October 29, 2015 / 6:34 AM / 4 years ago

Air France-KLM reins in cost cut aims, urges unions to talk

An Air France Airbus A319 aircraft takes off at the Charles de Gaulle International Airport in Roissy, near Paris, October 27, 2015. REUTERS/Christian Hartmann

PARIS (Reuters) - Air France-KLM posted a sharper-than-expected increase in third-quarter profits on Thursday, but warned unions that the gains from improved demand over the summer would not remove the “overwhelming need” for cost cuts to keep pace with rivals.

With the year-earlier quarter hit by a pilot strike, the Franco-Dutch airline group turned in operating profit that almost quadrupled to 898 million euros (644 million pounds) on revenues that grew 10.8 percent to 7.415 billion euros.

That compared with average analyst forecasts of 694 million and 7.236 billion respectively.

But after failing to strike a productivity deal in recent stormy negotiations with pilots, Air France-KLM lowered its forecast for unit cost savings in 2015 to 0.5-0.7 percent from 1-1.3 percent and urged unions to resume talks. It continued to predict a 1 billion euro drop in debt in 2015 to 4.4 billion.

After a healthy peak summer season, Finance Director Pierre-Francois Riolacci said that by end-September the group had begun to hold onto some of the benefit from low oil prices that had previously been swallowed by currencies and revenue pressures.

“But this is fragile; it’s something that can’t last, not least because we don’t have enough visibility for the winter season when we see quite significant increases in (industry) capacity on European long-haul, and even more so intra-Europe.”

Lufthansa (LHAG.DE), which also reports on Thursday, and British Airways parent IAG (ICAG.L) have also improved their performance, leaving a gap in competitivity that Air France-KLM’s earnings alone would not be able to fill, he said.

Reporting by Cyril Altmeyer, Tim Hepher; Editing by Andrew Callus

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