Issue No. 795

Crisis Management at KLM

Pushing Back: Inside This Issue

Nobody’s flying. But somebody’s buying planes. Lots of them.

It’s the worst crisis ever for airlines, with demand a fraction of what it normally would be. But Ryanair nevertheless pulled the trigger on another big Boeing order. It’s buying 75 MAX jets just as the plane prepares to reenter service after a long safety review. The MAX, Ryanair says, will be a game changer in terms of its operating economics. And by buying in a buyer’s market, it locks in a competitive price advantage, yet another in its impressive toolbox. There’s a reason — many reasons, in fact — why Ryanair is consistently among the world’s most profitable airlines. Remember: It even earned a small operating profit this summer!    

Lufthansa can’t say that. But it did say that demand is picking up strongly on parts of its network. People are booking flights to southern Africa and to the Canary Islands, for example. More Europeans are planning Christmas on the Mediterranean, or in the snow-filled regions of the upper Nordics. The Nordic carrier Norwegian, though, is simply trying to survive another day, unveiling yet another attempt to restructure its balance sheet. SAS, with a more comfortable cash position thanks top more supportive government policies, wonders how long its rival will be around.  

As the summer sun arrives Down Under, Australia’s Qantas is encouraged by a domestic demand reawakening. That’s no small development considering how profitable the Australian domestic market has been for the carrier. It faces tough battles though, with a revitalized Virgin and a Rex with tyrannosaurus ambitions.

U.S. carriers, unlike Lufthansa, are watching their bookings weaken as the Covid menace overloads the American health care system. Russia, too, has a rising rate of infections and deaths. And sure enough, that’s slowing what had been a remarkably busy summer for airlines flying domestically. Aeroflot, and especially its low-cost carrier Pobeda, certainty benefitted. But like pretty much every other airline in the world, it’s still having an awful year, hoping and praying that 2021 marks a road to recovery.

Verbulence

“We have seen a vast improvement in trading conditions over the past month as many more people are finally able to travel domestically again.”

Qantas CEO Alan Joyce

Earnings

July-September 2020 (3 Months)

  • Aeroflot: -$287m/-$299m*; -17%

August-October 2020 (3 Months)

  • SAS: -$293m/-$256m*; -83%

*Net result in USD/*Net result excluding special items/ Operating margin

Weekly Skies

  • Russia’s airline industry was never known for its dynamism. But lo and behold, it’s become the fastest market to recover from the Covid crisis, with domestic passenger counts rising 6% y/y in August. Not even China’s domestic market has recovered as much. The word “recovery” though, comes with caveats. Airfares are not what they were a year ago. And the buoyancy of domestic demand is heavily linked to the closure of international markets — a substitution effect, in other words.

    Still, a busy domestic market is more than most airlines could hope for at the moment, and Aeroflot’s Q3 figures were correspondingly better than most. Its operating margin was just negative 13%, or negative 17% stripping out revenue from the fees foreign carriers pay to fly through Russian airspace. Total revenues declined 60% y/y while operating costs dropped 42%. That was on 53% fewer ASKs. Note that unlike other intercontinental airlines with relatively mild losses last quarter, Aeroflot’s “success” was not attributable to cargo. Indeed, cargo accounted for just 6% of total revenues, up from 3% normally.

    More important was robust demand for Black Sea, Baltic Sea, Arctic Sea, and Caucus mountain resort spots. It mentioned Sochi, Makhachkala, Kaliningrad, Murmansk, and the Kola Peninsula. Other routes held strong just because of Russia’s enormous distances, making air travel the only means of transport between many cities. There wasn’t much business internationally, but Turkey for one was a “star market” this summer.

    Then there’s the emerging superstardom of Aeroflot’s low-cost carrier Pobeda. Capitalizing on the bullish domestic demand, it grew its ASK capacity 6% y/y last quarter, with domestic ASKs alone up 39%. Revenues were down to be sure, by 18% (blame that on the closure of higher-fare international routes). But no matter, because Pobeda still managed to make money last quarter, and with a stunning operating margin of positive 34%. No wonder why Aeroflot has grand ambitions for Pobeda, believing it can capture 30% of the entire Russian domestic market by 2028. It’s currently taking all of the group’s B737-800s and will eventually get B737-MAXs.

    Rossiya, on the other hand, a subsidiary based in St. Petersburg, will do a lot of the group’s dirty work, so to speak. That means flying its Russian-built planes, acquired for political reasons, and handling social obligation routes in underserved regions. The main Aeroflot-branded airline itself meanwhile, will attempt to revive growth in sixth-freedom traffic through Moscow once international markets reopen. It’s getting A350s for intercontinental routes. To Europe, its focus will be on routes with a lot of business-class demand like London, Zurich, and Geneva, as well as distant routes like Madrid and Lisbon that might be out of range for Pobeda.

