July 26, 2013 8:40 am

Air France-KLM to launch cost-cutting drive

Air France-KLM is to launch a new cost-cutting drive as the airline admitted that its existing programme had not proved enough to turn round its medium-haul and cargo businesses in the face of continued economic weakness.

Alexandre de Juniac, the incoming chief executive, said revenues were below target and a turnround in the two key areas was taking longer than expected, despite Air France-KLM posting its first quarterly profit for five years in the second quarter.

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“As a result further measures will be adopted in both businesses in the autumn to ensure that on completion of our plan, we will have met our cost and debt reduction objectives, paving the way for a return to growth,” he said.

The airline said the “major” measures would include voluntary redundancies as well as “industrial and commercial decisions”, although it gave no further details.

Much of the focus will be on passenger operations at Air France, which has among the highest operating costs among European carriers and which is under severe pressure from low-cost rivals. But Mr de Juniac insisted: “Short and medium haul is not a lost cause.”

Under Jean-Cyril Spinetta, the former chief executive, Air France-KLM adopted a cost-cutting programme, called Transform 2015, aimed at cutting debt and returning the airline to profit after it posted a net loss of €809m in 2011. Air France staff numbers have been reduced by 5,600, or 5.3 per cent, under the plan.

As recently as March, Mr Spinetta told the Financial Times in an interview he was “very optimistic on the final outcome of this restructuring plan”.

But Mr de Juniac said the “difficult economic environment”, including low growth, especially in Europe, and high fuel prices meant further action was needed to meet the Transform 2015 target of reaching earnings before interest, tax, depreciation and amortisation in 2014 of €2.5bn-€3bn and cutting net debt by €2bn to €4.5bn.

He was speaking as the airline announced a return to operating profit in the second quarter, at €79m, after a loss of the same amount in the same period last year. Net losses shrank to €163m from €897m last time. It said it expected an improvement in the second half in line with the first half, implying a profit for the full year.

Revenues were up 1.2 per cent at €6.58bn. Net debt at the end of the first half stood at €5.3bn, down from €5.97bn at the end of last year, with the ratio of net debt to ebitda cut to 3.3 times from 4.3 times.

Operating costs fell 1.2 per cent thanks mainly to a lower fuel bill and a 0.6 per cent decline in employee costs.

The airline said passenger traffic in the second quarter was up 3.2 per cent on a 2.6 per cent increase in capacity, with a marginal increase in load factor to 83.2 per cent. But revenue per available seat kilometre, or Rask, a measure of pricing, was down 1.9 per cent. Passenger revenues were up a shade at €5.16bn.

The cargo business suffered a 5.8 per cent fall in traffic, with a fall in the load factor to 63 per cent. Cargo revenues were down 7.7 per cent at €705m.

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