Air France-KLM Cargo Faces Cuts in Turnaround Plan

Air France-KLM Cargo Faces Cuts in Turnaround Plan

Air France-KLM’s cargo business faces further cutbacks after Europe’s largest airline unveiled a radical three-year restructuring to secure long-term profitability.

The turnaround plan will focus primarily on passenger operations, but the cargo unit “will also have to redefine conditions for profitability,” Air France-KLM said.

Air France-KLM is Europe’s largest cargo operator, with a fleet of 22 Boeing, Airbus and MD-11 freighters. But the carriers has significantly cut freighter capacity in recent months and further reductions are likely as its focuses on belly hold cargo in passenger aircraft.

The restructuring includes an immediate two-year pay freeze at Air France and “wage moderation” at its Dutch partner KLM, coupled with a continued ban on recruitment across the carrier that will save $1.3 billion.

The carrier will shrink its fleet to cap capacity growth through 2014 by deferring deliveries of several Boeing and Airbus aircraft, including two Airbus A380 superjumbos, and scrapping two purchase options, saving a further $1.3 billion. A key priority is reducing the airline’s debt by $2.6 billion to around $5.8 billion by the end of 2014.

“We have to adjust our capacity for the next few years, whether it’s cargo or passengers,” said CEO Jean-Cyril Spinetta. “The offer of transport has outpaced demand in recent years, and that’s weighing on all airlines. And we are penalized by fuel prices that are at record levels.”

Air France-KLM said it has opted for “quasi stable” capacity for both cargo and passengers over the next three years. This translates to an overall increase of a little over 5 percent on a cumulative basis in 2012-14 but likely will be lower for cargo, which faces a much slower growth in demand in the coming three years.

The cargo unit is under increasing pressure to rein in its operations amid forecasts it will be a major contributor to Air France-KLM’s projected $390 million loss in the financial year to March 31.

The cargo business was facing an uncertain future after former CEO, Pierre-Henri Gourgeon, who was ousted in November, said the carrier would not long seek to be a major player in the “too cyclical” air freight market.

Cargo lost $50.3 million in the three months to end September compared with Lufthansa Cargo’s $50.4 million profit. Air France-KLM operated 18 of its 22 freighters during the quarter, while its German rival was flying all its 18 MD-11Fs.

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