Airlines KLM and Lufthansa to make budget cuts due to coronavirus

AMSTERDAM (Reuters) - KLM, the Dutch arm of Air France KLM <AIRF.PA>, joined Germany's Lufthansa <LHAG.DE> on Wednesday in making budget cuts in response to a slowdown in business resulting from the coronavirus outbreak.

KLM will cut back on hiring new staff and external consultants, delay new IT projects and office refurbishment plans and reduce travel expenses significantly, Chief Financial Officer Erik Swelheim said in an internal letter to management.

"The impact on KLM's revenues will be very significant and will only partly be mitigated by lower costs and a lower fuel price," Swelheim said in reference to the coronavirus.

"We urge you all to reduce your cost levels to a minimum level to ensure safe operations. Only 'must-do' expenditure is allowed."

Staff have been asked to take vacation days to reduce spending, as flight schedules continued to be hurt by reduced air travel.

KLM has shut down routes to China until the end of March and parent company Air France KLM warned that costs could run up to 200 million euros ($217.4 million) by April.

"Given the external challenges, there is a serious risk that the operating margin for 2020 will be again under pressure," Swelheim said in the letter.

The Dutch airline's profit margin dropped from 10% to 7.7% last year, while operating profit fell 22% to 853 million euros.

Germany's largest airline Lufthansa <LHAG.DE> announced a cost savings programme earlier on Wednesday, including a suspension of new recruitment, to counter the business impact of the outbreak.

(Reporting by Anthony Deutsch and Bart Meijer, editing by Louise Heavens and David Evans)