May 4, 2018 / 5:34 AM / 23 days ago

Air France-KLM reins in profit and growth expectations amidst strikes

BERLIN/PARIS (Reuters) - Air France-KLM (AIRF.PA) 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.

FILE PHOTO - Frederic Gagey, CFO of Air France-KLM Group, Pieter Elbers, President and CEO of KLM, Jean-Marc Janaillac, chief executive officer of Air France-KLM Group, and Franck Terner, CEO of Air France, attend a news conference to announce the airline's 2017 annual results in Paris, France, February 16, 2018. REUTERS/Benoit Tessier

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 euros ($141.4 million), against a restated loss of 33 million euros 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 euros to 60 million euros.

    Overall group unit costs in the quarter rose 2.1 percent, of which 1.7 percent was related to the strikes.

    Air France-KLM said adjusted unit costs would now rise this year by 0-1 percent, against previous expectations for a drop of 1-1.5 percent. Capacity growth will now be 2.5-3.5 percent, 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 euros, although that has been restated to 1.9 billion euros due to IFRS accounting rule changes.

    The company has so far estimated that the strikes have cost it some 300 million euros. Each day of strikes costs about 25-30 million euros 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 percent pay rise over four years, after unions rejected the proposal. The ballot is open until 1600 GMT on Friday.

    ($1 = 0.8344 euros)

    Reporting by Victoria Bryan and Cyril Altmeyer; Editing by Sudip Kar-Gupta

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