KLM loss despite strong cargo

KLM loss despite strong cargo

KLM Royal Dutch Airlines, Europe's fourth largest carrier, on Thursday said cargo turned in a strong performance in the first fiscal quarter but that a steep drop in passenger revenues pushed it to a heavy loss.

Cargo had an operating profit of 14 million euros [$16.1 million] in the three months to June 30, off 30 percent from $23 million a year earlier but far ahead of the passenger business, which slumped to a loss of $41.4 million from a profit of $58.7 million a year ago under the combined impact of the Iraq war and the outbreak of the SARS virus.

This resulted in an overall operating loss of $75.9 million compared with a $ 47.2 million profit in the year-earlier period as group revenues slid 18 percent from $1.96 billion to $1.6 billion.

Leo van Wijk, KLM chief executive, warned the airline would suffer a third successive annual net loss for the full year to the end of March 2004. "The global economy remains weak and the outlook remains fragile," he said.

The continuing losses are forcing KLM to take drastic action. It is slashing by 13 percent its workforce of 34,500, or 4,500 full-time jobs, in a bid to achieve annualized cost savings of around $750 million by March 2005.

The cargo division is largely immune to the restructuring and layoffs as it is expected to continue to outperform the passenger unit by notching its fourth successive year of strong profits. Cargo earned more than $75 million in the previous fiscal year.

Cargo traffic grew by 3 percent year-on-year in the first quarter as the introduction in April of two new Boeing 747 extended range freighters helped KLM profit from the boom in Asian shipments to Europe. But a seven percent decline in margins cut operating revenues by four percent to $298 million.

KLM's deteriorating passenger performance intensified pressure to conclude alliance talks with British Airways and Air France. Negotiations with Air France are more advanced and KLM said today it expects to reach a final decision in the coming months.