AIR FRANCE-KLM Group, Europe’s biggest airline, will shrink its fleet and freeze pay and hiring at the main French unit in a push to restore profitability by shaving €1 billion from costs.
The company has reviewed growth prospects in light of a slowing economy and will rein in capacity growth to just over 5 per cent through 2014, delaying deliveries of jets including an A380 superjumbo and cutting investment from more than €6 billion to less than €5 billion, it said in a statement.
“We have to adjust our capacity for the next few years, whether it’s cargo or passengers,” Air France- KLM chief executive Jean-Cyril Spinetta said yesterday in a press briefing in Paris.
“The offer of transport has outpaced demand in recent years, and that’s weighing on all airlines. And we are penalised by fuel prices that are at record levels.”
The group’s earnings before interest and tax dropped 31 per cent in the three months to September 31st, hurt by high fuel costs and waning growth, prompting the company to predict a full-year loss after previously suggesting it would break even.
Other measures announced yesterday call for a €2 billion debt reduction by the end of 2014 and steps to boost cash flow by a further €1 billion over three years
“They had to do something, because they were losing their competitive position,” said Keith McMullan, managing director of London-based consulting company Aviation Economics.
“But there’s a residual state-control mentality at Air France that prevents it from taking very dramatic action. The pay freeze is probably the best that can be expected under these circumstances.”
Delivery of an Airbus SAS A380 will be delayed from 2014 to 2016, and two A320 narrow-bodies due this year won’t now arrive until 2013-2015, Mr Spinetta said. A Boeing 777 wide-body has also been put back from 2015 to 2016, with two options scrapped.
The delays, which affect only the Air France division, should save about €800 million, he said, adding that the company will still “keep a young fleet compared with our competitors”, with its jets averaging 10 years old. Deliveries of Boeing 787 Dreamliners due from 2016 and Airbus A350s from 2018 are unaffected. – (Bloomberg)