    Normally, Aeroflot is a highly seasonal airline that does best in the summer. That’s still the case, with autumn demand weakening and winter looking bad. Though Russia was early to roll out a Covid vaccine, distribution has been slow, and the virus is still spreading at a dangerous clip. That’s causing some regional government to impose local travel restrictions. And in response, Aeroflot is now cutting winter capacity. It also, by the way, warns of tougher domestic competition as rivals likewise reposition planes from the international market. Financially, it’s getting by with government guaranteed loans and the proceeds from selling shares. Revenues from its loyalty plan have been pretty resilient.

    To navigate the remainder of the crisis, and to lead Aeroflot out of it, will be a new CEO named last month: Mikhail Poluboyarinov.
  • Having sizable domestic markets — and lacking heavy longhaul exposure — helped SAS limit its losses this summer. As summer turned to fall, however, and as Covid began re-closing markets throughout Europe, the airline’s options were limited. For its odd quarter that covered August, September, and October, SAS posted a negative 83% operating margin, on a 73% y/y reduction in ASK capacity. Revenues declined 77%. And operating costs? Just 54%. As management mentioned, removing fixed costs can’t happen overnight.

    When SAS suddenly had to curtail capacity as demand reacted adversely to new travel restrictions, it still had obligations to customers with booked flights — either fly them, which costs money, or refund them. Worker furloughs too, don’t create immediate cost savings. “For us,” said CEO Rickard Gustafson, “it takes us a couple of weeks to really scale down because we need to honor those passengers that we have sold tickets to, we have rosters out for our crew, and also the furlough schemes — you apply for them in advance…   You can’t get rid of the cost that quickly.”

    This delayed reaction caused the airline to have more capacity in the fourth quarter than it needed. To meet longterm savings goals, SAS is cutting thousands of jobs and renegotiating contracts with unions. One pre-crisis demand on unions was permission to create a separate subsidiary, with inferior contract terms, to operate a new fleet of small narrowbodies. That project is on hold for now. But replacing B737-700s and A319s with A220s perhaps, remains an objective.

    As the largest airline in the Nordic region, SAS is surely delighted to see its rival Norwegian on the ropes (see Covid crisis section below). Already during the crisis, SAS is seeing a rise in its regional market share. A new Norwegian carrier, however, with links to the old Braathen group, is well along the path to launching. At the same time, Wizz Air is taking a greater interest in the region, offering domestic routes in Norway. Ryanair and easyJet, fortunately for SAS, have yet to show much interest in Scandinavia. But they might. A more general concern is that competitors will likely charge rock bottom fares just to raise cash.

    The region, meanwhile — Sweden especially — is experiencing a bad Covid outbreak this fall. When its fiscal Q4 began in August, 41% of SAS’s revenue was exposed to markets where travel was either not allowed or allowed only with a two-week quarantine. By the end of the quarter, the figure was 65%. Even Norway now is recommending citizens against traveling domestically. No surprise then, that SAS is expecting a tough winter. With a government-backed recapitalization effort now complete, bankruptcy isn’t a near-term risk anymore. But the company is nevertheless seeking to raise more cash still, in part via the aircraft sale-leaseback market.
  • Latam, required to file monthly financial statements while in bankruptcy, showed a $153m net loss and a negative 39% operating margin for October. South America, remember, is entering its peak summer season. And countries, to varying degrees, have relaxed restrictions on travel and flying. A recent IATA presentation showed that Chile, Argentina, Uruguay, Suriname, and Venezuela were still closed to foreigners in October. On the other end of the scale were Mexico and Brazil, both completely open. Others like Colombia, Peru, and Ecuador were open but only for travelers presenting a negative Covid test.

    If South America can avoid a new wave of Covid cases when fall and winter arrive around the second quarter of next year, Latam could be on track to exit bankruptcy in late 2021. It hopes to emerge with a cost structure competitive with LCCs. A north-south joint venture with Delta remains a top strategic priority.

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Media

  • An ominous sign for U.S. airlines? The Wall Street Journal looks at airline-branded credit cards, which have for years brought riches to airlines and credit card issuers alike. Think of all the money Delta has made selling miles to American Express, which is happy to pay because of all the new customers it can win by offering Delta miles. It’s the same win-win relationship for American and its partners Citi and Barclays, JPMorgan and its partners United and Southwest, Alaska and Bank of America, Barclays and JetBlue, and so on.

