Air France-KLM issues third profit warning in six months

Air France-KLM has issued its third profit warning in six months, cutting its 2014 earnings goal by €200 million as higher-than-expected costs from a recent pilot strike added to weaker unit revenues.

The Franco-Dutch airline group trimmed its forecast for earnings before interest, tax, depreciation and amortisation (EBITDA) to €1.5-1.6 billion and said it would step up investment and cost cuts to keep its medium-term goals. “We are still receiving bills from other airlines that carried our passengers during the strike,” finance director Pierre-Francois Riolacci told journalists in a conference call, referring to a two-week pilots’ stoppage in September. These “interline” costs were higher than the group expected. Air France-KLM said it faced continued weakness in unit revenues in several of its long-haul markets.

It also blamed legal changes that had prevented it from showing a predicted reduction in Dutch pension costs in its 2014 earnings, and the way its fuel hedging contracts are structured. “We are hedged on Brent (crude oil), but jet fuel fell less than Brent,” Mr Riolacci said. This widening of the spread between refined kerosene and North Sea crude prevented Air France-KLM from getting the full benefit of a recent sharp decline in oil prices.

Air France-KLM said it would "significantly" step up cost-cutting efforts and scale back investments in 2015-16 in order to keep its latest Perform 2020 transformation plan on track. As a result, it would look at slowing deliveries of about 10 Boeing 777s due in 2015 and 2016, but deliveries of Boeing 787s and Airbus A350s that are due from 2017 would not be affected.

Air France-KLM will "do what it takes" to meet its 2017 debt goals, Mr Riolacci said. Shares in Europe's second largest traditional network carrier behind Lufthansa closed earlier up 4.3 per cent at €8.303, having risen around 5 per cent this year.

Despite the strike, they have so far outperformed the CAC40 blue-chip index, which is down 1 percent so far this year, due to a respectable underlying performance, analysts say. The profit warning comes a week after the International Air Transport Association said global airlines would report their strongest margin in more than five years in 2015, thanks to falling fuel prices and stronger economic growth.

Reuters