KLM traffic falls in March – effects of US economic slowdown

KLM, the Dutch airline, on Thursday became the first European carrier to register the effects of the US economic slowdown when it revealed a fall in traffic in March.

The airline said passenger traffic across all its routes fell 2 per cent last month compared with March 2000, against only a 1 per cent fall in capacity.

Consequently, system load factors, which measure the occupancy rate across the aircraft fleet, fell by 1.3 percentage points last March, the first such drop in a year.

KLM did not isolate the figures for traffic across the North Atlantic but said that load factors to the US “declined under influence of deteriorating economic conditions in the US.” This was off-set to some extent by improved aircraft utilisation rates in Europe, Asia-Pacific and Africa.

KLM, which is the first European airline to report its March traffic data, is more exposed to a downturn than most of its rivals because its small home market makes it more reliant on transfer traffic.

“KLM’s high proportion of transfer traffic increases its exposure to changes in the global supply and demand balance. When things start to go bad KLM tends to get hit first. It is quite a good barometer for the airline industry,” said Mike Powell, airline analyst at Dresdner Kleinwort Wasserstein.

Mr Powell downgraded KLM’s operating profit forecasts for the year ending March 2002 by 27 per cent on Thursday to E305m, compared with a forecast of E284m for the year just ended, on “the back of the growing concerns over this summer’s trading.”

KLM is more reliant on the North Atlantic than most of its rivals, apart from British Airways. The UK airline, which is the largest carrier across the Atlantic, does not report its March traffic data for another two weeks.

Analysts have been closely monitoring European traffic data for the anticipated knock-on effect from the US. The slowdown on the other side of the Atlantic has led to a raft of profit warnings from US carriers.

The effects on valuations has already spread across from Wall Street with European airline stocks underperforming the market by 10 per cent since mid-March.

There is widespread agreement among analysts, however, that with the industry managing the supply and demand balance better than in the past, airlines will not suffer as badly as in previous downturns.

Capacity across the Atlantic this summer will only rise by about 3 per cent, compared with increases of about 8 per cent during the Gulf War and the Asian crisis.

Separately, KLM denied on Thursday that it was holding formal discussions with Alitalia about renewing a wide-reaching alliance that was abandoned early last year.

But informal contacts are continuing and it is expected that KLM’s chief executive, Leo van Wijk, will meet his Italian counterpart, Francesco Mengozzi, soon.

The Dutch airline is becoming increasingly concerned at the overtures Air France is making towards Alitalia about joining the SkyTeam alliance.

KLM said during its abortive merger talks with British Airways last year that it cannot survive without a European partner. A link between Air France and Alitalia would leave KLM looking increasingly isolated.