    But during the Covid crisis, few people are traveling, making perks like free trips, airport lounge access, and seat upgrades less attractive if not irrelevant. The Journal profiles several people who’ve given up their airline cards, which typically charge high annual fees. People more generally are buying more often with debit cards these days, and less with credit cards — Visa for one says credit card spending volume was down about 9% last quarter, while debit volume was up 20%.

    Will airline credit cards regain their appeal when the crisis ends? Carriers sure hope so. If not, billions of dollars could be at risk, not to mention a critical source of financial resiliency — the U.S. airline industry often relies on its partner banks to provide liquidity in times of need.
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Fleet

  • For all of Ryanair’s many competitive advantages, few are as powerful as the favorable prices it pays for its airplanes. Why does it pay less than most of its rivals? The answer lies partly with timing, as it demonstrated again last week. In the first major industry aircraft order since the onset of the Covid crisis, Ryanair agreed to buy another 75 aircraft from Boeing. Adding to the intrigue: They’re B737 MAXs, the plane grounded for almost two years after two fatal accidents. For all of the concerns about safety (hopefully now addressed), airlines love the plane’s economics.

    Ryanair speaks glowingly about the 16% increase in fuel efficiency versus the B737-800. The MAX is better for revenues too, with eight additional seats to sell. The LCC is buying a somewhat altered version of the MAX, now dubbed the MAX 8 200, with more capacity than the standard MAX 8. In total, it now has 210 of these on firm order, with deliveries starting this spring and continuing through 2024. By this summer, regardless of demand, it plans to have at least 50 MAXs, provided Boeing can deliver them fast enough. The order once again demonstrates Ryanair’s willingness to buy planes during even the deepest industry downturns — it did so during the last recession as well.

    That said, its initial MAX order came in 2014, a boom year for the aircraft market. Even then, the carrier’s good credit, its growth prospects, and its willingness to buy in bulk led Boeing to offer favorable pricing. This time, Ryanair also received compensation for getting its MAXs so late, partly in the form of price discounts. Is Ryanair now done with its ordering? Probably not. It’s still very much interested in the largest version of the MAX: The MAX 10.

    And Boeing? Will it win any other MAX orders while the Covid crisis still rages? Alaska needs more. Southwest needs planes in the MAX 7 size category. Air France/KLM has large narrowbody replacement needs. IAG has a conditional MAX order it might decide to firm. There’s plenty of demand, in other words, still out there.
  • Boeing, at a Credit Suisse investor event, thanked Ryanair for its business and agreed that more MAX orders could come as the industry recovers — shorthaul markets will lead the recovery. Widebody demand will take longer to recover, and Boeing is sure enough cutting B787 production rates again. It now plans to build just five per month by mid-2021, not six. As for the delayed B777-X, which doesn’t have many buyers, Boeing continues to work with regulators on readying the plane for service. The new and improved B777 has just eight known customers to date, albeit a quite prominent list of eight — Emirates, Qatar Airways, Etihad, Cathay Pacific, All Nippon, Lufthansa, Singapore Airlines, and British Airways.

    Boeing does see widebody demand picking up before too long, if simply due to all the longhaul aircraft permanently retired during the crisis. Chinese carriers too, will eventually need lots of new widebodies. Boeing had nothing new to say about the NMA — it continues to study the merits of building a new mid-sized aircraft slotted between its largest MAXs and smallest Dreamliners.
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Distribution

  • Sabre, in an investor presentation last week, noted the following: In 44 of the past 50 years, the number of global airline passengers increased from the year prior. And in those six years where traffic did decline, it never declined more than 2%. This year, 2020, will be different. But there’s no disputing that travel is a growth industry over the longterm. Or has been anyway.

    Commenting on more immediate matters, Sabre said GDS bookings in North America have started to “tick down a bit” in recent weeks amid the latest Covid spike. For the GDS sector at large, the Covid crisis is especially painful because corporate bookings, the worst-hit segment in the crisis, are normally so important. Leisure travelers often book through GDSs as well, when they shop on sites like Expedia for example. But they’re just as likely to book directly with an airline. A large majority of corporate bookings by contrast, are transacted through GDS.
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State of the Unions

  • Southwest has famously not laid off or involuntarily furloughed a single worker in its almost 50 years of operation. That may change. The carrier told more than 6,800 employees that furloughs could begin in March if industry conditions don’t change or Congress doesn’t provide more aid.

    Furloughs are a “last resort,” CEO Gary Kelly said at the Skift Aviation Forum last month. Then, the carrier had issued federally mandated WARN Act notices to a few hundred employees as union talks broke down. Now, the furloughs have been extended to all unionized workgroups, except for two: Dispatchers and meteorologists.

