Air France revenue warning

Air France-KLM joined other European airlines in warning of the impact on revenue this year of recent attacks in France and political upheaval elsewhere as it reported a drop in sales and braced for a strike by its staff.

Second-quarter results were issued hours after a priest was killed by Islamist militants in France, adding to a spate of attacks in Europe that has knocked demand for travel and coming on top of the uncertainty created by Britain’s vote to leave the European Union.

“There is clear pressure on France as a destination,” chief financial officer Pierre-Francois Riolacci said, adding travellers from China and Japan in particular were staying away and that lower ticket prices would more than cancel out any savings from lower fuel bills this year.

EasyJet last week said it was unable to give an earnings forecast, while Germany’s Lufthansa warned on profit. Low-cost carriers Ryanair and Wizz Air maintained their targets, but said they will shift capacity away from Britain after its vote to quit the EU.

Mr Riolacci said he expected unit revenues — a measure of pricing — to decline in July and August as a result of the restrained demand and overcapacity across the industry. Unit revenues fell 4.1% in the second quarter when adjusted for currency.

The Air France cabin crew strike is set to cost more than €40m. He said, however, the group had seen unit revenues fall less than rivals because it had been more constrained on the amount of capacity it offers.

Air France-KLM plans to grow capacity 1% this year. Lufthansa last week trimmed its growth plans to 5.4% from 6%.

“Unfortunately, European airlines as a whole have been on a growth binge powered along by lower cost fuel. Binges tend to end badly and we see this one looks to be no exception,” RBC analyst Damian Brewer said.

The Franco-Dutch group is also dealing with more strikes and its two main cabin crew unions called for a week of walkouts, starting yesterday, after talks on renewing a collective labour agreement broke down.

Still, its shares rose slightly yesterday, as lower fuel and cost-cutting efforts led to better than expected results for the second quarter. Shares in the carrier are down 25% this year.

Although revenues fell 5.2% to €6.22bn, earnings before interest, tax, depreciation and amortisation —EBITDA — improved to €728m from €557m last year, beating expectations for €629m. The carrier also maintained financial targets to cut unit costs by around 1% in 2016 and significantly reduce net debt.


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