Skift Take

Competition is tough in Europe at the moment and Air France-KLM's losses don't look good. But it's traditionally a weak quarter for airlines so things should get better during spring and summer.

It’s been a tough winter period for some of Europe’s biggest airline groups, with extra seats flooding into market causing problems in the seasonally weak first quarter of the year.

Air France-KLM saw its net loss widen 20 percent to $357 million (€320 million) for the quarter until the end of March, a similar story to what happened at Lufthansa and Finnair.

Revenue increased 3.1 percent to $6.7 billion (€6 billion), but costs also rose with the fuel bill up 13.2 percent to $1.3 billion (€1.2 billion).

“As anticipated, the first quarter has been challenging for the European airline industry including the Air France-KLM Group, as substantial industry capacity growth in the off-peak business period led to unit revenue pressure,” said CEO Benjamin Smith.

Like its rival airlines, Air France-KLM will be hoping that it can turn things around in the spring and summer quarters to come, and Smith expects a more “benign industry supply outlook for the summer.”

France Versus the Netherlands

Although the Dutch arm of the business continued to outperform the French side, the results were much closer as KLM actually experienced the greater drop in earnings. This was partly because Air France suffered from the impact of strikes across its network in the first quarter of 2018.

Air France’s operating loss increased 44 percent to $285 million (€256 million) but KLM’s dropped $129 million (€116 million), pushing it to a loss of $62 million (€56 million).

Tensions between the two sides have continued to simmer in recent months after the Dutch government bought a 12.7 percent stake in the airline group, putting it almost on a par with the French government, which owns 14.3 percent.

The group will announce at its annual general meeting at the end of May whether the composition of the board will change following the stake acquisition.

“For the day-to-day business of the company it doesn’t change a lot, the way we are working. I think that Ben Smith, Anne Rigail [Air France CEO], and Pieter Elbers [KLM CEO] are totally concentrated and focused to the management of the company and that’s it,” said Frédéric Gagey, chief financial officer, on an earnings call on Friday.

Jet Airways Loss

In 2017, Air France-KLM and Jet Airways signed a “landmark ‘Enhanced Cooperation Agreement,” with the two sides hoping it would enhance “the partnership built between the three airlines since 2014.”

But with the Jet Airways fleet grounded pending a takeover, it’s “not good news” for Air France-KLM.

Gagey estimated a one-off financial hit of between $11.2–$16.7 million (€10–€15 million) and potentially around $22.3 million (€20 million) per year and said that Air France-KLM would work to “find another way to continue to increase our presence to the Indian market and also to offer to Indian passengers a good connection to the U.S.”

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Tags: air france, air france-klm, europe, jet airways, klm

Photo credit: An Air France aircraft. The parent company made an increased loss in Q1. Olivier CABARET / Flickr

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