    The issue is the company is seeking a 10% reduction in compensation from all its unionized workgroups to match the 10 percent pay cut non-unionized employees are taking starting January 1. The cost-cutting is necessary to offset what it estimates to be $1b in overstaffing next year. The carrier had been in talks with all its workgroups for concessions, but the unions had not been receptive.

    The workers affected are as follows: 2,551 ramp and cargo agents; 1,176 customer service agents; 370 customer support employees; 1,500 flight attendants; 1,221 pilots; six flight instructors; and four flight simulator technicians. “Our absolute goal is to preserve every job at Southwest Airlines; however, due to a lack of meaningful progress in negotiations, we had to proceed with issuing notifications to additional employees who are valued members of the Southwest family,” said Russell McCrady, vice president of labor relations. The company is urging unions to return to the negotiating table to reach a deal, he added.

    So far, the unions have balked. “This is a sad day for Southwest Airlines,” said Lyn Montgomery, head of the flight attendants union, in a video message to members.
  • Lufthansa said it could reduce its workforce by another 29k workers by the end of the year, with another 10k expected to lose their jobs in the new year, German media have reported. Of the 29k expected to lose their jobs this year, 20k workers are outside of Germany. The 10k slated for layoffs next year are expected to be from the company’s German workforce.

    CEO Carsten Spohr has said Lufthansa is overstaffed by almost 30k workers, adding that the company does not see demand returning to 2019 levels until 2025.
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Covid Crisis 2020

North America

  • In an update for investors, American said current demand and future bookings have weakened after a strong start to Q4. A slowdown that began around Thanksgiving, it said, has persisted into early December. This unfortunately means cash burn for the quarter will likely hit closer to the higher range of its forecasts, meaning about $30m a day.  
  • Delta told employees about a similar slowdown. Thanksgiving passenger volumes it said, were half what they normally would be. The airline is pushing hard to stimulate demand through Covid testing. Its efforts include convincing Italy to allow Americans to fly to Rome without having to quarantine, assuming they test negative for Covid before leaving. Delta is also distributing home test kits to all of its U.S.-based employees.

    As for cash burn, its estimate is now for about $12m to $14m a day on average over the quarter. That’s better than its daily cash burn in Q3 but short of its goal early on in the pandemic of breaking even on cash by year end. Delta, meanwhile, expects just 30% of its normal revenues this quarter. But unlike American and United, it avoided having to furlough anyone involuntarily. It almost had to furlough some pilots but ultimately reached a deal with the Air Line Pilots Association.
  • JetBlue, to nobody’s surprise, said booking trends are volatile as the year (what a horrid year it was) nears its end. With the final month of the fourth quarter now underway, JetBlue estimates that total Q4 revenue will be down about 70% y/y. That’s a bit worse than the 65% drop it was expecting, due to severe and widespread Covid outbreaks throughout the U.S. JetBlue still expects its Q4 operating costs to decline about 30% if not more. Capacity measured in ASMs will be down 45% to 50%. Daily cash burn for the quarter, importantly, will reach between $6m and $8m, which is higher than the $4m to $6m it previously anticipated. Management blames worsening booking trends and delayed tax refunds. 
  • Adding to the parade of bad news, Hawaiian also said cancellations were up for November and December travel, though new bookings continue to come in at a steady pace. The airline is building back capacity as a new state travel policy eliminates quarantine rules for mainland visitors that test negative for Covid. The policy is extending to visitors from Japan, Korea, and Canada as well. But some local Hawaiian government are now tightening restrictions in response to the spike in mainland Covid cases.

Europe

  • Lufthansa surprisingly reported a “sharp rise” in bookings for the upcoming Christmas and New Year travel period. And it’s not talking about domestic routes. It’s seeing a big jump in intra-European and even intercontinental bookings. Really? Where are people traveling overseas right now? Lufthansa highlights southern Africa, specifically Cape Town, Johannesburg, and Namibia’s capital Windhoek. Closer to home, the Canary Islands are popular, as are the usual hotspots across the Mediterranean: Greece, Portugal, etc. Also mentioned: Areas of northern Europe guaranteed to have a snow-filled Christmas, like the Lapland region of Northern Finland.

    Lufthansa is adding flights accordingly. And remember, its cargo division is having a banner year. That said, absent any premium demand to key markets like North America and East Asia, Lufthansa won’t experience a true recovery.

