Air France-KLM profit soars on cost cuts

PARIS, Nov 24 (AFP) – Air France-KLM reported Wednesday solid profit gains in line with analysts’ forecasts for its first results incorporating fully the performance of Dutch airline KLM which it now controls.

“Now we are no longer at the strategic objectives stage, we are at the facts stage,” chief executive Jean-Cyril Spinetta told a news conference.

The results released Wednesday “are the first signs that will show if the strategy we defined is valid,” Spinetta said.

The airline, born of a takeover of Dutch KLM by Air France in May that created the world’s biggest airline in terms of sales and the biggest in Europe in terms of traffic, reported net profit rose 41 percent to EUR 201 million (USD 263.5 million) in the second quarter of its 2004-2005 business year.

That compared with EUR 143 million on a comparable basis in the same July-September period in 2003.

Analysts surveyed by AFX, the financial news subsidiary of AFP, had forecast net profit of EUR 149-240 million.

Second-quarter operating profit before aircraft disposals rose to EUR 295 million, up 35 percent from EUR 219 million on a pro forma basis a year earlier, driven by cost cuts.

Investors welcomed the results, pushing the share price 0.78 percent higher to EUR 14.13 in lunchtime trade, while the CAC 40 index was off 0.15 percent at 3,774.29 points.

The company also said it “continues to target” a higher operating profit in the current full year than the pro forma result of EUR 350 million a year earlier.

However, the company recently has talked about a “clearly positive” improvement in the operating result, after previously targeting a “substantial” rise.

The company confirmed a synergies target for the current year of EUR 90-100 million. It also expected synergies over five years to reach EUR 600 million after previously targeting 500 million.

The results are the first to fully consolidate Air France’s acquisition of KLM and analysts had expected them to show the benefit of cost cuts at the Dutch group, as well as a fuel surcharge on tickets, outweighing the effect of higher oil prices.

The company first published consolidated results on September 2, but those first-quarter results took into account only two months of KLM activities.

Fuel costs in the second quarter rose 32.8 percent to EUR 704 million, with hedges saving some 13 percent of the bill.

The company said that high third-quarter oil prices, and futures for the fourth quarter, “will slow down the improvement of the group’s financial performance.”

It said that a further cost-cutting plan would be introduced this year aimed at recouping about EUR 60 million to counter the higher oil prices.

Air France-KLM had already released revenues for the second quarter on November 15, showing a 6.4 percent rise to EUR 5.132 billion, from a pro forma EUR 4.823 billion a year earlier.

Although analysts viewed the results mostly in a positive light, they were also cautious about the company’s outlook.

“These results, in our view, appear quite strong albeit showing some slowing trends in the second quarter primarily related to the slowing unit cost declines,” Morgan Stanley analysts said in a note to clients.

Furthermore, fuel price increases in the third and fourth quarter would slow growth momentum further into the full year to end-March, they said.

UBS analysts said in a note to clients: “We remain cautious on the outlook given high exposure to the competitive transfer/leisure segment and high gearing”.

© AFP