Air France-KLM Group said its first-quarter loss widened as fuel costs and a drop in freight volumes wiped out benefits from gains in passenger traffic, increasing pressure to secure cost cuts from unions by a June deadline.
The operating loss widened to €597 million from €403 million in the same period a year earlier, Europe’s biggest airline said in a statement today.
“It’s worse than expected,” said Frank Skodzik, an analyst at Commerzbank AG in Frankfurt. “The deviation is mainly coming from a very weak performance in cargo, while the passenger business benefited from tight control of capacity and a better-than-expected rise in prices.”
With the annual fuel bill expected to increase by €1.1 billion and the first-half loss likely to widen from last year's €548 million, talks with unions on delivering €2 billion of cost cuts announced in January are critical to the turnaround, the Paris-based company 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,” it said in the statement.
With the cost of a barrel of crude oil stuck above $100, Air France is struggling to boost margins even after passenger traffic rose 5.5 per cent in the first quarter, lifting the occupancy level 3.1 percentage points to almost 82 per cent and helping to boost group revenue 6 per cent to €5.64 billion.
Cargo traffic slumped 6.1 per cent, with less than 65 per cent of the company's freight capacity being utilised, amid a “persistent weakness of international trade,” it said.
Benefits from implementing the first part of Air France-KLM's 'Transform 2015' savings plan should start to be felt in the second half, the company said today, without giving an earnings estimate for the period.
In January Air France-KLM in January froze pay and hiring to cut costs by €1 billion and is seeking a similar saving via a 20 per cent productivity gain it says is needed to secure the long-term future.
While most French unions have agreed to renegotiate decades-old contract terms, details have yet to be hammered out. Reaching a deal by Air France-KLM's June deadline is a “huge necessity” and won’t be derailed by French presidential elections on May 6th, chief financial officer Philippe Calavia said on a conference call, adding that the carrier must convince any new government of the need for revised terms.
Bloomberg