Terror weighs on Air France traffic

Bloomberg

Air France-KLM Group warned that political and economic uncertainties are weighing on travel demand, with the carrier especially worried about France’s standing as a tourist hotspot after a succession of terrorist attacks that have spanned Paris to the Riviera.
Europe’s largest airline said there is “special concern about France as a destination” amid the IS-inspired killings, even as fuel savings helped second-quarter operating profit surge 77 percent. The shares jumped as much as 5.5 percent.
“If the question is do we see a deteriorating environment, the answer is yes,” Chief Financial Officer Pierre-Francois Riolacci said in a phone briefing. “As the months have gone by we’ve seen a significant drop in demand for inbound travel to Europe, especially France. This pressure is happening in the context of capacity growth that is very high for the summer season.”
Demand for travel from countries including Japan and China is ebbing away as attacks including those that claimed 130 lives in the French capital in November and 84 in Nice this month make global headlines, the company said. In the latest outrage Tuesday, a priest was murdered in a village church. Sluggish growth in markets such as Brazil is also hurting passenger numbers, while Britain’s vote to quit the European Union may prove a further drag.
EXCESS CAPACITY
Air France-KLM said the benefits of cheaper fuel will be “more than offset” in the coming quarters by a fare drop prompted by overcapacity. The company had previously suggested fuel savings would only be “significantly offset.” The change in wording reflects a shift in outlook, Riolacci said. The Paris-based company isn’t providing any earnings guidance for 2016.
The French carrier joined a chorus of other airlines warning about demand shocks during the key summer travel season. Last week, Deutsche Lufthansa AG reversed course on its 2016 forecast, predicting a decline in operating profit instead of a gain, as overseas travelers balk at coming to Europe. EasyJet Plc shied away from a profit forecast as it offered summer fare promotions for the first time ever amid the worst market in 10 years.
British carrier Flybe Group Plc Wednesday cautioned that “consumer uncertainty about Brexit, its economic impact and repeated terrorist incidents” is weighing on the regional carrier’s profits. The airline is “yet to see the full impact” of the depressed demand environment, Chief Executive Officer Saad Hammad, said in a statement.

CABIN STRIKE
In addition to contending the turbulent markets, the French carrier is immersed in a long-running fight with unions. Flight attendants at the Air France unit on Wednesday began a four-day strike in dispute stemming from a wholesale restructuring of the airline to cut costs, while KLM ground crew plans unspecified labor actions on Thursday. A four-day strike by Air France pilots, which was timed to disrupt the Euro 2016 soccer championships in June, wiped 40 million euros from second-quarter earnings.
The walkouts send a message
to CEO Jean-Marc Janaillac, a former bus company head who took over this month pledging “openness and dialog.” The airline’s
new boss doesn’t intend to make any strategic announcements until November.
Riolacci, who plans to leave the company later this year following the exit of his former CEO Alexandre de Juniac, said the strikes are probably contributing to passenger “wariness” about traveling with the Air France unit, though the effect is impossible to quantify.