Air France-KLM’s $324 Million in Fuel Savings Likely to Offset Coronavirus Outbreak Costs

Despite the coronavirus outbreak causing widespread flight cancellations and a reduction in travel to China and parts of Asia, Air France-KLM Group might emerge with a financial windfall from the crisis thanks to an unexpected drop in the price of jet fuel since the start of the year.

Air France-KLM expects to save around $324 million (€300 million) on its annual bill. At the moment this will more than offset the $162 (€150) to $216 million (€200 million) it is guiding for lost revenue from pulling flights to China.

Of course this could all change and the comparisons are not exact — they cover different time periods — but it illustrates just how central fuel cost is to an airline’s financial performance.

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“It’s clear that if you look at the fuel bill, when we built the budget, the fuel was up and now if you look at the forward curves, the fuel bill is down,” Frédéric Gagey, chief financial officer at Air France-KLM, told analysts on an earnings call on Thursday.

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Labor Relations

One of CEO Benjamin Smith’s key tasks when taking over the top job was to improve relations with the company’s labor force, and he has been pretty successful.

“[We] have been working diligently to embed four new key pillars in our relationship with our employees at every level of the organization. That is trust, respect, transparency and confidentiality. Relationships we have been building with our employees have proven to be fruitful in several ways,” Smith said on the earnings call.

“First, we were able to maintain labor stability during a prolonged period of nationwide industrial action in France concerning pension reforms. Whereas the services of other transportation companies with severely impacted with extensive disruptions and cancellations, for the first time, Air France was able to operate a full schedule during such nationwide disruptions outside of the mandatory measures, we were obliged to take due to industrial action on the part of air traffic controllers.”

That doesn’t mean the problems are over. Air France-KLM’s relationship with its unions continues to cause trouble. On Wednesday, Air France unions called for a strike at domestic airline Hop.

“The demands that we’re getting out of the HOP … they’re not realistic,” Smith said.

Full-Year Results

Air France-KLM reported a 45 percent drop in pre-tax profit to $374 million (€346 million) for the year to the end of December 2019. The fall was down to issues in the cargo division and higher fuel costs. Revenue increased 3.7 percent to $29.4 billion (€27.2 billion) during the period .

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