Air France plans long-haul push after full-year profit boost

Bloomberg

Air France-KLM Group reported a 35 percent earnings increase for 2016 and said it will boost passenger capacity this year in an effort to win back the initiative in the lucrative long-haul market.
Operating profit increased to 1.05 billion euros ($1.1 billion) from 780 million euros in 2015, helped by a lower fuel bill and productivity gains at Dutch arm KLM, Europe’s biggest airline said on Thursday. Analysts had predicted a figure of about 950 million euros, based on eight estimates compiled by Bloomberg.
Chief Executive Officer Jean-Marc Janaillac said in a statement that while political and economic uncertainties are continuing to weigh on fares amid industry overcapacity, the decline in unit revenue slowed to 0.7 percent in January, indicating a “resilient start” to the year. The group will therefore lift capacity as much as 3.5 percent in 2017 “in order to regain the offensive” in long-haul markets and boost performance on medium-distance routes.
The unit-revenue trend and improved forward bookings point to a recovery in demand and pricing, Chief Financial Officer Frederick Gagey said on a conference call, adding that the company is encouraged though “not euphoric.”
Air France-KLM rose as much as 49 cents, or 8.9 percent, to 5.98 euros, and traded at 5.9 euros at 9:10 a.m. in Paris. The stock has gained 15 percent this year after losing 26 percent in the course of 2016.
Profit at the main Air France arm fell 54 percent to 372 million euros, held back by the effects of visitors staying away amid a spate of terror attacks spanning Paris to Nice and two strikes involving pilots and cabin crew opposed to cost cuts proposed by former chief Alexandre de Juniac.

Dutch Lift
KLM, two-thirds the size, boosted its earnings almost 80 percent to 681 million euros, aided by a 4.2 percent productivity improvement, versus 2.3 percent at Air France. The payroll was reduced by 1,850 full time jobs, with 1,400 of those positions going at the French arm. The group cut expenses 1 percent last year, excluding the fuel bill, which fell by 1.5 billion euros or 26 percent, and aims to push savings above 1.5 percent in 2017 at constant currencies and oil costs by “amplifying” current initiatives. The jet-fuel bill should increase by no more than 100 million euros, it said.
Janaillac is aiming to extend some of De Juniac’s less contentious measures while avoiding the industrial strife that cost the company 130 million euros last year. He’s also aiming to carve a new unit, dubbed Boost, out of Air France to operate lower-cost long- and short-haul flights at standard fares from the Paris Charles de Gaulle hub. Pilots have yet to deliver a formal response to the plan, which requires a 1.5 percent pay cut across French operations.
At the same time, the new CEO has placed less emphasis on expanding discount arm Transavia, the source of the bitterest labor clashes under his predecessor. The Paris-based company restated its 2015 results and revised the 2016 figures to exclude the Servair catering arm after selling a 49.99 percent stake in the business to Gategroup Holding AG on Dec. 29.