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Air France-KLM hits the skids

  • Yields falling, unit costs rising rapidly;
  • Outlook difficult to forecast given market volatility.

Air France-KLM has delivered further capacity and job cuts, as anticipated, as it unveiled a heavy operating loss in the third quarter, due to weak premium demand, a slump in cargo traffic and a poor performance in the domestic market. Air France-KLM's third quarter EUR194 million operating loss compared to a year-earlier profit of EUR311 million.

Air France-KLM operating profit margin: Q1FY08 to Q3FY09

The carrier aims to cut up to 1,200 more jobs through natural attrition, as its unit costs continue to rise amid a soft yield environment.

Air France-KLM Yield per RPK growth and unit cost per ASK growth: Q1FY08 to Q3FY09

On a constant currency basis, unit costs per ASK have however been relatively flat.

Air France-KLM unit cost per ASK growth vs unit cost per ASK growth (on a constant currency and fuel price basis): Q1FY08 to Q3FY09

Revenue dips in third quarter

Revenue growth turned negative in the latest quarter, despite increases in passenger numbers, reflecting the increasing pressure to discount fares in the current environment to maintain load factors.

Air France-KLM revenue growth and passenger numbers growth: Q1FY08 to Q3FY09

The carrier is still facing difficulties forecasting the outlook in the present volatile economic, fuel price and currency conditions.

Air France-KLM aims to report an operating profit for the full year ending 31-Mar-09, but the size would "depend on economic developments, their impact on the passenger activity, and especially on cargo which is facing extremely difficult conditions".

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