Air France-KLM sees tough 2012 as fuel costs soar

Monday, 12 March 2012 00:00 - - {{hitsCtrl.values.hits}}

PARIS (Reuters): Franco-Dutch airline Air France-KLM last week warned that a soaring fuel bill would hit profits this year after it swung to a loss in 2011 and scrapped its dividend.

With fuel costs expected to increase by 1.1 billion euros ($1.44 billion) in 2012, Air France-KLM said operating profit in the first half of the year would be below that of the year-earlier period.

“The economic outlook remains uncertain while the fuel price remains at a record level in euros,” the company said.

But results in the second half of 2012 should benefit from the first effects of its three-year turnaround plan, it added, without giving a specific forecast.

Air France-KLM pledged in January to cut debt by 2 billion euros by the end of 2014 and said it would shrink its fleet by shedding more than a billion euros from a planned expansion project.

Air France-KLM’s European rivals are also feeling the pinch from higher fuel costs and the effects of the euro zone debt crisis on passenger and cargo demand.

British Airways owner IAG said last week underperforming Spanish unit Iberia and high fuel costs would dent earnings this year, though it reported a forecast-beating rise in 2011 profit.

Irish airline Aer Lingus warned profit would fall this year due to higher fuel costs, while Finnish national carrier Finnair last month reported a bigger-than-expected quarterly loss due to higher fuel costs and a weaker economy.

German rival Deutsche Lufthansa posted a surprise full-year loss on Wednesday, though it attributed this to a larger-than-expected charge on the sale of its British Midland unit to IAG.

As part of its transformation plan, Air France-KLM, in which the French government holds 15.84 percent, has scaled down plans to grow capacity by 2014 in an effort to improve the demand per available seat, a method of pushing up average revenue.

It is also deferring deliveries of several Airbus and Boeing aircraft.

Air France-KLM posted an operating loss of 353 million euros for 2011, compared with a profit of 28 million euros in the previous year, reflecting a 904 million euro hike in its fuel bill, the airline said.

No dividend will be paid for 2011, it said.

“2011 was a tough year for the group, due to the uncertain operating environment and the high fuel price,” Chief Executive Jean-Cyril Spinetta said in a statement.

Oddo analysts said the loss was in line with its forecasts.

Spinetta was recalled as chief executive in addition to his chairman role last November, following months of underperformance at the airline compared with rivals.

Spinetta said all the restructuring plan’s measures were underway, including a wage freeze for 2012 and 2013.