Air France-KLM Predicts Tough Times for Air Travel

Air France-KLM predicts tough times for air travel

PARIS, May 23 (Xinhua) — The world’s leading airline group Air France-KLM is projecting a sharp decline in its operating profits mainly owing to the specter of high oil prices and the economic downturn in the United States.

“The operating profits are expected to reach around 1 billion euros (about 1.6 billion U.S. dollars) in 2008-2009,” the company said in a press statement published in Paris Thursday.

“Our goal is to be among world airlines that are performing better despites the economic hardships associated with the high oil prices,” Air France-KLM chief financial officer Philippe Calavia said, adding that the group had posted an operating profit of 1.4 billion euros during the fiscal year 2007-2008.

In 2002, only three global carriers had recorded positive results including the Australia’s Qantas, Singapore Airlines and Air France- KLM, said Calavia, who was addressing a press briefing held by the company at its Paris headquarters.

“Air France-KLM feels that it is better placed to handle the situation better than most of its competitors because of its oil hedging policy,” said the financial officer, referring to a measure that allows the company to buy oil futures in large quantities to avoid disruption caused by price increases.

“Coupled with the fact that the company’s fleet is particularly young, particularly in the long-haul domain, the policy means that the company is able to overcome the current crunch by consuming less fuel,” according to a Paris-based air transport expert.

“For 2008/2009 fiscal year, the fuel needs of Air France-KLM are covered at 78 percent of the current price of an oil barrel, meaning that the price is somewhere between 70 and 80 dollars,” said Calavia, noting the actual barrel price was around 135 dollars.

“If the oil situation remains as it has been in recent weeks, air transport is going to change profoundly. Measures such as transferring the cost of fuel to the customers will put pressure on demand and will therefore lead to a decrease in capacity,” said the Air France-KLM official.

According to Calavia, companies, which have structural advantages, including Air France-KLM, will be able to weather the storm, but many players will be forced to reduce their activities. “One might think that the fuel issue is going to trigger some sort of restructuring within the aviation sector,” he said.

Commenting on the future of Alitalia, which the Franco-Dutch group declined to buy recently owing to great social and political resistance in Italy and economic hardships, Calavia responded in general terms, nevertheless implying that such a “hypothesis could not be ruled out in the case of the Italian carrier.”

“The airlines that have not implemented the fuel hedge policy should be braced for a massive restructuring… There will be need for these companies to join hands with large groups in the world,” said the Air-France-KLM executive.

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