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Air France-KLM warns on huge profit slump

Europe’s largest airline, Air France-KLM has issued a stark profit warning, whilst also disclosing that it has dropped into the red for the current financial year.
The aviation giant has said its operating loss is running at around €200m for the past 12 months and warned that the outlook appears similarly bleak for the forthcoming year.Only last month the group said it was on track to remain in operating profit this financial year, which ends this month. And last May it had forecast an operating profit for the year of around €1bn.
Chief Executive Pierre-Henri Gourgeon told a meeting of the Air France-KLM board last night that since the beginning of 2009 the deepening financial crisis has led to a sustained decline in activity and warning on the year ahead.
The news comes in a stark week for the industry. The International Air Transport Association warned that its outlook had deteriorated markedly in the first quarter of 2009, and that it had almost doubled its initial estimate of the sector’s losses for the year to US$4.7 billion.

“The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago,” said Director-General Giovanni Bisignani.
IATA, which represents 230 airlines including British Airways, Cathay Pacific, United Airlines, and Emirates, also raised its estimate of international airline losses in 2008 to $8.5 billion, from its previous $8 billion estimate.
Falling fuel prices are helping to curb even larger losses. With an expected fuel price of US$50 per barrel, the industry’s fuel bill is expected to drop to 25% of operating costs (compared to 32% in 2008 when oil averaged US$99 per barrel).
Mr Bisignani said that there was little to suggest an early end to the downturn but that the market would hit rock-bottom in 2009 before staging a muted recovery in 2010.
IATA’s traffic figures for February proved grim reading. Freight slumped 22 percent compared to the same period last year and passenger volumes were down 10 percent.
The 5.9% reduction in passenger capacity volumes, the most aggressive since the crisis began, could not keep pace with the fall in demand, pushing the February load factor down to 69.9% (3.2 percent below the same month in 2008).
International freight volumes fell for the third consecutive month at more than 20% below previous year levels (-23.2 percent in January and -22.6% percent in December).