KLM To Cut Costs, Postpone Investments To Boost Profits
KLM Royal Dutch Airlines intends to postpone investments, cut costs and take measures to increase productivity as part of a bid to improve its operating profit by €450 million ($497 million) in the short term.
The airline’s plans include an increase in automation and the possibility of outsourcing some maintenance activities, as well as divesting or discontinuing activities that do not directly contribute to flight operations. The airline will also postpone investments not related to safety or fleet as part of the drive.
“Despite revenue growth, these interventions are necessary because of the rising cost of equipment, staff, and airport fees,” KLM said Oct. 3.
“Just as many other airlines, KLM is suffering from high costs and shortages of staff and equipment,” CEO Marjan Rintel said. “Our aircraft are full, but our capacity is still not back to pre-corona levels. We want to remain at the forefront of customer and employee satisfaction as well as sustainability. To continue doing this effectively, we must make clear and decisive choices now. This is painful for every KLM colleague, but it is necessary, and it has to be done now.”
Rintel said the airline’s goal “is and remains running a healthy, future-proof KLM. We will do everything we can to maintain our network and services for our customers and protect jobs throughout our company.”
The measures should allow for the airline to improve its operating result by €450 million in the short term, KLM said, as well as leading to a structural profit margin above 8% by 2026-2028, which is in line with the wider Air France-KLM group’s medium-term profitability target.
KLM said its Works Council and trade unions had been informed of the proposed measures and will be involved in the consultation process to reach final decisions.
The airline, based at Amsterdam’s Schiphol Airport—which has been in the midst of a debate about how to reduce aircraft noise for local residents—wants to increase labor productivity by at least 5% by 2025. This includes through automation, mechanization and reducing absenteeism. The airline plans to take measures to resolve the pilot shortage impact and ensure that it can operate all flights with its pilots, with a better balance between intercontinental and European flights.
KLM is taking measures at its Engineering and Maintenance department to reduce the number of flight cancellations due to a shortage of technicians and ongoing parts supply problems, but “if this does not yield sufficient results, options to partly outsource maintenance will be examined,” KLM said.
“All investments [except those in (occupational) safety and compliance] will be reconsidered and postponed, such as the new headquarters and engineering and maintenance buildings,” KLM said. “We will strive to maintain our fleet investments as much as possible.”
The airline said it will explore options for outsourcing, divesting or discontinuing activities that do not directly contribute to flight operations. The carrier plans to improve existing onboard products and introduce new ones, with trials underway for an expanded catering offer and optimization of aircraft layout, aimed at increasing revenues by at least €100 million a year.
KLM also wants to simplify the organization itself to achieve more synergies, get rid of overlap and reduce overheads, such as by reorganizing flight services and training organizations.
CFO Bas Brouns said the measures would contribute to increasing revenues and lowering costs. “This will strengthen our cash position and improve our financial management,” Brouns said. “This will enable us to realize the planned billion-dollar investments in fleet renewal and customer experience improvement. In the coming years, KLM will replace older aircraft with a quieter, cleaner and more fuel-efficient fleet. In doing so, we will also meet the agreements with the government and reduce noise pollution for Schiphol’s local residents.”
The airline is celebrating its 105th birthday this year.