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Air France’s profit growth is evidence of the plan’s effectiveness and a sign that there is a way forward for full-service carriers that must now compete with budget operations.
Air France-KLM Group said second-quarter operating profit tripled as it benefited from cost cuts, and announced another five-year plan to drive down expenses as it grapples with slowing demand and overcapacity.
Europe’s largest airline group posted operating profit of 238 million euros ($320 million), up from 84 million euros in the year-earlier period, exceeding the median estimate of seven analysts for 190 million euros. The company left unchanged a full-year earnings forecast that it had trimmed this month.
Air France-KLM has reined in costs via a three-year plan called Transform 2015, and is reviewing the future of its unprofitable cargo business, and its medium- and short-haul European and domestic operations, which are losing passengers to low-cost carriers such as EasyJet Holdings Plc.
“It’s a difficult environment because the economy remains very sluggish,” Air France-KLM Chief Executive Officer Alexandre de Juniac said in a briefing.
The company said today it won’t exit its cargo business, though it will need until September to map out the way forward. Juniac said the airline has reduced its exposure to the freight business by cutting the number of cargo planes in operation. It also showed “restraint” in adding capacity, or passenger seats, on routes where demand risks being outstripped by supply, hurting ticket pricing.
The new plan will be structured around four areas: long- haul; short- and medium-haul operations, cargo, and maintenance.
Earnings before interest, tax, depreciation and amortization will be 2.2 billion euros ($3 billion) to 2.3 billion euros this year, compared with a previous target of as much as 2.5 billion euros, Air France said July 8.
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