Air France-KLM struggles: 2Q profit falls on currency, weak unit revenue. Long haul under threat.
All is not well in Air France-KLM. The group has reported another decline in quarterly profits. Its 2Q2015 operating result was down by 2% and insufficient to bring 1H2014 into positive territory after an operating loss in 1Q2015. Currency movements, specifically the weaker EUR versus USD, had the effect of inflating both revenue and costs, but the net impact accounted for the deterioration in the operating result.
Nevertheless, this should not detract from Air France-KLM's very weak unit revenues, which appear immune to attempts at improving the product and may only respond to capacity cuts. Either way, unit cost reduction will remain crucial if the group is to return to a sustainable profit path. Long haul routes in particular are under threat.
The development of its medium haul low cost airline, Transavia, continues to be rapid in France, but the scale and profitability of this operation are weak compared with Europe's leading LCCs. However, the establishment of Transavia Europe, with bases beyond France and the Netherlands, could be back on the agenda after a change in leadership at the French pilot union.
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