October 28, 2014

KLM set to shed 7,500 jobs two weeks after revealing September’s Air France-KLM pilot’s strike cost the parent airline approximately €500 million

It would have been naïve, if not foolish, not to imagine that there would have been some form of repercussion after the Air France-KLM two-week pilots’ strike in September. Two weeks ago it was announced that the overall cost of the strike was in the region of €500 million, with direct loss of ticket sales amounting to some €350 million and the remainder being the knock-on effect of forward bookings. The year had not been going well for KLM anyway as in July Europe’s second-biggest network carrier by revenue was forced to revise downwards its target for 2014 income prior to interest, tax, depreciation and amortization (EBITDA) from approximately €2.5 billion to somewhere between €2.2 and €2.3 billion. It was stated that overcapacity on long-haul routes and weak cargo demand were mainly responsible for this adjustment. The ensuing strike over the company’s intentions regarding their low-cost airline, Transavia, combined with a warning note on forward demand, did little other than compound the problem.
The reduction in staff by 7,500 accounts for approximately 25% of the workforce, though there will still be employment for many as the nature of operations switches to an outsourced format. The aim of the reduction in the workforce is to cut EUR€4.4 billion (USD$5.6 billion) in outstanding debt simply by reducing certain operating costs. The full announcement is expected to be made at the release of quarterly earnings by parent Air France-KLM on Wednesday. Perhaps it is dangerous to add two and two together, but after this move one can’t help but feel that KLM have fired a shot across the bows of the pilots’ unions to let them know that costly strikes will only result in a reduction on the company’s workforce.



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