Third profit warning for Air France-KLM


Air France planes are parked on the tarmac of Charles de Gaulle airport on September 24, 2014 in Roissy, north of Paris, on the 10th day of Air France's pilots strike against the company's plan to develop its low-cost subsidiary. AFP PHOTO / STEPHANE DE SAKUTIN (Photo credit should read STEPHANE DE SAKUTIN/AFP/Getty Images)

Air France-KLM issued its third profit warning of the year, with the Franco-Dutch airline blaming continued price weakness and the worse than expected effects of a two-week pilots’ strike.

The group on Thursday said that earnings before interest, taxes, depreciation and amortisation would be €200m lower than recently forecast, in the latest blow to the embattled flag carrier.

Air France-KLM began the year predicting earnings before interest taxes, depreciation and amortisation of €2.5bn, is now set to gain as little as €1.5bn to €1.6bn.

The group suffered a two-week strike in September which cost it nearly half a billion euros, prompting a downgrading of its earnings forecast. In July the company issued its first warning.

Late on Thursday the company explained that weakness on some long-haul routes since the summer have hurt profits while new financial regulations in the Netherlands are affecting pension costs.

It also said that the cost of the two-week pilots strike was higher than they had imagined, due to the price of flying passengers on other airlines during the period.

The group had previously said that the strike, which was the worst in the history of the airline, cost around €320m to €350m directly in lost revenue with an estimated €150m more as passengers delayed bookings.

The company added on Thursday that it had also seen little benefit from the fall in oil price because it has declined by so much more than the price of jet fuel. AirFrance-KLM was hedged against the oil price, it said.

Following the announcement, the company said it was planning to accelerate its cost-cutting measures and scale back its investment plans in the light of the deteriorating financials.

Alexandre de Juniac, the chief executive of the airline, said: “By significantly stepping up our cost-cutting efforts and adapting the investment plan, Air France-KLM can gain the resources and be well prepared to tackle 2015 despite the difficult competitive environment.”

The company said it was sticking with its long-term Perform 2020 growth plan, however, which includes investing €1bn in Transavia, its low-cost operation, to expand from 47 to 100 aircraft by 2017.

This investment was the reason behind the strike in September, as pilots objected to the setting up of a low-cost wing where pilots were paid less. The unions also feared the relocation of jobs abroad.

Air France agreed to concentrate its development of Transavia exclusively in France as a result of the strike, which otherwise had little long-term impact on the strategy of the group.