April 23, 2024

Cost Cuts Helped Air France-KLM Trim Operating Loss in 2012

Air France-KLM, Europe’s third-largest airline by passengers, recorded an operating loss of €300 million, or about $400 million, for 2012, compared with a €353 million loss a year earlier, as efforts to rein in seat capacity led to higher average fares. Revenue for the year rose 5.2 percent to €25.6 billion, while net debt declined to €6 billion from €6.5 billion in 2011.

But one-time expenses associated with a deep restructuring begun last year widened the airline’s net loss to €1.19 billion from €809 million in 2011.

“They have made a good start, but it is an improvement that is still just barely visible,” said Yan Derocles, an analyst at Oddo Securities in Paris.

Air France-KLM unveiled plans last June to shave more than €2 billion in costs, reduce debt and return to profit by the end of 2015. Despite the modest improvements achieved in the plan’s first six months, Jean-Cyril Spinetta, the carrier’s chief executive, stressed Friday in a statement that the company had laid the ground work for a more significant recovery this year.

“In 2013, we will maintain strict discipline in terms of capacity management, investments and costs,” Mr. Spinetta said.

Air France-KLM said passenger traffic rose by 2.1 percent last year, while seat capacity increased by just 0.6 percent. But while revenues per available seat rose by 5.9 percent from a year earlier, cargo revenues continued to slide, falling by 6.3 percent despite a 3.5 percent drop in capacity, as the economic slowdown reduced shipments.

Despite intense pressure from the French government to avoid layoffs, Air France-KLM has moved ahead with plans in 2012 to slash more than 5,100 jobs at its Air France unit by the end of this year — just over 10 percent of its work force of 49,000. Another 1,300 jobs are being eliminated at its smaller KLM unit.

Philippe Calavia, the chief financial officer, said Friday that the company had reduced staff by around 2,000 in 2012 through early retirements and other voluntary departures. Restructuring costs linked to those job cuts amounted to €471 million in 2012.

Labor costs have been a major drain on profit at Air France-KLM for years — equivalent to more than 30 percent of the group’s total revenue and even exceeding its fuel bill, which amounts to around 26 percent. By contrast, labor costs as a share of revenue are less than 10 percent at its low-cost rival, Ryanair, and 12.4 percent at EasyJet, according to the Center for Aviation in Brussels.

Given the uncertain outlook for the European economy this year, Air France-KLM declined to provide a forecast for 2013, although Mr. Calavia maintained the company’s targets of reaching net profit within two years. Analysts said they expected a modest improvement in operating profit this year, although annual restructuring costs were also expected to rise, possibly above €500 million.

Air France-KLM continues to lag behind its larger rival, Lufthansa of Germany, in its efforts to return to profitability. Lufthansa, which announced its own painful restructuring last year that involved 3,500 job cuts, this week reported a net 2012 profit of €990 million, bolstered by asset sales, compared with a loss of €13 million in 2011. The carrier also suspended dividend payments to shareholders in order to make more cash available to finance its turnaround.

Article source: http://www.nytimes.com/2013/02/23/business/global/23iht-airfrance23.html?partner=rss&emc=rss

Air France Fires Its Chief Executive

Mr. Gourgeon, 65, held the chief executive posts of the combined group and of its Air France unit. Alexandre de Juniac, 48, an adviser to the French finance minister, François Baroin, is expected to take the helm of Air France sometime next month, the company said. The appointment of Mr. Juniac, a civil servant who also has worked in the aeronautics industry, is subject to approval by a government ethics committee.

Air France-KLM said its chairman, Jean-Cyril Spinetta, would assume chief executive duties at the parent company until the creation of the new holding company structure. Mr. Spinetta ran Air France for a decade until 2009, with Mr. Gourgeon as his deputy.

Leo Van Wijk, the chief executive of KLM, will become the group’s deputy chief executive. Philippe Calavia will remain as chief financial officer, the company said.

Analysts said the surprise could well signal a major reorganization and a shift in strategy by the airline, which is Europe’s largest by revenue.

“This is a major shock — nothing like this has ever been seen at this company,” said Yan Derocles, an airline industry analyst at Oddo Securities in Paris. “I expect it will be accompanied by significant structural measures.”

The move came after Mr. Gourgeon was re-appointed in July to a new four-year mandate as head of the group holding company, part of a management reorganization that would have seen him give up his dual role at Air France in January. Mr. Gourgeon had personally advocated for Mr. Juniac, who has no previous experience in the airline industry, to succeed him at the French unit.

French media reports said Mr. Gourgeon was informed Friday of the decision to replace him, with some reports suggesting that the move was at the instigation of Mr. Spinetta, his one-time mentor, because of his frustration with the company’s financial performance.

Neither Mr. Gourgeon nor Mr. Spinetta could be reached to comment on the accounts.

Mr. Gourgeon, who trained as a fighter pilot, presided over a troubled two years that included the crash of an Airbus A330 over the mid-Atlantic in June 2009 that killed all 228 people on board. Both Air France and Airbus face accusations of involuntary manslaughter in the case, which is still under investigation.

An interim report by French accident investigators indicated that the pilots of the plane had not received training that could have helped them avert disaster. The airline’s management, which last year ordered a top-down audit of its safety procedures, has rejected criticism of its pilot training program and has asserted instead that a “misleading” pattern of cockpit alarms on the Airbus jet contributed to the crew’s difficulties.

The airline also has struggled more than many of its peers to recover from the economic crisis that followed the collapse of Lehman Brothers in late 2008. For the three months through June it swung to a net loss of €197 million, or about $270 million, from a €736 million profit a year earlier — a result the airline attributed to rising fuel prices and a drop in traffic linked to unrest in the Middle East and the nuclear crisis in Japan. The group has forecast a modest operating profit for 2011, though that is much weaker than the roughly €1 billion that analysts predict for Lufthansa this year and the €600 million for International Airlines Group, the parent company of British Airways and Iberia of Spain.

Analysts said its weak performance made the group particularly vulnerable if the global economy should slip back into a recession. Nonetheless, during a briefing with journalists in September, Mr. Gourgeon said he believed Air France-KLM had emerged from the “violent” 2009 downturn in a healthier position.

Article source: http://feeds.nytimes.com/click.phdo?i=8376609db0996ac83b16d8f637583f98