Air France-KLM sees more belt-tightening after pilot strike

By Tim Hepher and Matthias Blamont

PARIS (Reuters) – Air France-KLM said it would limit investments and accelerate cost controls next year to mop up the remaining impact of a recent pilots’ strike that helped slash its operating profit by more than half in the third quarter.

Europe’s second-largest network carrier by revenues said the interim measures were needed to secure a smooth transition between two successive turnaround plans, after the cash-draining strike slowed down its progress towards debt reduction.

The Franco-Dutch airline group said on Wednesday its revenue fell 6.7 percent in the third quarter to 6.695 billion euros (5.2 billion pounds), while operating profit fell by 394 million euros to 247 million.

On a like-for-like basis, revenues rose 0.2 percent and operating income fell just 18 million euros, it said.

Air France-KLM meanwhile fine-tuned its estimate for the cost of last month’s bitter two-week confrontation with pilots over its plans to expand low-cost subsidiary Transavia.

It said the strike had put a dent of 416 million euros in quarterly revenues and 330 million euros in its operating result – within a range estimated earlier this month.

“Over and above the effects of the strike, we also predict that the market will remain sluggish in the fourth quarter,” Finance Director Pierre-Francois Riolacci told reporters.

Unit revenues fell 1.8 percent in real terms in the third quarter while unit costs fell 1.2 percent on the same basis.

Unit revenues look set to fall again in the fourth quarter, with the passenger business stable and cargo falling, he said.

The European economy remains lacklustre but the effect on activity from concerns over Ebola remains limited, he added.

The group reiterated that combined effects of the strike and a dip in fourth-quarter demand would remove 500 million euros from its targeted earnings before interest, tax, depreciation and amortisation (EBITDA) for 2014 of 2.2-2.3 billion euros.

“It is difficult to separate the effect of the market from the direct effect of the strike, but the 500 million euros (cost estimate) includes these elements,” Riolacci said.

COST CUTS

While it is too late to claw this back in 2014, Air France-KLM said it planned to adjust investments, accelerate cost cuts and apply “dynamic management” to its asset portfolio from 2015.

However it repeated denials given on Tuesday of Dutch news reports that it was looking at major job cuts in its Dutch arm.

“There are no drastic or emergency measures which need to be declared,” Riolacci said.

“Of course, there has been a strike and the market environment is difficult, so it is quite right to manage things strictly”.

He said the areas to look at in managing assets may include the group’s remaining 4.4 percent stake in reservation systems Amadeus, in which it reduced its shareholding last month.

“Our Amadeus stake immediately springs to mind but the formula is a little wider than that, and we have to look at all the possibilities for action in the current environment,” he said, adding that fleet plans would also be up for discussion.

Asked if Air France might cancel an order for two out of 12 Airbus A380s which it has ordered but which remain undelivered, Riolacci said it had an option to swap them into smaller A350 aircraft but that no decision had been made.

“We still have time and it is a bit early to address this subject, but we have the flexibility to convert,” he said.

The broad goals of Perform 2020, a successor plan to the Transform 2015 restructuring project which is due to be completed soon, would remain unchanged, the airline said.

The results come as airlines face mounting economic and currency cross-winds, tempered by lower oil prices – though few are expected to reap the benefits of cheaper fuel overnight.

Several analysts expect Germany’s Lufthansa to alter its profit outlook due to its own recent pilot strikes when it reports quarterly figures on Thursday.

(Additional reporting by Victoria Bryan; Editing by Miral Fahmy)

Air France-KLM sees more belt-tightening after pilot strike