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Air France-KLM and British Airways owner IAG SA unveiled plans to lift passenger capacity close to pre-Covid levels, despite widespread concerns regarding the impact of higher living costs on demand. Available seating at London-based IAG is expected to reach around 95% of the 2019 figure in Q1 2023, while its Franco-Dutch rival is targeting 90%, according to statements Friday. IAG CEO Luis Gallego said that the recovery continues to be spurred by a pent-up desire for vacations and visits to friends and family following the coronavirus crisis. The capacity hikes represent a gamble on leisure bookings remaining strong in an increasingly challenging economic environment, with consumer spending pinched by rising inflation and a jump in energy costs. Business travel, vital to network carriers like BA and Air France, is returning more slowly, Gallego said. Investors appeared less confident in the outlook for the firms, with shares of Air France-KLM trading 7.9% lower as of 10:22 a.m. in Paris and IAG priced down 1.3%. Lufthansa, the region’s other main full-service carrier, on Thursday also predicted that the desire to travel will remain strong. The stock traded little changed Friday. IAG, which also owns Iberia of Spain, Ireland’s Aer Lingus and discount specialist Vueling, will lift capacity from 87% of 2019 levels during the current quarter, and Air France-KLM from 85%.<br/>

Air France-KLM Friday cut its capacity forecast and its Dutch arm warned of losses due to prolonged curbs on flights at Amsterdam's Schiphol airport, prompting a major share sell-off. The carrier's shares dropped more than 16% and were set for one of their biggest one-day falls in almost 25 years as investors worried it may miss out on a travel boom spurred by the end of COVID-19 lockdowns. Air France-KLM and British Airways-owner IAG beat earnings expectations for the seasonally strongest Q3 on Friday, while Finland's national carrier Finnair reported its first positive quarter since the pandemic took hold in 2020. But the region's airlines are struggling with staff shortages and labour disputes as cabin crews and pilots demand better working conditions and higher wages to offset inflation. Schiphol, one of Europe's busiest airports, said last month daily passenger numbers would be reduced by around a fifth until at least March 2023 to guarantee the safety of passengers and employees, forcing KLM to limit ticket sales for the coming winter. The Dutch airline, the main carrier at Schiphol, has faced sharp cost increases because of high oil prices, inflation, supply chain shortages and costs associated with rebooking and compensating passengers, it said in a statement.<br/>

Kenya will take over the payment of a $525m US Export-Import Bank loan it guaranteed for Kenya Airways Plc, after the flagship carrier failed to meet its repayment obligations. The East African nation in 2017 guaranteed part of the $841.6m 10-year facility the airline took to purchase seven aircraft and one engine. Kenya Airways halted payments as it ran into financial difficulty exacerbated by the Covid-19 pandemic, which led to the grounding of most global air travel. The airline stopped remittances on the guaranteed and the non-guaranteed portions of the loan, the Treasury said in a report on its website Friday. “Following the default,” according to the report, the cabinet gave approvals to pay the loan arrears “and the loan balance to be novated to government.” Kenya is looking at ways of easing the financial burden from struggling state-owned enterprises, including restructuring their liabilities. Kenya Airways plans to return to profitability in 2024 after overhauling its operations. The repayments shall be recovered through a subsidiary agreement between the government and the airline. Kenya holds a 48.9% stake in the carrier.<br/>

China Southern has cancelled plans for two Boeing 737 MAX flights on Sunday that would have represented the model's return to passenger flying in China after more than three years, according to the airline's website. The 737 MAX was grounded in March 2019 following fatal crashes in Indonesia and Ethiopia but has returned to service around the world with the exception of China and Russia after modifications to the aircraft and pilot training. China Southern had scheduled flights from its Guangzhou hub to Zhengzhou and Wuhan, Reuters reported on Thursday.The airline's website and flight tracking website FlightRadar24 showed the flights had been cancelled. China Southern did not respond immediately to a request for comment. On Wednesday, Boeing said it had another 138 planes manufactured for Chinese carriers that were in the United States waiting to be delivered, though it had begun remarketing the jets to other carriers given there were no concrete signs that Chinese airlines would accept the planes in the near term. Earlier this month, a 737 MAX flight by MIAT Mongolian Airlines landed in Guangzhou, marking the first commercial flight by the model in China since 2019.<br/>