Air France-KLM To Speed Up Cost Cuts

Air France-KLM said it will expand and accelerate its restructuring plans after reporting a net quarterly loss of EUR€79 million.

The carrier said it was on course with EUR€1.8 billion (USD$2 billion) of restructuring already under way, but the cumulative effective of 12 months of revenue pressures had forced it to beef up its plans.

The latest measures include EUR€300 million in administrative cost cuts, of which half had already been identified but not previously announced.

The Franco-Dutch airline group also expects to scale back capacity growth plans for the winter season amid a tough climate in Japan, Brazil and its traditional African oil routes.

The moves came as Air France-KLM reported lower second-quarter operating profit and slipped further into the red with a net quarterly loss of EUR€79 million.

However, the company maintained its objectives for the year, including the key goal of reducing debt.

Chief executive Alexandre de Juniac urged Air France pilots, who staged a lengthy strike last year, to reach a productivity agreement by the end of September and warned that without a deal, the airline would have to take "severe measures" to cut routes in its long-haul network as early as October.

The group has already reached deals with KLM pilots and with staff involved in provincial bases in France, lifting a question mark over their future.

The group reiterated plans to improve unit costs by between 1 and 1.3 percent or EUR€250 million to EUR€300 million over the year as a whole. Unit costs fell 0.5 percent in the second quarter.

It still plans to reduce net debt to EUR€4.4 billion by end-2015. At mid-year, Air France-KLM's debt stood at EUR€4.55 billion, down from EUR€5.41 billion a year earlier.

Including the winter capacity adjustments, the group said it would increase capacity by just 0.6 percent over the year as a whole, compared with 1.1 percent planned in February.

It posted second-quarter core earnings or EBITDA of EUR€569 million. Revenue grew 3 percent to EUR€6.64 billion, but fell 4.5 percent on a comparable basis.

Air France-KLM said the gains from lower fuel prices were being swallowed by the latest pressures on unit revenue and currency swings, forcing it to accelerate cost savings.

Unit revenue per available passenger-km fell 4.8 percent on a like-for-like basis.

Echoing concerns by U.S. airlines about competition from the Gulf, Air France-KLM meanwhile called on the European Commission to negotiate a "balanced" agreement with Gulf states whose airlines have drawn traffic from Western rivals.

He also dismissed what he described as speculation that Abu Dhabi's Etihad could take a stake in Air France-KLM.

Pieter Elbers, head of Dutch wing KLM, dismissed reports that its Martinair unit could be sold to Russia's Air Bridge Cargo.

"We are implementing our plan to reduce the number of freighters and to save as much as we can for bellies (of passenger planes). We are not having any discussions with other parties," he said.