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KLM to Cut Jobs as War, Illness Weakens Travel Demand
Tuesday April 1, 10:42 am ET


AMSTERDAM -- KLM Royal Dutch Airlines NV is slashing jobs and flights as travel demand has slumped due to the war in Iraq and the outbreak of the SARS virus in Asia.
The Netherlands' flagship airline said Tuesday that it will cut "several thousand" of its 33,000 staff and reduce capacity by 20% on U.S. and Middle East routes and 5% on its European routes.


The move follows the company's decision last week to cut capacity in response to a downturn in demand since the outbreak of war in Iraq. But Tuesday's initiative is wider reaching.

KLM had resisted cutting staff despite rivals such as British Airways PLC ( BAB) announcing 13,000 job cuts last year. Indeed, last week British Airways accelerated this program in response to the war and a general downturn in demand for air travel. And KLM did temporarily cut staff after the attacks on the U.S. on Sept. 11, 2001, but those workers have since returned to the airline.

Germany's Deutsche Lufthansa AG also said Tuesday it's talking to its cabin crew union about cutting flight attendants' hours and pay in the face of a sharp fall in passenger numbers since the outbreak of war.

"KLM's cost cuts had been on the cards for a long time," said Rabo Securities analyst Erik Vos. "They'd been waiting for the trigger in the form of the war in Iraq and SARS."

KLM said it will look for new ways to cut unit costs by 10% longer term.

One industry analyst, who asked not to be named, wasn't convinced. "The question has to be, is 10% structural reduction enough? And how can they achieve it given the difficulties of persuading their unions that they need to change?

"Also, you don't make a 'structural reduction' based on two relatively temporary phenomena, you do so because of competition from low-cost carriers, for example."

KLM said in addition to cutting jobs, it has a freeze on general recruitment and won't extend temporary contracts. It will also reevaluate all planned investments.

KLM warned earlier this year that it may lose money for the financial year that ended Monday. In the fiscal third quarter, it posted a net loss of 66 million euros ($71.9 million).

In the short term, KLM will focus on reducing costs and maximizing its cash position. But longer term, KLM said the industry as a whole will have to take measures to ensure its long-term survival.