KLM expects to post a loss for the full year in the "hundreds of millions of euros".
It blames falling passenger traffic after the September 11 attacks, the company says.
KLM says its profits at the interim stage have fallen 65% to £65.6m from £186.3m in the same period last year.
KLM's chief financial officer, Rob Ruijter,says sales are falling more sharply than it can cut costs. The company hopes to reach short-term code sharing agreements in Europe this month to cut its overheads and is in talks with British Airways.
It will also consider further job cuts if conditions don't improve, he says.
Ruijter dismissed questions about potential bankruptcy, saying KLM is "financially solid" and has reserves that will last for "at least a year."
Sales in the six-month period from April to September fell 3% to £1.15bn from £1.18bn.
The company said it has incurred losses of at least £30.9m in the weeks after the attacks in New York and Washington.
If overall market conditions and passenger traffic continue to drop, KLM said, it will make additional cuts in its service. It has already cut capacity by 15% and laid off 2,500 full time workers, 9% of its worldwide staff of 28,000.