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Air France Keeps 2013 Forecast as Cost Cuts Reduce Loss

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May 3 (Bloomberg) -- Air France-KLM Group reported first-quarter earnings that showed ticket fares rose at about half the rate of Deutsche Lufthansa AG’s, complicating a turnaround as Europe’s largest airline prepares for a management switch.

The amount of revenue generated in proportion to seats on offer rose 1.4 percent, compared with a gain of about 3 percent at Lufthansa, which reported yesterday. Air France dropped as much as 6 percent in Paris, the most in a month.

“The set of results compares a little unfavorably with Lufthansa’s numbers from yesterday,” Deutsche Bank analysts including Michael Kuhn said in a note to investors today.

The earnings indicate that Air France is struggling to raise prices, and the carrier refrained from an earnings outlook, contrasting with Lufthansa’s prediction that operating profit and sales will advance this year. Both companies are engaged in savings plans aimed at cutting costs, a task that will fall to French unit head Alexandre de Juniac, who is taking over when Chief Executive Officer Jean-Cyril Spinetta steps down on July 1, three months before he’s required to quit.

Air France declined as much as 48 cents to 7.52 euros in Paris, and traded at 7.7 euros as of 10:44 a.m. in Paris. The stock had gained 14 percent this year before today. Lufthansa has advanced 8.9 percent this year.

Operating Loss

Air France reported an operating loss of 530 million euros ($692 million) for the first quarter, compared with a year-earlier loss of 611 million euros. The deficit matched the median forecast of analysts in a Bloomberg survey. Sales rose to 5.72 billion euros from 5.65 billion euros.

“In a difficult and uncertain environment, the group continues the implementation of Transform 2015, which remains on track,” the airline said, referring to its cost and debt-cutting program. “It confirms its objectives for 2013 of a reduction in unit cost on a constant currency and fuel prices basis, and a reduction in net debt.”

Spinetta had said in February that he wouldn’t commit to an improvement in earnings this year amid fluctuations in fuel prices and uncertain global economic conditions and world trade. The airline is cutting jobs and has reorganized its main French branch into eight business units as part of a plan to lower net debt to 4.5 billion euros by 2015.

Vague Outlook

Passenger traffic rose 0.8 percent, on a 0.2 percent capacity increase, bringing seat occupancy rates to 82.1 percent. At the cargo unit, average pricing fell 1.9 percent, while the subsidiary managed to trim its loss to 50 million euros from 70 million a year earlier as it cut costs.

“Guidance is vague, and volumes are still very weak,” said Penny Butcher, an analyst at Morgan Stanley, who has a “neutral” rating on the shares.

Air France said employee costs fell 1.7 percent in the quarter, partly on a reduction in headcount. The airline’s fuel bill fell 14 million euros to 1.67 billion euros on a 3 percent decline in volumes. Kerosene costs represent 40 percent of expenses on many routes, Spinetta said in February.

Air France has been seeking to improve performance on short- and medium-haul operations with new products. Since February, the airline has been offering a low-cost option known as Mini on European flights, which cuts fares by 20 euros for fliers willing to travel without checked bags and give up rights to frequent-flier miles.

BI AIRM<GO> for commercial aircraft manufacturers’ dashboard BI AIRL EU<GO> European airline dashboard BI AIRMG INDD<GO> Monthly orders for new aircraft, parked fleet statistics

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

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

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