A picture taken on October 9, 2015 shows the facade of the headquarters of the airline company Air France KLM in Paris. AFP PHOTO / THOMAS SAMSON (Photo credit should read THOMAS SAMSON/AFP/Getty Images)
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Air France-KLM has promised to cut costs and boost passenger capacity this year in an effort to “regain the offensive" in the lucrative long-haul market, as the group reported a 35 per cent increase in full-year earnings.

The Franco-Dutch carrier warned of a highly uncertain micro-environment in 2017 due to the still sluggish economy, political risk over the French and German elections and continuing overcapacity in several core markets.

But the carrier said that unit revenues had been better than expected so far this year and vowed to lift capacity as much as 3.5 per cent in 2017 in long-haul markets, and at the same time reduce unit costs by 1.5 per cent, up from a 1 per cent drop last year.

“In an economic and geopolitical context that remains very uncertain, and faced with aggressive competition, the status quo is not an option,” said Jean-Marc Janaillac, the chief executive, adding that he was “resolutely committed to regaining the offensive”.

The company has for years been under severe pressure from fast-expanding Middle East carriers including Emirates and European budget airlines such as easyJet. It has also suffered a number of costly strikes by Air France pilots.

Mr Janaillac, who took over as chief executive in July, last year announced plans to transform the fortunes of the group, focusing in particularly on improving the profitability of the struggling larger French unit, Air France. 

The chief executive last year said he was aiming to carve a new unit, called Boost, out of Air France to operate lower-cost flights in long and short haul from the Paris Charles de Gaulle hub in an initiative designed to cut costs without inflaming the unions.

At the time, he told the FT that if the company did not change to be more competitive it would “end up like Alitalia”, the Italian flag carrier that ran up losses for years and now has Abu Dhabi’s Etihad Airways as its largest shareholder.

Air France-KLM on Thursday reported a jump in operating profit from €780m in 2015 to €1.05bn in 2016, helped by a lower fuel bill and productivity gains at the Dutch arm KLM, which has been quick to cut costs — unlike its French counterpart.

Profit at the larger Air France arm, however, fell 54 per cent to €372m over the year. The unit was weighed on by a drop in tourism to France following a spate of terrorist attacks as well as two strikes involving pilots and cabin crew.

Pilots have for years been resisting efforts by Air France to restore the company’s profitability through job cuts and pay freezes, objecting as well to proposals to expand the company’s low-cost operations.

Air France pilots carried out a 14-day walkout in 2014 that cost the group nearly €500m and ranked as the worst industrial dispute in its history. Last year saw two strikes, which cost the company €130m.

Mr Janaillac’s plans to set up a low-cost, long-haul flying unit within Air France have some similarities with an initiative by Lufthansa. Eurowings, Lufthansa’s budget airline focused on short-haul routes, last year began flying to long distance destinations including the Caribbean.

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