Air France-klm halves operating loss
AIR France-KLM beat expectations by halving its operating loss in the second quarter as cost-cutting begins to bear fruit, and told unions there was no alternative to restructuring plans now hinging on the support of French pilots.
The Franco-Dutch group, which last week failed to win a key ballot of cabin unions, said operating losses fell in the second quarter to €66m from €145m a year earlier as it managed to squeeze nonfuel costs. Revenue grew 4,5% to €6,5bn.
Shares in the airline, formed from a merger of French and Dutch carriers in 2004, shot up 13% to €4,40 as management stuck to its guns on restructuring and issued forecasts implying smaller than expected losses for the year.
Analysts said the tough stand on restructuring after the cabin crew vote lifted shares, along with forecasts of improved operating profit of at least €195m in the second half.
Some Air France unions say the measures are excessive.
“The ongoing union discussions are critical to a successful turnaround, and to Air France-KLM, but value at current levels based on these result are better than expected,” analysts at Goodbody said.
“These results demonstrate how crucial the success of the Transform 2015 plan is to the turnaround of the group,” chairman and CE Jean-Cyril Spinetta said. Net losses widened to €895m from €197m, hit by a €365m restructuring charge and a drop in the value of the airline’s fuel-hedging contracts.
Snared between low-cost rivals in Europe and Gulf carriers taking chunks of its long-haul premium business, Air France-KLM is urging staff at its strike-prone French network to swap greater efficiency for a pledge to avoid compulsory job cuts. Cabin crew unions last week rejected proposals to cut 5 122 posts through voluntary measures, but Air France-KLM said it still expected to meet its target of boosting productivity 20% between last year and 2014 by imposing savings.
Ground staff have accepted the plan, leaving crucial decisions in the hands of pilots who are due to vote next month.
“What is clear is that we don’t have a choice: the measures we proposed are meant to ensure the sur- vival of the company and its recovery in coming years,” finance director Philippe Calavia told reporters.
“The majority of our colleagues have understood this.”
Air France-KLM, 15% owned by the French government, faces a delicate task pushing through its proposals as the country’s new Socialist government wades into a series of industrial disputes to try to prevent redundancies.
These results demonstrate how crucial the success of the Transform 2015 plan is to the turnaround of the group
Air France-KLM kept investors guessing over a possible code-share arrangement with Abu Dhabi’s Etihad, which announced a similar deal with Irish airline Aer Lingus yesterday. “We are looking at how we can co-operate with Etihad,” Mr Spinetta said. He declined to comment in detail on the talks but told Reuters that any arrangement would not involve exchanging stakes.
Ryanair, Europe’s largest budget carrier, which is bidding for Aer Lingus, disappointed its investors with a slide in second-quarter profits, highlighting the fragile economic backdrop as traditional carriers try to stem losses.
In Dublin, Ryanair shares declined 2% yesterday.
Passenger business has improved and summer bookings are “positively oriented” but cargo suffered from the weak global economy, Air France-KLM said.
The airline’s unit costs declined 1,3% after stripping out currency and fuel prices.
Analysts were on average expecting operating losses of $216m and a net loss of $211m on revenue of $6,45bn, according to Thomson Reuters consensus data. Reuters