AIR France-KLM reported a bigger-than-expected drop in its quarterly operating result on Thursday (Nov 7), impacted by the Paris Olympic Games and higher unit costs.
The French-Dutch airline group’s shares slumped 10 per cent by 0924 GMT, after it also said costs for the full year would be higher than previously projected.
It expects its unit cost – the average cost of flying an aircraft seat one mile – to grow by around 3 per cent in 2024, instead of the previously forecast 2 per cent, after it rose 3.4 per cent in the third quarter and with worsened expectations for the fourth.
“This is mainly related to higher staff and maintenance cost at KLM and lower capacity planned,” Bernstein analysts said in a note.
The group’s Dutch arm in October said it would cut costs and postpone investments to lift profits, as the industry faces rising equipment costs, staff shortages and higher airport fees.
“At KLM, persistent cost challenges spiked higher than anticipated, putting pressure on parts of its business model and reinforcing the need for more concrete structural improvements,” CEO Benjamin Smith said in a statement.
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Air France-KLM’s operating result fell by 162 million euros to 1.18 billion euros (S$1.7 billion) compared to last year, missing the 1.24 billion euros expected by analysts on average.
It said that excluding a unit revenue impact of 160 million euros from the Paris Olympic Games, the operating result was equivalent to that of last year.
“Beyond their financial implications, the Olympic Games provided a unique platform to demonstrate the Group’s operational expertise and capabilities while offering unparalleled visibility for France as a destination,” Smith said.
The negative impact of the Olympics was due to international tourists’ avoidance of Paris while travel between the city and other destinations was also below the summer average as residents in France postponed their holidays, the company said.
Quarterly revenue still rose by 3.7 per cent to 8.98 billion euros, driven by increased capacity and strong underlying demand.
While demand has remained stable, maintenance costs, adverse weather, air traffic control issues and disruption in the Middle East have continued to weigh on airlines.
Air France-KLM estimates its 2024 net capital expenditure to be around three billion euros, after previously expecting it to come below that. REUTERS
