Air France-KLM reports third quarter results

The long-haul and medium-haul networks experienced differing trends. Long-haul traffic proved relatively resilient, but saw a decline in premium class revenues which the more robust performance of economy class was insufficient to offset. Medium-haul suffered from a poor performance on the French domestic market in mterms of both traffic and unit revenues.

The cargo activity suffered a sharp decline. The drop in traffic (12.5% in Q3) was accompanied by a significant decline in unit revenues linked to the removal of a considerable proportion of the fuel surcharges as well as general overcapacity in the sector which continued to put pressure on pricing.

Finally fuel hedging policies had a negative impact on the results in an environment of falling oil prices.

Revenues were virtually stable at UEUR5.97 billion for production measured in equivalent available seat kilometers (EASK) up 2.3%. Unit revenue measured in EASK was down 2.0%, and by 1.8% on a constant currency basis. Operating costs were up 8.9% to EUR6.17 billion mainly due to the impact of the higher fuel bill. Excluding the fuel charge they rose just 0.1%. Unit cost measured in EASK was up 7.9%, but declined by 1.2% on a constant currency and fuel price basis, thanks to the effect of the reinforced ‘Challenge 12’ cost-saving plan which led to savings of EUR212 million during the quarter.

The main change in operating costs related to the fuel bill, commercial and distribution and other costs. The fuel bill rose EUR498 million to EUR1.60 billion (+45.3%) under the combined effect of a 1%, decline in volumes, a negative currency effect of 7% and a 39% increase in fuel prices after an unfavourable hedging effect.

The operating result was a loss of EUR194 million versus income of EUR311 million at 31-Dec-07. The net interest charge remained low at EUR33 million (EUR32 million at 31-Dec-07). The sum of ‘Other financial income and charges’ was –388 million euros including a negative currency result of EUR103 million and a negative change in the fair value of hedging instruments of EUR288 million.

Outlook for Full Year 2008-09
The economic environment continues to deteriorate, and the group is taking several new measures to face up to this situation including:
- a reduction in capacity of 2.0% for Summer 2009;
- the unwinding of several of the fuel hedging positions giving a current hedged position of 43% for
2009-10 and 20% for each of the next two years;
- a cut in capital expenditure of EUR.2 billion euros, of which EUR600 million in the coming year.

The target for Financial Year 2008-09 is still of a positive operating result, but its level will depend on economic developments between now and the end of the year, their impact on the passenger activity, and especially on cargo which is facing extremely difficult conditions, as reflected in recent monthly traffic statistics. In the meantime, we will continue to assess all our costs in order to achieve additional savings wherever possible.



(C) Centre for Asia Pacific Aviation. Date posted: 16-Feb-09