October 8, 2014 / 6:15 AM / 5 years ago

Air France puts cost of strike, lost demand at 500 million euros

PARIS (Reuters) - Air France-KLM (AIRF.PA) has put the total cost of last month’s two-week pilots strike at up to 500 million euros (393.44 million pounds), enough to wipe more than a fifth off its estimated full-year core profit and sending its shares to a 13-month low.

Air France planes are parked on the tarmac at the Charles de Gaulle International Airport in Roissy, near Paris on the second week of a strike by Air France pilots September 22, 2014. REUTERS/Jacky Naegelen

Europe’s second-biggest network carrier by revenue had already in July revised down its target for 2014 earnings before interest, tax, depreciation and amortisation (EBITDA) from 2.5 billion euros to between 2.2 and 2.3 billion.

At the time, it mainly cited overcapacity on long-haul routes and weak cargo demand. The strike, combined with a warning note on forward demand, have added to its woes.

The Franco-Dutch group said on Wednesday total passenger traffic fell 15.9 percent in September compared with the year before, adding that bookings for the fourth quarter were down by between 1 and 2 percentage points.

The 500 million euro strike cost estimate included a direct impact of between 320 million euros and 350 million, reflecting lower receipts and the purchase of tickets for customers on rival airlines, with costs partly offset by savings on fuel and other costs. The remainder was down to the delay in bookings.

Chief Financial Officer Pierre-Francois Riolacci told reporters the airline had sold some 28 percent of capacity for the fourth quarter, compared with 30 percent normally at this stage of the year.

“The group estimates that part of this delay could be progressively reduced over the coming weeks,” the carrier said in a statement, adding it was difficult to exactly quantify the adjustment given the exceptional nature of the event.

Shares in the Franco-Dutch airline group, which had lost 22 percent since the strike began in mid-September, fell more than 5 percent to touch a low of 6.26 euros, their lowest since September last year. They closed down 2.5 percent.


U.S. securities firm Jefferies said the 500 million euro hit to 2014 gross earnings was worse than expected and highlighted concerns over the dip in forward bookings, even though it was too early to say how much of this was due to the strike and how much to the general state of the economy.

France, the euro zone’s second-biggest economy, posted zero growth in the first two quarters of the year, while statistics office INSEE last week predicted growth of just 0.1 percent for both the third and fourth quarters.

Pilots ended the airline’s longest strike since 1998 in late September after managers agreed to drop plans to set up a new European arm for low-cost unit Transavia. Air France plans to press ahead with the expansion of Transavia France.

Air France-KLM said that for the winter season, its capacity would grow by 0.7 percent, including 0.1 percent for the passenger business at its two main brands, Air France and KLM, as well as regional carrier Hop, and 13.3 percent for Transavia.

In a sign of continued tensions in the aftermath of the dispute, Air France said it had been forced to cancel a meeting with unions on Tuesday to present its plans for Transavia due to the absence of unions representing a minority of staff.

The Alter union, which represents a minority of pilots, said it had not been invited and urged Air France to inform all the company’s labour organisations about its plans for Transavia.

“Whilst pilots have returned to work, for now, there has not been a clear resolution, and uncertainty (regarding) the Transavia strategy prevails,” Jefferies analysts said in a note.

Air France pilots are seeking the right for future pilots to be recruited on the same conditions as those currently working for the main airline, a point on which management says it will not give way.

Abu Dhabi’s Etihad Airways, which is expanding its global reach with acquisitions of stakes in other airlines, meanwhile said it had hired Air France veteran Bruno Matheu as chief operating officer for these overseas partners.

Additional reporting by Tim Hepher; Editing by James Regan and David Holmes

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