    On a separate note, the carried advanced its goal of reducing corporate complexity by closing a deal to sell the European operations of its catering unit.
  • Norwegian presented its latest plan to avoid the Grim Reaper. An earlier plan, drastic as it was, failed to secure the airline’s financial health. So it’s again turning debt into equity, this time under the umbrella of an Irish bankruptcy court. By filing for bankruptcy, creditors for the moment can’t take any action to collect on money Norwegian owns them. The carrier aims to exit court protection in late February, with additional help from equity it hopes to sell. To attract private-sector buyers though (Norway’s government won’t give it more money), its business plan will need to be convincing. For now, it’s only flying six to seven planes.

    As the news site E24 nicely put it: “Norwegian must be able to convince an Irish judge that the company has a future. Then the company must convince investors to put their money in this future.”

Northeast Asia

  • China’s Outbound Tourism Research Institute sees 100m people traveling internationally from mainland China next year. That’s a remarkable forecast given that international markets are currently closed and next year is just a few weeks away. In 2019, as Skift’s Raini Hamdi reports, China generated 169m trips abroad. Included in this figure are the 100m who travelled to Hong Kong, Macao, and Taiwan. Macao is currently the only leisure destination where Chinese travelers can go without having to quarantine.

    Domestically, tourism during October’s Golden Week holiday was stronger than many expected. All eyes now turn to the Chinese New Year holiday which begins in mid-February. Will other countries have opened their borders to Chinese travelers by then? There will be, no doubt, pressure on hard-hit economies around the world to welcome Chinese tourists and their money sooner than later.  
  • Trip.com, the largest Chinese online travel retailer, expressed the same hopes for a vigorous bounce back in outbound overseas demand. Domestically, it said, airline and hotel bookings turned positive y/y in August. It did add, however, that airfares remain much lower this year than last. Trip thinks a full international recovery might take a year or longer depending on how soon governments reopen borders and relax travel restrictions. But the company’s “vision for longterm global expansion hasn’t changed.” It adds: “The desire to travel is very strong.” 

Australasia

  • Qantas, in normal times, earned its largest profit margins at home. And so, with domestic markets opening up, the airline is confident that the worst of the crisis is over. In fact, it spoke last week of a “vast improvement in trading conditions,” characterized by a rush in bookings every time an internal border is reopened. Even business demand is picking up, with several large corporate accounts switching their allegiance to Qantas from Virgin Australia. What’s more, several thousand fliers with high-tier elite status on other airlines have applied for a status match Qantas is offering.

    People in general are starting to book months in advance again, reflecting confidence. This month, Qantas will fly close to 70% of its normal domestic capacity. That will rise to 80% next quarter. In the meantime, management’s savings targets are on track. Liquidity is strong. The company’s cargo and loyalty businesses are performing well. Most of its refund obligations and catch-up debts to suppliers are now repaid. The company never lost its investment grade credit rating. And cash flow should turn positive in the first half of 2021.

    But before getting too excited, the Flying Kangaroo cautions about the challenges it still faces. There’s a risk of more Covid outbreaks of course. Australia will start winding down its government stimulus programs. International markets are still closed and will take “years to recover.” It has to carry a fleet of currently useless widebody planes. There’s a lot of balance sheet mending to do after borrowing to protect against a liquidity shortage. The mending will begin next year, Qantas says, addressing its $4.2b in debt. Importantly though, the debt doesn’t have any covenants. And none of its loans mature before April 2022.

    Domestic competition will likely intensify. Yes, Virgin will be smaller but also leaner (it has new labor deals trading cost cuts for job protections). Plus, the regional carrier REX is now entering major markets with mainline aircraft. The assumption for international traffic is that all but New Zealand will remain closed until June at the earliest. But this might be pessimistic, executives acknowledge, if vaccinations come sooner. Qantas in the meantime will outsource more ground handling, costing another 2.5k jobs.  
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Feature Story

CEO Pieter Elbers speaks with Airline Weekly

Running an airline is not for the faint of heart. And running an airline during a once-in-a-century global pandemic takes even more fortitude. As domestic markets around the world start to recover, how does KLM manage with a domestic network of “precisely zero” flights? KLM CEO Pieter Elbers recently discussed this topic, and many others, including fleet planning and future growth, with Airline Weekly Editor Madhu Unnikrishnan during the virtual IATA Annual General Meeting. (This interview has been edited and condensed for clarity).

Airline Weekly:  Since KLM does not have a domestic market, how has the slower recovery of longhaul international traffic affected KLM and what have you done in reaction?

