Air France Adapt to War

The outbreak of war in Iraq has speeded up the deterioration of market conditions since the beginning of March both in terms of traffic and yield. Under these circumstances, Air France has introduced a series of initial measures as part of its adaptation plan, which will be revised weekly according to new developments in the situation. At this stage, Air France is basing its assumptions on a gradual return to normal conditions, following its experience of the Gulf War in 1991 and the September 11 events.

Air France is keeping a very close watch on all new developments in order to closely adapt its capacity to market conditions. For April, it has decided to reduce its capacity by 7% compared with the initial flight schedule, while maintaining service to all destinations offered to its customers. This adaptation process will be applied selectively according to the situation in each geographic area, and will safeguard the integrity of the network and the efficiency of the Air France hub. Even though traffic on the domestic, Caribbean and Indian Ocean networks remains satisfactory, North American, Asian, Middle East and European routes are suffering considerably from the falling passenger demand.

Air France has decided to limit its capital expenditure for the 2003-04 fiscal year by postponing delivery of seven medium-haul aircraft, due to be delivered next Autumn. Together with the cut in ground investments, net capital expenditure should amount to less than one billion euros in 2003-04. At the same time, Air France will retain its margin of flexibility.

In terms of operating expenses, Air France has relaunched its very stringent cost-cutting programme, implemented immediately after the September 11 events. Savings will be made from the precautionary freeze on new hirings and from the reduction of current expenditure in addition to those on variable costs due to the reduction in capacity.
In view of the deteriorating economic situation caused by the Middle East crisis, Air France is no longer certain of meeting its target of a higher operating income than last year.