which looks unlikely. (Yves Herman/Reuters)
Air France-KLM said last week its losses related to COVID-19 should not exceed $217 million if flights resume in April, a prospect that looks more and more unlikely.
KLM will have to cut travel, marketing and consulting expenses, put its IT projects on hold and postpone refurbishments, CFO Swelheim told colleagues. Its 2020 operating margin will be "again under pressure" after falling 2.3 points to 7.7 percent last year, he said.
Airlines are facing an uncertain future as new coronavirus outbreaks outside of Asia have seen demand for travel take a hit, with many Asian destinations already suspended and more routes threatened.
KLM will have to cut travel, marketing and consulting expenses, while putting its IT projects on hold and postponing refurbishments. (Remy de la Mauviniere/AP)
"It's quite clear that there's a risk of what is still termed a localized epidemic becoming a pandemic," said aviation analyst Mark Simpson of Dublin-based brokerage Goodbody.
Consolidation and cheap fuel may eventually benefit carriers that can hold out until 2021, Simpson said. "But there may well be airlines that don't make it through to that recovery year."
Airline shares were little changed on Wednesday giving investors pause for breath. Other health crises including the 2003 SARS epidemic appear to suggest that a serious recovery can only start once global infection rates slow, industry experts say.