Lufthansa Grounds Aircraft and Freezes Hiring on Virus Effect

 - February 26, 2020, 2:45 PM

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

Lufthansa is offering employees unpaid leave and deferring the hiring of new flight attendants and station personnel—even though they already started training—as part of a package of measures to limit the economic effect of the coronavirus outbreak “at an early stage.” In a statement released on Wednesday, Europe’s largest airline by revenue said that it will reassess, suspend, or defer all new planned hires to a later date. It plans to suspend flight attendant and station personnel training courses starting in April and continues to consider options to expand part-time work. In administrative areas, it added, the core Lufthansa brand will reduce its project volume by 10 percent and the budget for material costs by 20 percent.

Lufthansa Group disclosed it already has grounded the equivalent of 13 long-haul aircraft across Lufthansa, Swiss, and Austrian Airlines as it canceled all services to and from mainland China through March 28 and reduced capacity to Hong Kong. The company said it plans additional frequency adjustments between Hong Kong and Frankfurt, Munich, and Zurich. The German airline group contended it is too early to estimate the earnings effect of the coronavirus outbreak, though it will comment on the matter when it releases 2019 financial results on March 19.

During its results presentation on February 20, Air France-KLM estimated the effect of the Covid-19 epidemic on its operating result—including loss of revenue and lower costs due to the capacity reductions—at between €150 million and the €200 million through the end of April. It based the estimate on the assumption that Air France and KLM will continue to suspend operations to China through the end of March and a progressive resumption of the operation starting from April, explained CFO Frédéric Gagey. The estimate of the initial financial consequence, however, does not consider the potential windfall of the fuel price, which recently decreased owing to the coronavirus. The Franco-Dutch group now expects its fuel bill for 2020 to run €300 million below its 2019 expenditure.

Like their German rival, Air France and KLM also have also begun considering savings measures to counter the financial effects of the coronavirus. In an internal company memo, cited by Dutch daily De Telegraaf, KLM CFO Erik Swelheim called the effect of the virus “very large and can only be absorbed by budget cuts and a low oil price.” Budget cuts and spending restrictions include a reduction of the number of new staff and work with external consultants, delay of new IT projects and office refurbishment plans, and trimming travel expenses. “Only ‘must-do’ expenditure is allowed,” he wrote. “The coronavirus has had a significant impact on our air traffic to China and other destinations in Asia. The virus will also probably have an impact on the rest of our network, now that travel advice to Italy has also been adjusted.”

In a similar letter to Air France management, obtained by Les Echos, the French airline’s CFO, Steven Zaat, announced a tightening of “discretionary” expenses such as travel, receptions, the use of consultants, as well as a continuation of the hiring freeze for all non-operational services. The airline has postponed promotional and marketing campaigns “not related to short-term sales stimulation.”