Air France-KLM Posts Q3 Loss, To Cut Costs

February 13, 2009

Air France-KLM swung to an expected third-quarter operating loss and abandoned costly fuel price hedges weighing on its finances, boosting its shares on Friday.

Air France-KLM also announced EUR1.2 billion euros of capital spending cuts, half of them in the coming year, and said it would cut summer seat capacity by 2 percent, in a move adopted by many airlines to help shore up profitability.

The losses were expected since Air France-KLM warned last month of a EUR200 million loss in the three months to December 31 as the economic crisis drove the sector deep into the red. A year ago, it posted a profit of EUR311 million.

Air France-KLM said it had reduced its hedged fuel position to 43 percent for its 2009-10 year, and to 20 percent for each of the following two years.

A drop in the value of its fuel hedging positions -- designed to protect the company against oil prices that peaked near USD$150 a barrel in July, compared with USD$47 now -- accounted for EUR288 million of third quarter net losses.

Air France-KLM posted an overall third-quarter net loss of EUR505 million, having made a EUR139 million net profit a year earlier. Revenue was flat at EUR5.97 billion.

The airline reiterated it expected an operating profit for its 2008-09 year ending March 31, but the level would depend on how the economy developed until then, especially in cargo which is facing a bleak environment.

"In the meantime, we will continue to assess all our costs in order to achieve additional savings wherever possible."


The airline denied French media reports it planned to sack some of its 70,000 workers but a spokeswoman said it would continue a "normal process" of trimming staff costs through attrition, by freezing recruitment and leaving vacant posts unfilled.

The group reduced staff numbers by about 2,000 last year.

Air France-KLM is the latest of several airlines to report losses, facing what the International Air Transport Association has forecast to be one of the industry's toughest years and a decline in cargo traffic brought on by a slump in world trade.

Overcapacity and evaporating fuel surcharges put pressure on cargo pricing in the third quarter, driving down unit revenue as freight traffic fell by 12.5 percent, Air France-KLM said.

It said long-haul passenger traffic was "relatively resilient" in the third quarter but robust economy travel failed to make up for a drop in first and business class revenues.

Medium-haul suffered from a poor domestic market. France's economy shrank 1.2 percent in the fourth quarter of 2008.

Air France-KLM has reported a 1.9 percent drop in passenger traffic in January and a drop of more than 20 percent in underlying cargo traffic for a second month.

As a barometer of the way the economy is affecting aviation, industry officials say cargo data could point to further declines in passenger traffic in coming months.

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