22 May 2008

PARIS - Air France-KLM, the world's biggest airline, warned on Thursday that operating profit would fall by about a third in 2008 because of fuel costs, and its shares slumped for a three-day loss of about 16 percent.

As the oil price hovers near a record of 135 dollars a barrel after a surge on Wednesday, the airline reported a sharp rise in operating profit for the last full year.

But it also warned that fuel costs would set it back sharply this year, even though it asserted it was among the world's airlines best placed to cope.

And it said that if fuel prices continued on current trends, they would trigger a restructuring of the airline industry.

The price of shares in the group slumped by 9.65 percent to EUR 16.85, having already fallen by nearly 8.0 percent in the last two days.

Deutsche Bank brokers commented: "The group forecast seems to be a significant reduction from the consensus expectations." Analysts had expected a forecast of EUR 1.2 billion of operating profit in the current year.

Operating profits in the year to March 31 were EUR 1.405 billion, up 13.3 percent on 2006-2007, on sales of EUR 24.1 billion, despite a fourth-quarter operating loss of EUR 46 million.

"The current year is set to be challenging, with the oil price and global economy creating significant uncertainty," chairman Jean-Cyril Spinetta told the Paris-based air carrier's board of directors, a company statement said.

But thanks to "strategic advantages", efficient fuel hedging, rigorous cost control and ongoing post-merger synergies, Air France-KLM will remain "comfortably in profit," he said.

"Under these conditions, and based on an oil price of USD 120 per barrel, our objective is of an operating income in the region of EUR 1 billion."

Air France-KLM said it was strongly placed because it had a 10-year-old strategy of hedging against rises in the cost of fuel.

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