Air France-KLM and Iberia See Sharp Decline in Profits

The major European airlines, Air France-KLM and Iberia, reported big drops in earnings Tuesday as the airlines struggled with an economic slowdown and high fuel prices.

Soaring fuel costs have forced airlines to raise prices and cut flights even though the impact of rising costs has been mitigated by a weak dollar.

Airlines around the globe are struggling to stay profitable with the price of oil up about 60 percent during the past year. Many airlines have shed jobs and are scrapping routes, while the weakest carriers face the threat of bankruptcy and others are merging or forming partnerships to lower costs.

The French-Dutch airline, the world’s biggest carrier by revenue, posted a 59 percent drop in first-quarter net profit to euro 168 million, or $262 million, beating analysts’ average forecast of euro 145 million. Sales rose 5.8 percent to euro 6.29 billion.

Air France-KLM confirmed its full-year objective of operating income of euro 1 billion.

The Spanish airline Iberia, which is in talks to merge with British Airways, posted a 72 percent fall in net profit to euro 20.7 million in the first half of the year. Iberia sales were euro 1.37 billion, unmoved from a year ago.

British Airways said its traffic fell 3.5 percent in July, led by a slump in economy passengers.

The Iberia chairman, Fernando Conte, also said that Iberia plans to be part of a planned trans-Atlantic partnership with British Airways and AMR’s American Airlines. Conte said the group would file for U.S. antitrust approval in the next several weeks for the venture.

“We are just finishing the papers for the request that will be presented, almost for sure, next week. We view positively the reaction of the U.S. government,” he told a conference call.

The Air France-KLM deputy chief executive, Pierre-Henri Gourgeon, welcomed the move. “In this business there are too many players, and when things turn bad it becomes a suicidal race. BA-Iberia link up, that means one less player,” he said during a conference call.

Meanwhile, the troubled Italian carrier Alitalia on Tuesday postponed a board meeting to approve its first-half results until Aug. 29.

Air France’s results “really look good, and the outlook has been confirmed,” said Bruno de la Rochebrochart, an analyst at Raymond James. “Beyond the results, the fall in the price of oil is supporting the whole sector.”

Air France said it would seek an additional euro 190 million in cost savings to take the total for the 2009 financial year to euro 620 million as it wrestles with a fuel bill that is expected to rise to euro 5.86 billion.

Originally published by Reuters.

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