Air France-KLM Warns on Impact of Terror Attacks

French flag carrier Air France’s headquarters in Roissy, northeast of Paris. ENLARGE
French flag carrier Air France’s headquarters in Roissy, northeast of Paris. Photo: Agence France-Presse/Getty Images

Air France-KLM SA AFLYY -0.17 % said Wednesday the geopolitical and economic uncertainties that are depressing ticket prices would more than wipe out this year’s savings from lower fuel costs.

Air France-KLM, Europe’s largest airline group by traffic, said sales in the second quarter declined to €6.2 billion ($ 6.8 billion). The Paris-based carrier still managed to swing to a net profit for the April through June period.

An almost 30% decline in fuel costs in the period helped deliver a €41 million second quarter profit after a €79 million loss a year earlier.

Shares in the carrier rose 2.9% in Paris. Analysts said the airline group’s €317 million operating profit exceeded their expectations.

But the Franco-Dutch airline group warned the full-year benefit from lower fuel costs to the bottom line are expected to be “more than offset in the coming quarters by downward pressure on unit revenue and negative currency impacts.” The fuel bill for this year is expected to be around €4.6 billion, or €1.6 billion below last year’s total.

“The terrorist attacks that have happened in Europe, but especially in France, are of course hurting France as a destination,” Air France-KLM chief financial officer Pierre-François Riolacci said.

Police in France have shot dead two attackers who took hostages in a church near the city of Rouen. Mark Kelly reports. Image: AFP

France has suffered from a wave of terrorist attacks dating back to last year. A terrorist on July 14 plowed a truck into Bastille Day revelers in Nice killing 84 people. On Tuesday two attackers killed a priest and seriously injured another person in the city of Saint-Etienne-Du-Rouvray. All three attackers were linked to Islamic State.

On Nov. 13 in Paris, attackers killed 130 people in shootings and bomb blasts.

Terrorist attacks typically cause a sharp drop in bookings, which can take months to recover.

Load factor, a measure of seats sold, which in April was ahead of last year by June had fallen behind signaling the challenge to fill planes, Mr. Riolacci said. Forward bookings for July and August were also slow, he said, and could force ticket prices down 10% or more to fill seats.

The carrier is the latest of several European airlines to signal their profit outlook had dimmed in recent weeks. Deutsche Lufthansa AG DLAKY 0.27 % , a week ago, said terrorist attacks had depressed sales and would cause the airline to deliver a lower profit this year. EasyJet ESYJY -3.74 % PLC followed hours later saying the flurry of terrorist attacks were forcing it to heavily discount tickets to fill planes.

Terrorist attacks have only been partly to blame. A number of air-traffic control strikes, principally in France, have forced European airlines to cancel thousands of flights. Britain’s vote last month to exit the European Union has caused regulatory uncertainty and concern that demand would fall. Hours after the vote, British Airways ICAGY -0.53 % ’ parent International Consolidated Airlines Group SA said profit growth this year would be lower than expected.

Air France, the French arm of the Franco-Dutch airline group, also has had to contend with a pilots strike in June. Additionally, some cabin crew are on strike from Wednesday through Aug. 2 in a dispute about employment terms. The cabin crew strike costs are likely to exceed €40 million, Mr. Riolacci said, and reach “several dozen million euros.”

The disruptions have stalled efforts by Air France to push through cost savings measures to become more competitive in the face of strong rivals on both its short- and long-haul routes.

Air France-KLM’s new chief executive Jean-Marc Janaillac, in the job three weeks, said he would seek to “restore trust” with staff. Still, he warned “our competitiveness is insufficient.”

Mr. Janaillac said he plans to unveil his vision for the future of the airline group in early November. That is also when talks with negotiations with pilots over employment conditions, currently on hold, are set to resume.

Air France-KLM said it would review capital expenditure and disposal plans and make adjustments as needed. The airline group stuck to its commitment to deliver €600 million to €1 billion in free operating cash flow after disposals. Net debt also would fall, it said, and nonfuel unit costs would decline 1%.

Write to Robert Wall at [email protected]


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