ATW Daily News

Air France KLM reports 96% profit plunge

Friday November 21, 2008

Air France KLM reported a 96.2% drop in consolidated net income for its fiscal second quarter ended Sept. 30 to €28 million ($35.4 million) from €736 million earned in the year-ago period.

The net profit was dragged down by a €373 million charge for potential future losses from its fuel and currency hedging programs. Adjusted for nonrecurrent and noncash items (including a €212 million gain from the Amadeus sale last year), net income fell 49.1% to €244 million.

Revenue rose 3.2% to €6.69 billion while operating costs increased 9.2% to €6.29 billion, owing mainly to a 35.3% hike in fuel costs to €1.61 billion. Excluding fuel, the rise would have been 2.3%. Operating income dropped 44.1% to €405 million versus €725 million one year earlier.

Chairman and CEO Jean-Cyril Spinetta said the results were "a good performance in a more difficult environment" and noted that the company's 6% operating margin and solid operating profit were "clearly better" than its major European rivals.

Fiscal first-half net profit fell 82.9% to €196 million on a 4.4% increase in revenue to €12.93 billion. Operating costs increased 9.3% to €12.34 billion owing largely to a 30.1% jump in fuel expenses to €2.97 billion. CASK was up 5.1% to 6.47 euro cents. First-half operating income of €639 million was down 43.9% from €1.14 billion reported in the prior-year period.

"Traffic was positive and unit revenues [were] resilient," Spinetta said. Passenger boardings, including VLM Airlines, rose 1.8% year-over-year to 40.5 million. First-half ASKs lifted 4.5% to 136.44 billion and RPKs heightened 2.8% to 11.59 billion, producing a load factor of 81.6%, down 1.4 points. Yield inched up 0.2% 8.72 euro cents.

Looking ahead, Spinetta said AF KLM's objective is "operating income clearly in profit" for the full year ending March 31. "We are working in an uncertain environment and as we don't have a crystal ball. . .we have to take the necessary measures to counter the difficult trading conditions," he told reporters in Paris. Measures include a downward adjustment of planned growth: Capacity networkwide will rise just 1.7% year-over-year for the winter season and only 1%-2% for the 2009 summer schedule.

He said AF KLM is adapting its cost base to the lower capacity growth and reinforcing and extending the current cost-savings plan to 2012. "Challenge 12" is targeting €2.56 billion in cost savings from 2008 to 2012, including newly revealed additional savings totaling €1.16 billion. In the current financial year, the group is seeking to trim costs by €690 million.

by Cathy Buyck

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