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Europe’s 3 Major Airlines lost €10.61bn in first half

Aircrafts of Air France Airlines are seen on the tarmac at Paris Charles de Gaulle airport

Air France-KLM, Lufthansa, and IAG, the company that owns British Airways, Iberia, Vueling, Aer Lingus, together lost €10.61 billion in the first half of this year.

The French-Dutch airline on 31 July posted a €2.61 billion net loss due to high asset impairments for early retirement of idled planes and fuel-hedging losses caused by lack of passengers and freight in the pandemic. This figure also includes costs linked to the retirement of the A380 and A340 planes belonging to the French arm.

The airline is operating at 8 per cent of its normal level of activity.

The Air France group has been promised €4 million in loans guaranteed by the French state, and three billion in loans made directly by the Ministry of Finance. The Dutch arm, KLM, are providing a loan of €3.4 billion.

The board of Air-France-KLM, at the results announcement, promised to “accelerate our transformation.” More than 7,000 j0b cuts are to take place, but strategic changes are needed, analysts say.

“Air France-KLM will be selling the silver to pay back loans, and possibly seeking to raise capital on equity markets,” commented Bernstein analyst Daniel Roeska.

Germany’s Lufthansa lost €3.6 billion in the first half. The company, which saw the number of passengers drop 96 per cent in the period from April to June, saw, in the first half, turnover fall to €8.3 billion, down 52 per cent from the same period in the previous year.

Lufthansa is cutting 8,300 jobs. Investment in new aircraft will be halved until 2023.  Nonetheless, the German airline is forecasting making a profit for the full year.

“We will not be spared a far-reaching restructuring of our business,” warned Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG in a press release on Thursday.

“While we think Lufthansa has been quick in reducing costs and extending payment terms with suppliers, we think the loss generated by the Covid-19 pandemic will be difficult to absorb with free cash flow generation and is not yet fully discounted in the share price,” said Carolina Dores, equity analyst at Morgan Stanley.

IAG reported a loss of €4.2 billion for the first half of the year, as passenger levels fell 98 per cent. Losses at British Airways in the second quarter alone were €711 million. The airline plans to cut 12,000 jobs.

Head of IAG Willie Walsh said: “”Anyone who believes that this is just a temporary downturn and therefore can be fixed with temporary measures, I’m afraid seriously misjudges what the industry is going through.”

Analysts at Goodbody said IAG’s results demonstrated how network carriers with connecting short-haul and long-haul routes will find it more difficult to recover than budget carriers such as Ryanair and EasyJet.

That comment could apply to all the airlines discussed in this article. Until more people around the world decide that international travel makes sense, these airlines will struggle. Budget flyers like Ryanair and Easyjet can survive with half-filled planes, because their cost base is much lower than that of the major airlines.

It will be interesting to see, as Lufthansa’s Spohr says, what kind of restructuring these complex organisations will be able to make happen.




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