Pieter Elbers: It depends on what you define as the domestic market. If you were to define the domestic market as flying within the Netherlands, that’s precisely zero. We consider the European market as being one and as domestic flying. We’ve been very active on the strategy whereby we wanted to re-establish the network as soon as possible. Today, we have restored some 90% of our European network, but only 50% of the capacity. And in doing so, we help to sustain our longhaul network. Indeed, we don’t have a huge origin market in Amsterdam — it’s not London or Paris —so we need that connectivity. The European network is providing that connectivity.

AW: Have you shifted your European network to capture more VFR and leisure traffic?

PE: For me the focus was more providing the service and capacity to the market, rather than deciding whether a destination is VFR or leisure or business. Traffic has been so much down and so erratic. People have different reasons for travel. In the summer, there was some leisure traffic coming back, but now again here we just want to provide the service and connectivity. We have quite a few of these flows where basically we provide the [connectivity] window, if you wish, for people to travel to the destination of their needs.

AW:  Let’s talk about Schiphol. Have the capacity constraints eased since the start of the pandemic?

PE: In 2019, Schiphol reached its ceiling, and we were officially speaking about growth and how to add more capacity. Obviously, the 2020 numbers are so much down that there is an abundance of capacity, and a waiver of all slot regulations has ensured that airlines are cutting down — rightfully so. The capacity development conversation has been put on hold for probably several years. That enables us to start rebuilding the network, rebuilding the service.

AW: What is the status of Lelystad Airport as a relief for Schiphol?

PE: Lelystad Airport is ready, and it was created by the Dutch government as a way to take off some of the pressure, and as a relief, for the people living around Schiphol Airport. The opening was initially foreseen in 2020, but it has been postponed. Now it is up to government to determine when the airport will open. From a pure capacity need, there’s no need to open it now. But investments have been made, and I do expect the government to open it gradually. If we do believe aviation will have a future and traffic will come back, then we do want to keep a strong hub here at Schiphol with all its international connections. With that we will need the additional capacity [at Lelystad] in the future.

AW: What kinds of connecting itineraries are performing well right now?

PE: It’s difficult to pick out one. It’s the strength of the network. It’s all these flows of one and two that we are able to combine, and by doing so we are able to have reasonable loads — not good, reasonable.

In addition to that, and especially for our longhaul network, we are doing pretty well on cargo. My strategy right from the start of Covid was that if we were able to run our European network to 90% of the destinations at 50% of the capacity, we provide some feed to our longhaul network. If we are able to combine some feed with significant cargo loads, we are able to keep the system running.

AW: Cargo has always been important to KLM, but how much more important has it become to KLM’s bottom line now?

PE: Speaking about the bottom line during Covid is something which I don’t think any CEO is keen to do! First, cargo has demonstrated that at least we have a source of revenue and a source of income, which is extremely important.

Two, we have been able to support our communities with a lot of medical equipment, which we flew in from mostly Asia. But also for a lot of other places in the world, we were the only connection that happened with airlift. When we speak about vaccines and the transportation of medical goods, our cargo ability demonstrates the relevance [of airlines] to society and our communities.

And three, for our network and our consumers, we have been able to offer that network and provide at least these travel opportunities for people. So, this combination of factors has really helped us in revenue.

And four, cargo has enabled us to keep some of the operation running and pilots and crews active. We did not have to shut down the entire shop.

AW: What is the status of KLM’s labor contracts and are all the unions on board with some of the cuts you’re negotiating.

PE: Yes, they’re all on board and they have all confirmed their commitment. It has been a bit of a bumpy ride in coming to that point, which again here we’re dealing with a situation which is completely new for all of us. We were getting these government loans, and I’m very grateful and thankful to the government in providing us these loans because we absolutely need them. They come with a set of conditions, and we need to work out these conditions with our unions.

Already, 5k people have left the company. The good news is we needed to be ready by October 1 with our restructuring plan. We needed to make some further clarifications with unions in the month of October. That, again was a bit of a challenge in making it work. But it’s all been clarified by November. That whole process is done, and we got the required approvals and support. I’m very grateful for the unions, again, after being on that bumpy ride together.

AW: Transavia France has gotten a lot of attention because of pilot concessions and plans to expand. What about Transavia Netherlands and will it play a larger role for KLM in the downturn?

PE: Transavia France has made some very significant steps by expanding into the domestic French network. For us the situation is a bit different. There is no domestic network. Transavia is an important part of our offer in the market in the Netherlands and we coordinate with Transavia for flights from Amsterdam and Rotterdam, Eindhoven, and maybe in the future with Lelystad, when it opens.

AW: Will you do a joint aircraft order for B737 MAXs or A320 NEOs?

