Air France-KLM sees more belt-tightening after strike

Air France-KLM said it would limit investments and accelerate cost controls next year to mop up the remaining impact of a recent pilots' strike that helped slash its operating profit by more than half in the third quarter.

Europe’s second-largest network carrier by revenues said the interim measures were needed to secure a smooth transition between two successive turnaround plans, after the cash-draining strike slowed down its progress towards debt reduction.

Like rival Lufthansa, Air France is trying to expand low-cost operations and reduce costs to compete with low-cost carriers and Gulf carriers.

However, a bitter two-week confrontation last month with pilots over plans to expand low-cost subsidiary Transavia put a dent of €416 million in quarterly revenues and €330 million in its operating result.

The Franco-Dutch group reiterated that the combined effects of the strike and a dip in fourth-quarter demand would remove €500 million from its targeted earnings before interest, tax, depreciation and amortisation (ebitda) for 2014 of €2.2 billion to €2.3 billion.

“Over and above the effects of the strike, we also predict that the market will remain sluggish in the fourth quarter,” finance director Pierre-Francois Riolacci told reporters.

“It is difficult to separate the effect of the market from the direct effect of the strike, but the €500 million (cost estimate) includes these elements,” Riolacci said.

Overall, the group’s revenue fell 6.7 per cent in the third quarter to €6.7 billion, while operating profit declined €394 million to €247 million, the group said.

On a like-for-like basis, revenues rose 0.2 per cent and operating income fell by €18 million, it said.

Unit revenues fell 1.8 per cent in real terms in the third quarter while unit costs fell 1.2 per cent.

Reuters