Air France KLM prepares three-pillar action plan to regain profitability

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Published: November 11, 2011

Air France KLM Group reported a net profit of €14 million ($ 19.2 million) for the quarter ended Sept. 30, down 95.2% from net income of €290 million in the year-ago quarter, due mainly to foreign exchange losses and a decline in the fair value of hedging instruments.

Chairman and CEO Jean-Cyril Spinetta said the group’s “insufficient profitability in recent quarters, in an economic environment affected by the weak global demand and high oil prices, shows that we need to go further” despite the “many measures” pursued over the last three years.

AF KLM last month announced a shakeup of its top management, which included the return of Spinetta as group CEO and AF CEO ( ATW Daily News, Oct. 17 ). Spinetta said the new management will focus on three priorities: a “rapid” reduction of the company’s €6.5 billion net debt, additional cost savings, and the restructuring of its short- and medium-haul business. He declined to go into detail and said an action plan will be presented during the first quarter of 2012. 

Operating revenue climbed 2.1% to €6.79 billion in the quarter, while expenses heightened 5.3% to €6.39 billion owing mainly to soaring fuel costs. Excluding fuel, total operating costs rose 2.3% for a 4.9% increase in EASKs (equivalent ASKs, which weighs in both passenger and cargo operations). Operating income fell 31.1% to €397 million. 

The group’s passenger business delivered a positive operating result of €356 million for the quarter on a 2.9% increase in revenue to €5.2 billion. Passenger traffic rose 7.9% on a 6.2% hike in capacity, producing a load factor of 86.1%, up 1.3 point on the year-ago quarter. The cargo business posted an operating loss of €37 million.

For the six months ended Sept. 30, AF KLM Group posted a net loss of €183 million, reversed from a €1.03 billion net profit in the year-ago period when earnings benefitted from a €1.03 billion gain from the sale of part of its holding in Amadeus. Operating profit amounted to €252 million. 

AF KLM Group—which is changing its fiscal year to the calendar year from a year that ended on March 31—warned it expects to report an operating loss in the year’s last quarter, owing to the difficult economic environment exacerbated by volatile currency movements and a high fuel price. It also anticipates reporting an operating loss for the 12 months through Dec. 31. However, for its fiscal year, which comprises the nine months from April to December, it anticipates a positive operating result.

Photo: AF A330-200 tails. Courtesy, Air France

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