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Air France-KLM 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” macroenvironment 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 percent in 2017 in long-haul markets while at the same time reduce unit costs by 1.5 per cent, up from a 1 per cent drop last year.

Jean-Marc Janaillac, Air France-KLM chief executive, said:

In an economic and geopolitical context that remains very uncertain, and faced with aggressive competition, the status quo is not an option.

Mr Janaillac added that he was “resolutely committed to regaining the offensive”.

Mr Janaillac, who took over as chief executive in July, last year announced plans to try 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, dubbed 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 powerful unions.

At the time he told the FT that if the company did not change 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 fell 54 per cent to €372m over the year, however, weighed on by a drop in tourism to France following a spate of terrorists attacks spanning Paris to Nice as well as two strikes involving pilots and cabin crew opposed to cost cuts by the previous chief executive.

Copyright The Financial Times Limited 2017. All rights reserved.
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