Air France-KLM Reports Second-Quarter Improvement but Maintains Focus on Savings
By James Ruggia
July 30, 2012 11:41 AM
For Air France-KLM, despite a growth in passenger service and revenues, the first half of 2012 still found the company below where it needs to be to recapture lost ground. The company saw a 4.5 percent rise in revenues to 6.5 billion Euros and a decline in fuel costs. Still, Chairman of the Board Jean-Cyril Spinetta said, “As we indicated on the occasion of the first-quarter results, the results for the first half represent deterioration relative to the already-significant losses recorded a year earlier. Even though these second quarter results represent a year-on-year improvement, they remain in negative territory.”
The airline is hoping that a new strategy entitled “Transform 2015” will turn its fortunes around. “In an increasingly uncertain global economic environment compounded by oil price and exchange rate volatility, an improvement in our productivity and costs is even more necessary,” Spinetta said. “Along with the board, I am pleased that the majority of the group’s employees are understanding and supportive of this demanding recovery plan. This demonstrates their spirit of responsibility and commitment to both Air France and KLM.”
Within the Air France-KLM group, Air France submitted collective agreement projects to its three categories of employees. It reached agreement with ground staff and cockpit crews, and the main union, SNPL Air France ALPA, has submitted it to a ballot with a favorable recommendation from its board. The results of this ballot will be known in mid-August. These agreements should enable Air France to reach its target of a 20 percent improvement in economic efficiency in 2014 compared with 2011. Negotiations with Air France subsidiaries are scheduled to begin in September.
Under Transform 2015, operating costs were tightly controlled despite the negative currency effect. They declined by 0.3 percent ex-fuel and rose by 3.2 percent including fuel cost. Unit cost per equivalent available seat kilometer (EASK), rose 3.5 percent, but declined 1.3 percent on a constant currency and fuel price basis for stable production per EASK. The main changes in operating costs related to the fuel bill (+12.8 percent), while distribution and other costs fell sharply (-6 percent and -6.6 percent respectively). The fuel bill increased by 214 million Euros under the combined effects of a 2 percent decline in volume, a negative currency effect of 10 percent and a rise in the price after hedging of 5 percent. Employee costs rose 1.9 percent to 1.97 billion Euros. As in the first quarter, KLM booked an additional pension charge of 22 million Euros due to the changes in actuarial assumptions at Dec. 31, 2011. This favorable trend in operating costs is due to the gradual implementation of Transform 2015.
The operating result amounted to -66 million Euros (-145 million Euros at June 30, 2011). The adjusted operating result was positive, at 15 million Euros. Bookings for the summer season are positively oriented, in line with the recent trend. However the uncertain outlook for the global economic environment together with the volatility of fuel prices and the Euro make forecasts for the latter part of the year difficult.