Air France-KLM Core Losses Widen In Q1

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Published: May 4, 2012

Air France-KLM unveiled a wider first-quarter operating loss on Friday as increased passenger traffic failed to compensate for weak international trade and record fuel costs.

Operating losses grew to EUR€597 million (USD$ 784 million) from EUR€403 million a year ago on revenue which grew 6 percent to EUR€5.645 billion. Net losses were flat at EUR€368 million.

“As expected, the first quarter was difficult in spite of an improvement in activity in March,” chief executive Jean-Cyril Spinetta said in a statement.

The Franco-Dutch group warned of wider operating losses in the first half, but maintained its objectives for the full year as a restructuring plan starts to bear fruit in the second half.

Investors had largely written off the prospect of narrower losses in the first quarter as the partially state-owned company continues to negotiate with unions on a restructuring plan. Air France-KLM has said any improvement should come in the second half.

Coming on the last day of campaigning for the French presidential elections, the statement made only sparse reference to the politically sensitive negotiations, which analysts say are crucial to the airline’s future.

Noting that the group’s fuel bill is expected to rise by EUR€1.1 billion this year, it said: “In this context, the group is highly focused on the negotiations underway, the successful outcome of which will enable it to significantly improve its economic efficiency between now and 2014.”

The airline is negotiating the second stage of the Transform 2015 plan which aims to shed EUR€2 billion of debt over three years. French unions fear significant job cuts, while analysts speculate opposition to cuts could harden if Socialist front-runner Francois Hollande defeats President Nicolas Sarkozy.

The group’s strike-prone French network Air France is looking for a 20 percent rise in operating efficiency by 2014.

Group net debt stood at EUR€6.432 billion at end-March, with the ratio to shareholders’ funds increasing to 1.12 from 1.07 at end-2011. It is targeting a maximum EUR€6.5 billion of net debt and lower unit costs at constant fuel prices by year-end.

Lufthansa, which has overtaken Air France-KLM as Europe’s largest airline group by revenue, announced plans on Thursday to cut 3,500 administrative jobs around the world as it tries to offset high fuel costs.

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