KLM has launched a cost-reduction plan aimed at saving Dfl1 billion ($528 million) over the next three years. The move comes in the face of the Dutch airline announcing a 57% fall in net profits for 1996 and the resignation of chairman Pieter Bouw. In contrast, European rivals British Airways has reported strong profits for the year.
The Dutch carrier's Focus 2000 restructuring plan resulted in Dfl290 being written down to cover the costs of the programme. Excluding the pre-tax charge, net earnings were Dfl236 million against Dfl547 the previous year. Operating income slumped to Dfl89 million, compared with Dfl453 in 1995 as the carrier was hit by rises in fuel charges and exchange-rate losses. Turnover rose from Dfl9.5 million to Dfl10.4 million in 1996. Passenger load factors rose to their highest ever level of 75.9%. Bouw's departure leaves chief operating officer Leo van Wijk elevated to the post of president to push through cost cutting plans which are getting under way in the wake of schemes being pursued by rivals.
Analysts have been concerned for sometime at the airline's slow response to rising costs. Now van Wijk is tasked with implementing cost-reductions which could see returns on equity rise 8% compared with the current figure of 6%.
Despite the setbacks, the airline predicts that this year will see a significant improvement in earnings as the restructuring plan starts to take affect, fuel prices weaken and economic growth continues.
Bouw leaves KLM after more than six years in the post. An alliance with Northwest Airlines was his major success, although he failed to find a strong European partner to extend KLMs strategy.
The question of alliances also remains top of the agenda at BA. The airline's attempt to get regulatory approval both sides of the Atlantic for a tie-up with American Airlines continues to be dogged by problems. Twenty-four hours after the UK carrier revealed a pre-tax profit rise of 9.4%, to £640 million for the year, the European Commission brought the airline back to earth by re-iterating that its serious objections to the tie-up had still not been addressed.
The airline has identified £600 million ($970 million) of the £1 billion in cost savings it is looking for over the next three years but potentially faces a series of damaging labour disputes as some staff react to the changes . It has set aside £127 million to cover costs of restructuring. Operating profits slipped by £55 million to £673 million in 1996.
The profit figures were helped by £125 million being written back into the profits as the airline reversed a 1995 decision to revalue its stake in US Airways. BA has since sold its entire US Airways holding for $625 million.
Source: Flight International
