Air France-KLM warned on Thursday of a 150 million to 200 million euro ($162 million to $216 million) hit to earnings by April as it contends with the China coronavirus epidemic's "brutal" impact on the airline industry. The Franco-Dutch group's shares fell sharply after its full-year results and 2020 outlook, which was in the spotlight as markets watch for economic effects well beyond the Asian centre of the outbreak.
Like many global airlines, Air France-KLM has cancelled flights to mainland China until the end of March, basing its impact estimate on the assumption that flights will then will resume progressively. "That's the hypothesis we're using for the moment, but we don't know how credible it is," Chief Financial Officer Frederic Gagey said. "Obviously if it lasts longer, the impact will be heavier."
Air France-KLM shares were down 3.8 percent at 9.36 euros at 1102 GMT, with travel and tourism stocks hit by mounting concerns over the spread of the virus across Asia. For Air France and stablemate KLM, as for global peers, the January outbreak came just as an easing of global trade tensions seemed to promise stronger demand in 2020.
After "significantly positive" January growth in unit revenue - measured in euro cents per seat-kilometre - Gagey said the situation "changed quite brutally" with the travel lockdown now leading the group to forecast a first-quarter decline. Mainland China flights accounted for 5.5 percent of its 2019 traffic. Under new Chief Executive Ben Smith, Air France-KLM needs to fund an ambitious fleet renewal plan that includes 3.6 billion euros in capital expenditure this year as it takes delivery of five new Airbus A350 jets and four Boeing 787s.
Those plans remain on track for now, but Air France-KLM is poised to review its budget and capacity goals should the coronavirus outlook worsen. While any large-scale transfer of aircraft from grounded China flights could hurt pricing in some markets, Smith and Gagey told analysts that Air France-KLM has more profitable options for summer redeployment than most of its rivals.
"We do have many scenarios we can look at should this virus continue," Smith said. The group currently plans to expand its network by 2-3 percent in 2020, with low-cost carrier Transavia expanding by 4-6 percent. Fourth-quarter operating income came in at 96 million euros on a 1.9 percent rise in revenue to 6.618 billion, missing expectations of 104 million euros on 6.648 billion of revenue in a company supplied poll of analysts.
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