KLM announces a reorganization to increase its profits by 450 million euros. per year

KLM announced on Thursday a restructuring plan aimed at increasing its annual profits by around 450 million euros per year. The company said it was studying how to modify the interior of its plane so it could potentially accommodate more passengers in its already full cabins. The plan does not specify layoffs but says outsourcing or divestment may be necessary if labor shortages cannot be resolved.

The Dutch airline said the “firm measures” will include at least seven specific changes aimed at improving results. It stressed that its annual turnover had increased, but that “rising costs of equipment, staff and airport charges” meant it had failed to meet profit targets set by its parent company, Air France-KLM.

Ultimately, the Dutch airline wants to reduce costs while increasing revenue to achieve a profit margin of around 8% over a three-year period starting in 2026. “These measures include increasing productivity, simplifying organization, cost reduction and postponement or postponement. investments,” the airline said.

“Like many other airlines, KLM suffers from high costs and a lack of staff and equipment. Our planes are full, but our capacity is still not back to pre-coronavirus levels,” said Marjan Rintel, CEO of KLM. To achieve its goals and continue to be a good choice for its customers and employees, the airline must make “clear and decisive choices now,” she said. “It is painful for all KLM colleagues, but it is necessary and it must be done now.”

According to CFO Bas Brouns, the cost-cutting measures will improve KLM’s cash flow. “This will allow us to realize the planned billion-dollar investments in fleet renewal,” he said. “In the coming years, KLM will replace older aircraft with a quieter, cleaner and more fuel-efficient fleet. »

KLM is reviewing its aircraft configuration to see if it can be optimized to accommodate more passengers on board. It is also carrying out experiments with “an expanded catering offer”, improving existing products and introducing new ones. The airline wants these measures to increase its revenues by at least 100 million euros per year.

Like many companies in the Netherlands and Europe, KLM is facing a staff shortage and is having great difficulty attracting more employees. The company is therefore considering measures to “simplify the organization, achieve more synergy and eliminate overlaps”. The Dutch airline is studying the possibility of outsourcing certain services. This could also result in “ceding or discontinuing activities that do not directly contribute to flight operations”.

“Our objective is and remains to manage a healthy and forward-looking KLM. We will do everything possible to maintain our network and services for our customers and protect jobs across our business,” Rintel said.

The Dutch airline started the year with a loss of 31 million euros, compared to a profit of 129 million euros in the first half of 2023, despite gross turnover increasing by 400 million euros to 6 billion euros. The KLM group, including its subsidiaries, saw its profits exceed targets, with 260 million euros in profit compared to 3.2 billion euros in turnover. These disappointing figures are a continuation of the difficulties which began to take shape towards the end of last year.

The KLM group’s 2023 profit fell to 650 million euros, compared to 706 million euros a year earlier. And this despite a sharp increase in revenues, from 10.7 billion euros in 2022 to 12.1 billion euros in 2023.

In its 2023 annual report, KLM said maintenance delays meant the airline had access to fewer aircraft during the fourth quarter. Combined with weather-related issues, the airline faced higher costs due to additional aircraft rentals, rebooking changes and passenger compensation.

“Operating profits came under pressure as costs increased while we were still operating below our pre-Covid capacity,” Chief Financial Officer Erik Swelheim said when releasing the annual figures.

The group includes passenger airlines Transavia and KLM Cityhopper, cargo airline Martinair, KLM’s flight school, reservation center Cygnific and various engineering, maintenance, charter, catering and other companies services.