Air France posts €809m loss

Paris  Air France-KLM Group, Europe's biggest airline, reported a full-year loss as a sluggish economy and high fuel costs crimped earnings and said results for the current six months will show a further deterioration.

The Paris-based company had a net loss of €809 million (Dh3.90 billion) versus a pro-forma €289-million profit in 2010, it said in a statement. Analysts had predicted a loss of €669 million, based on 12 estimates in a Bloomberg survey.

Air France-KLM will lift capacity no more than 2 per cent in each of the next three years, with fleet spending also reined in. Jean-Cyril Spinetta, recalled as chief executive officer in 2011 as a profit slump forced the exit of Pierre-Henri Gourgeon, also froze pay and hiring in January and began productivity talks with unions aimed at delivering an overall €2-billion annual saving he says is needed to secure the long-term future.

Tough year

"2011 was a tough year due to the uncertain operating environment and high fuel price," the CEO said in the statement. "In this context the success of the transformation plan is all the more crucial. All the announced measures are already underway."

Union talks will last until the end of this month, and the company aims to have an agreement in place by the end of June delivering a 20 per cent efficiency improvement at Air France by 2014 and stable payroll costs at KLM, the executive said.

"This goes in the right direction," said Yan Derocles, an Oddo Securities analyst in Paris with a "buy" rating on the shares. "But I don't think it will be sufficient given the current fuel price increase."

Air France-KLM closed 1.6 per cent higher at €4.19 yesterday. The shares gained 5.3 per cent last year, valuing the company at €1.26 billion. The stock has tumbled 64 per cent in the past 12 months, the worst performance in the seven-member Bloomberg EMEA Airlines Index, which has declined 25 per cent.

Outlook

For the current year the economic outlook is uncertain and fuel prices remain at record levels, with the bill likely to increase by €1.1 billion, Air France said, leading to a first-half operating result "well below that of the previous year".

Second-half figures should begin to show the benefits of the savings plan, the carrier said, without making a forecast.

British Airways parent International Consolidated Airlines Group said on February 29 that operating profit doubled to €485 million last year following its formation via a merger of the UK carrier with Spain's Iberia, spurred by demand for business travel on BA's North Atlantic routes.

Deutsche Lufthansa, Europe's No 2, on Wednesday posted a €13 million loss versus net income of €1.1 billion a year earlier. Discontinued operations clipped earnings by €285 million, reflecting a loss at UK unit BMI and valuation effects linked to the division's planned sale to IAG.

Paris (Bloomberg) European airlines have been seeking measures to restore margins, with Air France slashing summer capacity 6.5 per cent on North Atlantic routes in conjunction with partners Delta Air Lines and Alitalia and last week raising €467 million from selling a 7.5 per cent stake in Amadeus IT Holding.

Lufthansa aims to add €1.5 billion to annual earnings by 2014 through a savings plan requiring greater integration of areas including cargo, engineering and catering. It's trimming capacity growth plans for this year to 3 per cent from a planned 9 per cent.

At IAG, Iberia weighed on full-year earnings, posting an operating loss of €61 million versus a €592-million profit at BA.

A new unit, Iberia Express, begins operations on March 25 with the aim of lowering costs for short-haul flights.

The plan prompted strikes by pilots opposed to contract changes.

Air France is introducing a discount of its own in a bid to restore French regional flights to profitability.