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Air France Loss Widens On Fuel Costs, Competition

Published on May 13 2019 9:00 AM in General Industry tagged: Trending Posts / Air France-KLM

Air France Loss Widens On Fuel Costs, Competition

Air France-KLM has blamed higher fuel costs and price competition as it posted a deeper first-quarter loss, sending the airline group's shares lower.

The Franco-Dutch company reported a 1.9% drop in unit revenue for January-March, but said pressure should ease in the rest of the year as rival airlines' capacity growth slows.

Air France-KLM said its operating loss widened to €303 million from €118 million a year earlier.

"The first quarter has been challenging for the European airline industry including the Air France-KLM Group. Substantial industry capacity growth in the off-peak business period led to unit revenue pressure," CEO Ben Smith said.

Smith is seeking to boost efficiency in part through better coordination of the Air France and KLM networks and fleets. But his task is complicated by the recent arrival of the Dutch government as a major shareholder keen to preserve KLM's autonomy.

Air France-KLM said it saw "improving trends" and a "more benign industry supply outlook" - with a slowdown in Gulf carriers' growth plans - as it reiterated pledges to keep a lid on debt in 2019 while continuing to cut non-fuel costs.

The fuel bill grew by €140 million to €1.2 billion in the quarter, Air France-KLM said, putting a bigger-than-expected dent in earnings. Its €303 million operating loss exceeded the €251 million expected by analysts, based on the median of 14 estimates gathered by the company.

The group's net loss also widened to €320 million from €269 million, even as group revenue rose 3.1% to €5.99 billion, in line with market expectations.

Challenges

"Offsetting higher fuel costs was always going to be a challenge," Liberum analysts said in a note, "even without the additional pressure on unit revenues from excessive industry capacity growth."

Wage costs rose 6.4% as a result of pay increases, following protracted Air France strikes last year.

But non-fuel costs fell 0.4% overall before currency effects,which pared another €34 million off of earnings. Forward long-haul bookings are up for the summer season, the company said, with gains of 1% for May-June.

Transavia, the group's low-cost operator, saw unit revenue decline 3.5%, as a 7.4% passenger traffic hike failed to keep pace with an 11.4% capacity expansion - partly the result of a later Easter weekend this year. The division's loss widened to €71 million from €58 million.

Beyond the financial metrics, CEO Smith hailed what he described as "signs of progress in operational performance at Air France", as the carrier improved punctuality and overall customer satisfaction scores - narrowing the gap with KLM.

Smith will give his first detailed strategy presentation to investors at a capital markets day scheduled for November, the company also said.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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