Air France-KLM Group and Deutsche Lufthansa AG reported surging third-quarter earnings on declining fuel prices and robust summer traffic. The downside is the growth could undermine efforts to push through restructuring plans with workers.
The gains, while a relief to investors, pose a risk to management moves to win union cooperation for cost-cutting strategies that the carriers are pursuing to counter low-cost competition at home and Middle East rivals on intercontinental routes. Both companies have been hampered by strikes for more than a year as employees protest reorganization measures. Airlines worldwide are poised to report record earnings this year.
“How do we explain to our staff that we need to carry on making big efforts while the group delivers such strong results?” Air France Chief Financial Officer Pierre Riolacci said on a conference call with analysts today. The company “is getting better, but it’s not doing well,” and “that’s what we keep telling our staff.”
Air France, Europe’s biggest airline, delivered its best third-quarter profit numbers in at least a decade on Thursday, while second-ranked German competitor Lufthansa raised its forecast for 2015 after operating profit in the three-month period surged 51 percent.
The French airline’s shares fell as much as 5.4 percent in Paris trading, the steepest decline since Sept. 22, while Lufthansa dropped as much as 6.4 percent in Frankfurt in the sharpest slide in a year, reversing gains earlier in the day for both stocks.
Air France, which posted annual operating losses for the past four years, wants to finish implementing its Transform 2015 restructuring program by January, but is still awaiting agreements from pilots on productivity measures, Riolacci said. Unless pilots reach a deal with the Paris-based company by early 2016, the airline will cut routes, scale back its fleet and firings, he said. At this point, the airline has agreed to limit job cuts to attrition and early retirements. Some 1,000 positions are slated to go in 2016.
Lufthansa’s nine-month operating profit jumped 71 percent, even with the costs of pilots’ strikes early this year plus a two-day walkout in September that was halted by a German court. The Cologne-based company said Thursday that fourth-quarter demand and ticket pricing are eroding, and Chief Executive Officer Carsten Spohr told journalists on a call that he’s seeking employee cooperation to revive growth.
“We now want to discuss with our wage-talk partners how to make our hub airlines able to grow again,” Spohr said. “The businesses haven’t grown since 2011, and they shrank last year. More and more employees do understand that, and they do understand that strikes don’t get us closer to that common goal, but will make us drift further apart.”
Thursday’s earnings and improved outlook only seemed to strengthen labor leaders’ resolve to seek better terms in talks with Lufthansa.
“Management has two more days to make us an offer, and we hope they will look at this quarterly report” as they develop the proposal, Nicoley Baublies, head of the UFO cabin crew union, said in a letter to employees at Lufthansa. “With these numbers, we can prevail against the Ryanairs and Emirates of this world, if Lufthansa will take us along instead of taking away our prospects.”
–With assistance from Brian Lysaght and Kari Lundgren in London.
This article was written by Richard Weiss and Andrea Rothman from Bloomberg and was legally licensed through the NewsCred publisher network.