Air France-KLM profit falls after strike outweighs cost cuts

[TOULOUSSE] Air France-KLM Group profit fell almost 15 per cent last year following the longest pilot strike in the airline's history and as overcapacity on routes to Asia, Latin America and Africa weighed on ticket prices.

Earnings before interest, tax, depreciation and amortization, as well as the cost of the strike, fell to 1.59 billion euros (US$1.81 billion) in 2014 from 1.86 billion euros a year earlier, the Paris-based group said in a statement today.

Air France-KLM remains burdened by a cost structure that hurts its ability to compete with rivals. Its French arm, which lost money in 2014 because of the strike, is renewing efforts to slash expenses in order to withstand the march of low-cost airlines in Europe and Gulf carriers in international markets.

"We're working in an environment that is difficult," Chief Executive Officer Alexandre de Juniac said in a presentation to journalists. "Since June, unit revenues have been falling," he said, referring to a measure of fares that dropped 0.6 per cent in the year on a like-for-like basis. For 2015, the outlook is "very, very cautious," Mr De Juniac said.

The earnings figure was in line with analyst estimates in a Bloomberg survey, while full-year sales were little changed at 24.9 billion euros.

The company gave no profit goals, targeting only a unit- cost reduction of one per cent to 1.3 per cent, equivalent to 250 million euros to 350 million euros in savings, as well as net debt of about 5 billion euros by year's end. Debt stood at 5.41 billion euros at the close of 2014.

The French unit alone had a loss of 140 million euros, while Dutch arm KLM lost 126 million euros. Without the strike, Air France would have had a positive result of 273 million euros, the company said, as it benefits from cost cuts that have seen it scrap more than 5,000 jobs since the end of 2011, with plans for the elimination of 800 more announced last month.

The impact of a sudden slump in oil prices towards the end of last year had relatively limited impact for Air France-KLM given its active hedging policy, the company said.

Shares of Air France-KLM shares have slipped 5 per cent so far this year, closing yesterday at 7.59 euros, and have declined 15 per cent over the past 12 months. By comparison, IAG SA, Europe's No 3 airline group and the owner of British Airways, has gained 30 per cent in a year and Germany's Deutsche Lufthansa AG, the No 2, has lost 25 per cent.

BLOOMBERG