Air France-KLM plans capacity splurge as discount rivals circle

Bloomberg

Air France-KLM Group said it will accelerate capacity increases despite an uncertain economic climate in order to defend its share of an air-travel market that’s becoming flooded with discount rivals.
The Paris-based carrier will boost seating by up to 4 percent this year in a bid to combat the low-cost challenge, even as fuel expenses jump by a forecast 150 million euros ($188 million), it said in a statement. The stock declined as much as 7.5 percent to the lowest in eight months.
“As we enter 2018 in a context of rising oil prices and even more intense competition, we will go on the offensive,” Chief Executive Officer Jean-Marc Janaillac said. More partnerships are planned to help defend long-haul markets, but the company played down prospects for investing in Italy’s Alitalia SpA.
Air France-KLM is keeping its foot to the pedal after breaking a cycle of losses and labor unrest, helping to propel the stock up more than 160 percent last year. The company faces a heightened challenge as Ryanair Holdings Plc moves to open its first French bases, while long-haul discounters led by Norwegian Air Shuttle ASA are encroaching on trans-Atlantic routes.
Shares of Europe’s largest airline, which cautioned that the “global context remains uncertain,” traded 6.1 percent lower at 10.05 euros as of 1:57 p.m. in Paris. That stock has slid 26 percent this year after the mammoth 2017 advance that led the 29-member Bloomberg World Airlines Index.
Janaillac pledged to keep a close
eye on Ryanair, which said it aims to open at least two bases in France, starting with five aircraft apiece, as a reluctant embrace of unions removes barriers to expanding in a market where companies are required to let workers organise. “We are for competition, but fair competition,” the CEO said, adding that his company will watch “to see they respect the laws.”
Air France-KLM’s planned capacity jump follows a more modest 2.6 percent boost in 2017, encouraged by higher bookings and unit revenue, a measure of fares, in most arenas other than the French domestic market. Seat increases will include inter-continental services, where the British Airways discount arm Level aims to offer Paris-New York flights for 129 euros.