Air France KLM narrows losses, warns of turbulence

Jean-Marc Janaillac

PARIS: Air France-KLM said it cut its losses in the first quarter but passenger traffic to Paris was affected by terror attacks, and it warned of a difficult year ahead as it moved to cut French pilots’ wages.
The Franco-Dutch group enjoyed lower fuel prices but said this was likely to be offset over the rest of the year by pressure on revenue and by the negative impact of currency swings.
Air France-KLM reported a net loss of 155 million euros ($178 million) in the three-month period, which was overshadowed by a deadly attack on Brussels airport. This compared to a loss of 559 million euros in the same period a year earlier.
Revenue edged up 0.4 percent to 5.6 billion euros in the same period.
“The global context in 2016 remains highly uncertain regarding fuel prices, the continuation of the overcapacity situation on several markets and the geopolitical and economic context in which we operate,” Air France-KLM said in a statement.
“As a consequence, the group expects the forecasted savings on the fuel bill to be significantly offset in the coming quarters by unit revenue pressure and negative currency impacts.”
Air France shares dropped sharply in late morning Paris stock exchange trading, falling over 4.8 percent.
“The quality of the results improvement is still very fragile,” said one broker. The smaller loss was entirely due to lower fuel costs, he said, while operating costs were still not under control.
This leaves the group “still in a relatively critical situation” concerning its attempts to improve structural profit margins, he said.
The airline said it was sticking to its forecasts for this year, including cutting unit costs by around 1.0 percent and cutting its net debt — now standing at 4.16 billion euros — significantly
“Despite a difficult environment marked in particular by the Brussels attacks, the upgraded product offer, the commercial efforts and the ongoing network adaptation have enabled the group to limit the unit revenue decline and to retain a substantial part of the fuel savings,” outgoing CEO Alexandre de Juniac said in a statement.
Two suicide bombers struck Brussels airport on March 22, while a third attacker blew himself up at on a metro train. The twin attacks, which killed 32 people, took place four months after an attack on Paris that left 130 people dead.
Air France-KLM finance director Pierre-Francois Riolacci said traffic to Paris had been affected by “terrorist events” — especially that from Japan.
Despite being hard hit by the Paris attacks, Air France-KLM managed last year to post its first annual operating profit since 2008 as it reaped the benefits of cost cutting measures as well as lower fuel prices.
It also posted a net profit of 118 million euros.
The airline group has decided to push forward with cost-cutting efforts as board of directors also authorized Air France to cut the wages of pilots beginning on June 1.
The move follows legal bids by SNPL, the top union among pilots, to block the cuts which were accepted by a majority of pilots as part of a cost savings effort in which ground and cabin crew also accepted reductions.
The pilots will see their night pay rate drop as well as a less-favorable calculation for their ground preparations, which could produce up to 30 million euros in savings per year for the airline.
“There has been no recourse to force,” the airline group’s human resources chief, Gilles Gateau, announced late Tuesday after the board meeting, noting that a local and appeals court had allowed the company to move forward.
The SNPL decried management’s resort to forcing through the cuts, saying it would continue dispute the move in the courts, and it threatened to strike.
Air France management “has started a fire,” said SNPL spokesman Emmanuel Mistrali.
“It would be a mistake to believe that we will not use every means possible, including strikes, to prevent this from happening,” he said.
That could become a costly setback to efforts to improve the company’s finances as a two-week strike by the pilots in September 2014 crippled the airline and cost it 416 million euros in turnover.
Tensions have been running high at the French national airline, where two executives had their shirts ripped off by employees angry at an October announcement it would cut another 2,900 jobs.