PE: We have been doing joint fleet steps since 2004, and even the B787s and A350 orders were combined. We check on how many aircraft are needed at Air France and how many are needed at KLM. We use the combination in our negotiations with suppliers. We haven’t put any MAX orders or decision out yet. We will take a broad view, and not just consider the Dutch side but the French side of our company as well.

AW: Besides the MAX and NEO, is KLM set for aircraft orders for a while now?

PE: If we look to the actual fleet, we have done an incredible job in the last few years of creating standardization and reducing the number of aircraft types at KLM. We used to have a combination of Fokkers and Embraers, and now we have only Embraer regional aircraft. On the longhaul side, the B747s are being phased out. We’ve made some internal group optimization last year on the B787s and the A350s. We, we have the E2s coming in next year — that’s the next step in our regional fleet developments.

We have not taken any decision yet on the medium-haul replacements for the hundred or so aircraft we have operating out of Amsterdam, which are B737s. And we had only a few B787s on order. It’s good for us in the middle of this crisis to have some stability.

AW: What’s the future of KLM’s North American expansion? When the transatlantic market eventually recovers, will you add more cities, or is Asia more of a focus for future expansion?

PE: I would say both. The strength we demonstrated now is the strength of KLM’s worldwide coverage in combination with some of the great partnerships we have. And if I look to the transatlantic the partnership we have with Delta, Air France, KLM and Virgin Atlantic, it has been a solid foundation for our longhaul network. About a quarter of our longhaul seats are across the North Atlantic. We have been adding a significant amount of capacity in the last few years, and not only capacity but also new destinations. In fact, we were set to open Austin, Texas, as one of the new destinations, which obviously is postponed now. Flights to Salt Lake City, which we introduced a few years ago, have been very successful.  I do believe that with the strength of the U.S. economy and in the economic interaction that will come back.

To Asia, we have seen our development of our network to China, both to Beijing and Shanghai, but also to the other cities like Hangzhou and Chengdu and Xiamen. Where we were on track to really start expanding was to India. Our position in India was relatively limited. We’ve been able to expand that, initially thanks to our partnership with Jet Airways, and now with our own investments. I believe there are a lot of opportunities going forward.

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Around the World

A look at the world’s airlines, including end-of-week equity prices.

