Bloomberg News

Air France Scraps Earnings Goal, Putting 2,800 Jobs at Risk (1)

September 18, 2013

Air France-KLM Group (AF) scrapped a plan to break even at its main French unit this year, prompting management to deepen job cuts and retire planes to pare costs.

The stock fell as much as 4.4 percent after the Paris-based company said today that a reduction in capacity will leave it with 2,800 excess posts in France as more European flights move to discount arm Transavia. The airline, which is still seeking a group profit, indicated in July the positions might go.

Chief Executive Officer Alexandre de Juniac is extending cuts initiated during the economic slump after pledging to revive short- and medium-haul passenger operations squeezed by discount operators led by EasyJet Plc. (EZJ) In the long-distance market, Europe’s biggest airline will phase out Boeing Co. (BA:US) 747 passenger jets and freighters to cope with weak demand and competition from Gulf rivals including Dubai-based Emirates.

“We had to add other measures,” de Juniac, who took over in July, said on a conference call, adding that tough economic conditions meant Air France was no longer on course to save 2 billion euros ($2.6 billion) by 2015 as previously envisaged.

Final Phase

Air France-KLM traded 4.2 percent lower at 6.80 euros as of 3:49 p.m. in Paris after earlier sliding to 6.77 euros, leaving it 2.4 percent lower for the year to date. Deutsche Lufthansa AG (LHA), Europe’s second-biggest airline, has lost 3.8 percent, and No. 3 International Consolidated Airlines Group SA (IAG), parent of British Airways and Spain’s Iberia, is up almost 74 percent.

The latest restructuring will mark the final phase in the Transform 2015 plan, and make the company competitive with Lufthansa and IAG, Air France unit CEO Frederic Gagey told reporters. Earlier measures generated a 100 million-euro gain in operating profit in the first half, the carrier said.

While the Air France division’s intercontinental network will be enhanced by more fuel efficient Airbus SAS A350 and Boeing 787 jets due from 2017, deliveries of some Airbus A380 superjumbos may need to be adjusted, Gagey said.

Unprofitable routes, particularly those connecting secondary cities in France, will be closed, and some freight activities will be outsourced, the airline said.

The Air France unit is now headed for its sixth straight annual loss, according to the statement. At group level, the carrier continues to predict an operating profit, which prior to today had been estimated at 200 million euros, according to a Bloomberg survey of 15 analysts.

The outlook revision comes after Dublin-based Ryanair Holdings Plc (RYA), Europe’s biggest discount carrier, said on Sept. 4 it may miss its annual profit target, with Irish rival Aer Lingus Group Plc also cutting its profit forecast on Sept. 13.

To contact the reporters on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net; Robert Wall in London at rwall6@bloomberg.net

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


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