Air France planes parked at Charles-de-Gaulle airport near Paris, France. Picture: REUTERS
Air France planes parked at Charles-de-Gaulle airport near Paris, France. Picture: REUTERS

Paris — Air France-KLM blamed higher fuel costs and price competition as it posted a deeper first-quarter loss on Friday, sending the airline group’s shares lower.

The Franco-Dutch company reported a 1.9% drop in unit revenue for January to March but said pressure should ease in the rest of the year as rival airlines’ capacity growth slows.

Air France-KLM shares were down 4.4% to €9.78 at 8.13am GMT, after the group said its operating loss widened to €303m from €118m a year earlier.

Fuel costs and excess capacity also led to ballooning losses at Lufthansa, the German airline said this week.

“The first quarter has been challenging for the European airline industry, including the Air France-KLM Group,” CEO Ben Smith said. “Substantial industry capacity growth in the off-peak business period led to unit revenue pressure.”

Smith, who joined last September from Air Canada, is looking to boost efficiency in part through better co-ordination of the Air France and KLM networks and fleets, but his task is complicated by the recent arrival of the Dutch government as a major shareholder keen to preserve KLM’s autonomy.

Air France-KLM said it sees “improving trends” and a “more benign industry supply outlook” — with a slowdown in Gulf carriers’ growth plans — as it reiterated pledges to keep a lid on debt in 2019 while continuing to cut non-fuel costs.

The fuel bill grew by €140m to €1.2bn in the quarter, Air France-KLM said, putting a bigger-than-expected dent in earnings. Its €303m operating loss exceeded the €251m expected by analysts, based on the median of 14 estimates gathered by the company.

The group’s net loss also widened to €320m from €269m, even as group revenue rose 3.1% to €5.99bn, in line with market expectations.

Challenges 

“Offsetting higher fuel costs was always going to be a challenge,” Liberum analysts said in a note, “even without the additional pressure on unit revenues from excessive industry capacity growth.”

Wage costs rose 6.4% as a result of pay increases at both carriers, following protracted Air France strikes last year. Industrial action at Scandinavian rival SAS resulted in a similar pay hike on Thursday.

However, non-fuel costs fell 0.4% overall before currency effects — which pared another €34m off earnings. Forward, long-haul bookings are up for the summer season, the company said, with gains of 1% for May and June.

Transavia, the group’s low-cost operator, saw unit revenue decline 3.5%, as a 7.4% passenger traffic hike failed to keep pace with an 11.4% capacity expansion — partly the result of a later Easter weekend this year. The division’s loss widened to €71m from €58m.

Beyond the financial metrics, CEO Smith hailed what he described as “signs of progress in operational performance at Air France”, as the carrier improves punctuality and overall customer satisfaction scores, narrowing the gap with KLM.

The company also said that Smith will give his first detailed strategy presentation to investors at a capital markets day scheduled for November. 

Reuters