Around the World: December 7, 2020

Airline NameChange From Last WeekChange From Last YearComments
American9%-40%First regularly scheduled MAX flights will take place Dec. 29 between Miami and New York LaGuardia
Delta3%-24%Now offering quarantine-free flights to Amsterdam with KLM, following its offer of similar Rome service with Alitalia
United9%-44%Expects to be first to take a new B737 MAX delivery since its grounding in 2019; scheduled for this week
Southwest0%-14%Has 4 major unions: SWAPA (pilots), TWU (ground workers and flight attendants), AMFA (mechanics), IAM (service agents)
Alaska3%-21%First MAX flight (MAX 9) will occur in March; like Ryanair, it hadn’t yet flown the plane before it was grounded
JetBlue-1%-18%Still raising cash: Announces new share sale last week; Hawaiian also selling new batch of shares
Hawaiian-2%-30%Estimates its load factor for November was just 43% to 45%
Spirit10%-32%One of its board members is former Hawaiian CEO Mark Dunkerly
Frontier(not publicly traded)U.S. labor market, improving after the initial Covid shock this spring, now worsening again
Allegiant2%7%New startup Breeze partnering with a university in Utah to create flight attendant training program
SkyWest4%-27%Of the 448 planes in its fleet at the end of Q3, 56 were provided by partners; others owned, leased, or mortgaged
Air Canada11%-44%CUPE, the Canadian flight attendant union, expresses disappointment at federal lack of help for airlines
WestJet(not publicly traded)Selling nine B737 MAX 8s to CDB in leaseback deal
Aeromexico41%-53%Rival Volaris increased its domestic capacity 2% y/y in November
Volaris4%12%Carried 6m pax since the Covid crisis began, most within Mexico but some to the U.S.
LATAM0%-87%Thinks it can exit bankruptcy sometime in the second half of 2021
Gol18%-21%November traffic report shows domestic RPK traffic down 37% y/y, on 39% less ASK capacity
Azul14%-21%Aerolineas Argentinas receives final regulatory clearance to integrate its subsidiary Austral
Copa-1%-21%Viva Air, with affiliates in Colombia and Peru, wants to launch a third unit, Routes reports; Ecuador a possibility
Avianca0%-91%Signed new contracts, featuring heavy concessions, with both of its major pilot unions
Emirates(not publicly traded)Offering free hotel stays for tourists coming to Dubai from nearby markets like Bahrain and Jordan
Qatar(not publicly traded)Flights to Nigeria’s capital Abuja began on Nov. 27, operated from Doha via Lagos
Etihad(not publicly traded)Bahrain’s Gulf Air the latest to add Israel to its network; will start flights to Tel Aviv next month
Air Arabia-1%-17%UAE celebrated its national day last week; commemorates unification of emirates 49 years ago
Turkish Airlines2%-12%Istanbul SAW airport busier than Istanbul’s main airport IST this fall; 5th busiest airport in Europe (Malaysia Airports)
Kenya Airways0%63%Bankrupt Air Mauritius asks for further court relief as key markets like Europe impose new travel restrictions
South Africa Air.(not publicly traded)Government hoping carrier’s London Heathrow slots will help attract private investment; candidates, however, few and far
Ethiopian Airlines(not publicly traded)In Africa, only Johannesburg’s airport has more pax handling capacity than Addis Ababa
IndiGo15%32%Hopes to get gov’t clearance to fly 100% of its domestic capacity by early next year (LiveMint)
Air India(not publicly traded)Plans to launch a Chennai-London Heathrow route next month
SpiceJet25%-17%AirAsia India, in sign of expansion, to take three more A320 NEOs by mid-2021
Lufthansa0%-40%Rival TUI secures new financing, again with the help of Germany’s federal government
Air France/KLM-3%-49%Transavia won’t operate from Paris CDG and won’t operate A220s (anna.aero)
BA/Iberia (IAG)5%-69%Final B747 will be put on permanent display at Dunsfold Aerodrome in Surrey
SAS-13%-91%Phasing out at least 20 planes earlier than originally planned (five A340s, 15 B737-NGs, and an A330)
Alitalia(not publicly traded)Saw a jump in bookings last week as Christmas season nears
Finnair-8%-90%Novel new (if negligible) revenue source: Selling its inflight blueberry juice at local supermarkets
Virgin Atlantic(not publicly traded)Holding charity ground event celebrating its final B747; aviation nerds can dine in Upper Class, tour the plane, etc.
easyJet11%-32%New bag policy links bag allowance to the type of fare/seat they book
Ryanair11%22%Wizz Air makes another move on the U.K. market, announcing a new base in Cardiff
Norwegian-11%-99%Wants to pay its executives in shares rather than cash, if bankruptcy court allows
Wizz Air6%23%Claims its carbon emissions per RPK are lower than any of its competitors
Aegean5%-47%Load factor was 66% in July, 68% in August, and 63% in September
Aeroflot3%-27%Estimates that about 40% of its operating cost base is fixed
S7(not publicly traded)Russian carriers flew 22.7m domestic pax in Q3, compared to 23.1 in Q3 last year
Japan Airlines-1%-39%New wave of Covid cases hurting demand; JAL reacts by cutting domestic capacity
All Nippon-2%-33%Tells investors it will use part of the proceeds from latest capital hike for more B787-8s and B787-9s
Korean Air3%7%Favorable court ruling keeps Asiana merger plan on track
Cathay Pacific6%-25%Hong Kong-Singapore travel bubble won’t happen this year after all amid new Covid outbreaks
Air China5%-5%China and Japan relax restrictions on business travel between the two countries
China Eastern1%0%Online travel agency Trip.com working with tourism boards in various countries to help promote demand when borders reopen
China Southern2%-3%American and United both suspend China flights, citing difficult conditions for crews
Singapore Airlines-2%-51%Secures regulatory approval to issue another round of convertible bonds; provides investor with upside if stock prices rises over time
Malaysia Airlines(not publicly traded)Malaysia Airports expecting domestic load factors to be around 70% in 2021; was 55% in Sept.
AirAsia6%-54%Rival Thai VietJet continuing to add new domestic Thailand routes; latest is Chaing Mai-Nakhon Si Thammarat
Thai Airways-1%-57%Bankrupt Nok Air confident of successfully restructuring (Bangkok Post)
VietJet0%-19%Vietnam removing quarantine requirement for business travelers from South Korea
Cebu Pacific9%-44%Trialing free Covid antigen tests for passengers, administered a few hours before flight
Qantas-5%-26%Mainline and Qantas saw jump in bookings after reopening of Queensland border
Virgin Australia(not publicly traded)Qantas flags Cairns, Hamilton Island, Gold Coast, Sunshine Coast as popular destinations in lead-up to summer season
Air New Zealand2%-33%Samoa Air “technically bankrupt,” it tells local media
Brent Crude Oil2%-22%OPEC, together with Russia, decide to increase oil output; higher supply should mean lower prices, all else equal

Some stocks traded on multiple exchanges; not intended for trading purposes.

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