Air France Profit Rises as Airline Vows Further Cost Cuts

Air France-KLM Group (AF) said second-quarter operating profit tripled as it benefited from cost cuts, and announced another five-year plan to drive down expenses as it grapples with slowing demand and overcapacity.

Europe’s largest airline group posted operating profit of 238 million euros ($320 million), up from 84 million euros in the year-earlier period, exceeding the median estimate of seven analysts for 190 million euros. The company left unchanged a full-year earnings forecast that it had trimmed this month.

Air France-KLM has reined in costs via a three-year plan called Transform 2015, and is reviewing the future of its unprofitable cargo business, and its medium- and short-haul European and domestic operations, which are losing passengers to low-cost carriers such as EasyJet Holdings Plc.

“It’s a difficult environment because the economy remains very sluggish,” Air France-KLM Chief Executive Officer Alexandre de Juniac said in a briefing.

Air France KLM shares rose as much as 65 cents,, or 7.6 percent, to 9.28 euros in Paris, and traded at 9.02 euros as of 9:04 a.m. The stock has gained 19 percent this year, valuing the company at 2.7 billion euros.

Cargo Options

The company said today it won’t exit its cargo business, though it will need until September to map out the way forward. Juniac said the airline has reduced its exposure to the freight business by cutting the number of cargo planes in operation. It also showed “restraint” in adding capacity, or passenger seats, on routes where demand risks being outstripped by supply, hurting ticket pricing.

“A solid quarter which should reassure investors,” Cantor Fitzgerald analyst Rob Byde wrote in a note to investors. The airline is acting “sensibly” with a decision not to make a major withdrawal from cargo markets, he added.

The new plan will be structured around four areas: long-haul, short- and medium-haul operations, cargo, and maintenance, Air France-KLM said today.

Earnings before interest, tax, depreciation and amortization will be 2.2 billion euros ($3 billion) to 2.3 billion euros this year, compared with a previous target of as much as 2.5 billion euros, Air France said July 8.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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