Air France warns of profits fall on fuel cost
Airline executives forecast bankruptcies, job cuts and increased ticket prices yesterday as Air France-KLM plunged the industry into further gloom with a warning that its profits would fall by a third under the weight of rising fuel costs.
Shares in the Franco-Dutch carrier were marked down 10 per cent to ?16.74 amid fears that its fuel bill would be ?5.7 billion (?4.5 billion) this year, up from ?4.6 billion in 2007.
The warning from the world’s biggest airline by revenue provoked fresh turbulence in a sector already unsettled by Wednesday’s announcement from American Airlines that it would charge passengers to check in luggage in an effort to generate additional revenue. With Qantas, the Australian flag carrier, putting up the cost of international flights by 4 per cent and Japan Airlines also set to raise its fuel surcharge, executives predicted fewer passengers and a bleak outlook for the industry.
Philippe Calavia, Air France-KLM’s chief financial officer, said: “For airlines which are fragile and which don’t have a fuel-hedging policy, we must expect massive restructuring. We expect a big downsizing and there’s a real risk that capacity will contract.”
In a comment that appeared to highlight Air France-KLM’s appetite for further expansion, Mr Calavia said that smaller carriers would be forced to merge with “big global groups” to stave off the threat of bankruptcy.Mr Calavia’s fears were echoed by Finnair, which said profits would slump as its fuel bill rose this year to ?600 million from ?440 million.
Air France-KLM insisted it was better equipped than most of its competitors to handle an 82 per cent rise in the cost of jet fuel over the past 12 months. Mr Calavia said the group had a young and fuel-friendly fleet of aircraft and was covered for 78 per cent of this year’s fuel requirements at a price of less than $80 a barrel as a result of a decade-old hedging strategy.
Operating profit for the 12 months to March rose 13 per cent to ?1.41 billion, but net profit fell 16 per cent to ?748 million after Air France-KLM reported a fourth quarter loss. This followed a ?530 million provision for potential penalties over an antitrust inquiry into the air freight sector.
The carrier predicted a drop in 2008-09 operating profit to about ?1 billion on the basis of a crude oil price of $120 a barrel. That forecast looked optimistic as the price reached $135.
The group said it would fail to meet its target of an 8.5 per cent return on capital by 2009-10 as a result of the cost of fuel. The return for the year to March was 7.1 per cent.
Source: Times Online
Tags: Air France-KLM, airlines, Eu, france, fuel costs