Air France-KLM reins in profit expectations amid strikes

Air France-KLM said it expected profits to fall this year due to the effect of strikes at its main French unit, which are forcing it to rein in growth and mean it can not take advantage of a generally benign backdrop for airlines.

European airlines are currently enjoying high demand for tickets thanks to robust economies, which has helped to ease the pressure on fares. However, Air France-KLM said on Friday that its first quarter loss had widened to €118 million , against a restated loss of €33 million a year ago.

The results came as Air France staff staged a 13th day of walkouts this year and come hours ahead of a crunch ballot for the group's chief executive, who has said it would be hard for him to stay if staff vote against the pay proposal. "What I regret is that the year started well in commercial terms, demand was there," Chief Financial Officer Frederic Gagey told journalists.

“It’s a great shame, and I think a majority of Air France staff feels this way too, that we are not able to take advantage of this environment.” Reflecting the benign market backdrop, profits at the KLM unit, which typically has a lower cost base and therefore achieves higher profit margins than the Air France business, improved by €32 million to €60 million .

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Overall group unit costs in the quarter rose 2.1 per cent, of which 1.7 per cent was related to the strikes. Air France-KLM said adjusted unit costs would now rise this year by 0-1 per cent, against previous expectations for a drop of 1-1.5 per cent.

Capacity growth will now be 2.5-3.5 per cent, versus previous plans for 3-4 percent growth. Along with those elements, the strikes, rising fuel prices and currency headwinds, operating profit for 2018 would now be notably below 2017’s level, added the company.

Last year, the group made an operating profit of €1.488 billion , although that has been restated to €1.9 billion s due to IFRS accounting rule changes. The company has so far estimated that the strikes have cost it some €300 million . Each day of strikes costs about €25-€30 million and a further four days have been called for May so far. In order to try to bring an end to the dispute, Air France is balloting staff directly over its offer of a 7 per cent pay rise over four years, after unions rejected the proposal. The ballot is open until 4pm on Friday. - Reuters