In brief: Air France-KLM net benefits fall 16%!

Posted on May 29, 2008 by Matthieu Desiderio

Net benefit falls, but other figures are up!

Air France-KLM, the French-Dutch airline, announced this month a net benefit down 16%, to €748 million over the fiscal year ending March 2008. The company explained that highest petrol prices, and a €530 million provision were the two reasons why net benefit is so low compared to the year before.

Air France-KLM officials gave details about the €530 million provision: apparently, an investigation on an illegal trade agreement to operate air freight activities is in progress and may cost a lot to the company.

Operating benefits grew 13.3% to €1.4 billion, and turnover is up 4.5% to €24.1 billion. Fuel expenses increased 7.4% from the year before to €4.6 billion, and Air France-KLM expects another €1.1 billion increase during FY2008-2009.

Coming years might be a new era for Air France-KLM

Transport Expertise recently published an article about fuel costs and fuels surcharges (see References from the Transport Information Group below). Other airlines, especially in the United States, are taking drastic measures to handle petrol price increases: American Airlines announced it will reduce the numbers of domestic flights it operates, and announced a $15 charge for the first luggage checked-in… Where is the air transport market going?

Air France increases its fuel surcharges

Air France announced on April 22, 2008, that it will increase the fuel surcharge paid with ticket fares. On average, the increase will amount €10 for long-haul flights, €4 for medium-haul flights, and €2 for domestic flights.

This surcharge will allow Air France to cover extra costs due to recent sharp increases in oil prices. It will be reduced by 50% when oil prices will go back durably under $100 per barrel, and Air France guaranteed it will remove the surcharge totally when oil prices will stabilize below $95 a barrel.

Air France will benefit until mid-2008 of fuel costs particularly attractive, because the company took some options on large quantities of fuel when prices were still low. It has been one of the main reasons Air France-KLM Group made spectacular profits during the last couple years.

However, Air France-KLM now has to buy and order fuel at higher/actual prices, and thus needs to apply this higher fuel surcharge to ensure continuous revenue and sufficient margins. Nevertheless, Air France-KLM Group and other European airlines still have a significant advantage against their American competitors: because of a weak dollar against euro, European airlines are quite “protected” from oil price increases… How long will it last?