Mon, May 12, 2003 - Page 10 News List

KLM has biggest loss in its history

TOO LITTLE, TOO LATE? A MAJOR RESTRUCTURING OPERATION MAY NOT BE

AFP , THE HAGUE

After reporting the biggest loss in its 84-year history this week, Dutch carrier KLM launched a major restructuring operation that analysts warn may not be enough to save the ailing airline.

KLM announced a record net loss of 416 million euros (US$477 million), almost triple the 156 million euro-net loss they reported last year.

The airline blames the "unprecedented" crisis in the air transport industry. Supply considerably outweighs demand and the price of tickets is under constant pressure from low cost, no-frills airlines.

Add to that the hits the industry took from dropping passenger numbers after the September 2001 terror attacks, the war in Iraq and the outbreak of the SARS virus in Asia.

KLM's chairman Leo van Wijk outlined his plans for a drastic restructuring of the company. KLM wants to lower costs by 650 million euros in the next two years.

A large chunk of this money is expected to come from the 3,000 full time jobs the company is planning to cut, almost 10 percent of its current workforce.

Critics say that this will not make an immediate difference as the company is still in talks with the trade unions over the forced lay-offs, with an agreement possibly months away.

KLM is also reducing the types of aircraft on long haul flight from four to three. On flights within Europe, KLM will fly almost exclusively with newer Boeing 737s to reduce fuel costs.

The company has put its hopes on cheap online ticket sales rather than through costly travel agents.

Within Europe, KLM will introduce a new low-cost fare for people who book early. They will get the no-frills treatment with only a cup of coffee to sustain them throughout the flight.

KLM is betting on two horses -- a stripped down low-cost fare and continued business class privileges in hopes of attracting passengers willing to pay handsomely for extra services.

Analysts warn that the difference between the KLM ticket prices and those of low-cost carriers in Europe is often hundreds of euros.

"It is inescapable that the already dropping revenues of KLM in Europe will drop even further," analyst Harry van Gelder wrote in the Volkskrant daily.

KLM is also looking towards an alliance or merger as another way to cut costs. The company is currently in talks with both Air France and British Airways.

Van Wijk told Nova Dutch public television on Thursday that "in the coming months" he will choose between the SkyTeam alliance of Air France and Delta or Oneworld, grouping British Airways and American Airlines.

KLM has been looking for a partner for some time but already has sustained three failed merger ventures with British Airways and as well as another one with Alitalia.

The Alitalia experience was very costly for KLM. The company announced this week it had to pay 181 million euros to the Italian airline after it broke off negotiations.

Van Wijk will not be hurried in his choice because, he has repeatedly stressed, KLM can still float for some time on its cash and cash equivalents that total 919 million euros.

But even the chairman has to concede that it is time to get off the fence.

"The world aviation industry is backed into a corner, this is not specifically a problem of KLM," he told Nova.

Despite the carrier's enviable cash position at present, analysts have warned it could soon evaporate under the impact of quarterly losses and the impact of the SARS virus in Asia.

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