Air France-KLM Warns Of Full-Year Loss

Air France-KLM on Thursday ditched its forecast for an operating profit in the current financial year as a slump in trade rocks airlines.

Europe's biggest airline said it expected to post an operating loss of around EUR200 million euros (USD$271.5 million) for the 2008/09 financial year which ends March 31.

It said it had been hit by falls in traffic and average revenues and redundant hedges for high oil prices.

Announcing a third-quarter operating loss in February, Air France-KLM had said it expected an operating profit for 2008/09.

But it warned investors at the time that this depended on the economy, especially in the recently weak cargo sector.

Airline body IATA said Thursday international air cargo traffic fell 22.1 percent in February compared with the same month a year ago, echoing two previous months of sharp declines.

But it said the decline in freight -- a key barometer for the economy --- may have found its floor.

"Since the beginning of 2009, the deepening financial crisis has led to a sustained decline in activity," Air France-KLM said, noting IATA had also reported passenger traffic down 5.6 percent and cargo down 23.2 percent in its report for January.

"Air France-KLM's traffic has followed a similar trend, and the initial weeks of March -- traditionally one of the busier months -- show a further decline," it said in a statement.

It highlighted a "significant deterioration" in unit revenues in passenger and cargo sectors, "notably as a result of the decline in business travel and international trade".


Air France-KLM is among airlines that have been hampered during the downturn after locking itself into higher oil prices as a result of previous hedging policies. Oil prices peaked last summer and fell sharply when the economy later turned sour.

It said it also faced a EUR200 million headwind from the fact that fuel bills are based on previous-month prices.

Air France-KLM, which operates twin hubs in Paris and Amsterdam, predicted revenues down 6 percent in constant terms in the year ahead but said its fuel bill should drop 20 percent.

"2009/10 will begin in a context of unprecedented difficulty, with little visibility on how the economy will evolve and on the volatility of factors such as currencies and the oil price," CEO Pierre-Henri Gourgeon said.

Air France-KLM said it would end March and therefore its financial year with around EUR3.5 billion - EUR4.0 billion in cash.

Thursday's update came as Finnish carrier Finnair warned its results would be clearly loss-making in the early part of the year despite efforts to cut capacity.

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