A weaker euro and lower fuel prices helped Air France-KLM return to profit in 2015, offsetting the drop in bookings due to the terrorist attacks in Paris, Group Chief Financial Officer Pierre Francois-Riolacci told CNBC on Thursday.
“I think that people sometimes overestimate the fuel price and the effect in 2015, which was a bit more than 400 million euros, because there was hedging and also there was the euro-dollar rate that of course upset quite a lot of this price decrease. So it surely helped us but at the same time, we had downward pressure on the revenues, with unit revenues being down, excluding forex, significantly, from one year to the other,” Riolacci told CNBC.
Riolacci said the company is expecting a further decrease in their 2016 fuel bill.
“From 2014 to 2015, the fuel bill [decreased] by about 2 billion dollars… [but] in euros, it’s only about 400,000 million,” said Riolacci.
However, “if we knew where the oil prices were going, we would be rich. Our business is not to play on the oil price, our business is to transport passengers and cargo,” Riolacci told CNBC.
Riolacci also said the carrier suffered a big impact from the terrorist attacks in France in January and November 2015, especially from the Japanese market.
“It badly hit our customers, especially in the Japanese market,” said Riolacci. “With the November 13 attacks, we had a second hit. We estimate that the second hit impact was about 1.20 million euros that impacted us somewhere in November/ December… But we believe this impact today has nearly 100 percent faded away.”
“These attacks are not good news for anyone… [but] people are not going to stop living, not going to stop traveling,” said Riolacci.
The CFO told CNBC that the Asian slowdown impacting the airline is not coming from China but rather Japan.
“We had a lower demand in Asian markets but driven by Japan. We cannot notice anything in a slowdown in 2015 coming from China, we have not noticed any significant downward impact coming from China. Japanese tourists are not coming to Europe anymore like they were before,” said Riolacci.
“A year ago we were selling 80 percent of our tickets [from] Japan in Japan, now only 50 percent,” said Riolacci.
The carrier achieved an operating profit of 816 million euros ($909 million), compared with a loss of 129 million in 2014, it said in a statement on Thursday. This beat the average forecast of 544 million in a Reuters poll.
The airline forecast a reduction of between 0.8 percent and 1.2 percent in unit costs, “further significant net debt reduction” and free operating cash flow generation after disposals of between 0.6 billion and 1.0 billion euros in 2016.
Air France-KLM returned to profit in 2015 for the first time in four years, helped by lower fuel costs and higher passenger numbers.
The airline posted a better-than-expected operating profit of €816m (£613m), compared with a €129m loss for 2014.
The results sent shares up more than 10% to €8.22 in late trading in Paris.
However, the company warned that lower ticket prices would erode the benefits of cheaper fuel this year.
“The global context in 2016 remains highly uncertain regarding fuel prices, the continuation of the overcapacity situation on several markets, and the geopolitical and economic context in which we operate,” Air France-KLM said.
Cheaper oil reduced the annual fuel bill by 6.7% to €6.18bn, with a 20% fall in the fourth quarter, although existing hedging contracts limited some of the savings.
The November terror attacks in Paris cut revenue by an estimated €120m in the fourth quarter as tourists stayed away from the French capital.
Despite the attacks, revenue for the three months to 31 December rose 2.2% to €6.3bn.
The airline is cutting labour costs and restructuring its network to compete with fast-growing Gulf airlines and European low-cost carriers.
Air France-KLM lowered net debt by €1.1bn to €4.3bn and pledged to reduce the figure further this year.
Chief executive Alexandre de Juniac said the company continued to negotiate new agreements with staff to improve its competitiveness.
Last year, the airline was embroiled in often bitter talks with staff as it sought to impose its “Perform 2020” growth plan.
In October, six workers were arrested after staff ripped off executives’ shirts in an angry protest over 2,900 planned redundancies.
That figure was later revised down to 1,600 voluntary departures by the end of 2017, union officials said.
Air France-KLM pays 30% of overall revenue in wages, compared with 24% for Lufthansa and about 12% for a budget airline such as Ryanair.
TOULOUSE: Air France-KLM Group announced its first annual operating profit since 2010, beating analyst estimates as fuel costs fell and terrorist attacks in Paris failed to hold back fourth-quarter earnings. It said a pay deal with pilots is still crucial to remain competitive when the oil price rises again.
Shares of Europe’s biggest carrier rose the most in five months after it posted earnings before interest and tax of 816 million euros ($908 million) for 2015, compared with a year- earlier loss of 129 million euros. Analysts had predicted a figure of 706 million euros, the average of 10 estimates.
The company’s main Air France arm is struggling to secure a permanent reduction in staff expenses after efforts to push through a deal last year led to violent protests. Chief Executive Officer Alexandre de Juniac says that without an accord it will be impossible to compete with discount carriers such as easyJet Plc in Europe and fast-growing Gulf rivals on long-haul routes.
“In spite of the favourable environment created by lower fuel prices, we will not reduce our ambition to improve our competitive position while economic and geopolitical uncertainties remain high,” the CEO said on a conference call.
Shares of Air France rose as much as 7.3 per cent to 7.99 euros, the most since Sept. 3, before trading 6.3 per cent higher at 7.92 euros as of 8.12am in Paris. The stock has added 12 per cent this year.
The fuel bill fell 22 per cent on a like-for-like basis compared with 2014, when earnings were also held back by strikes involving cockpit crew that cost it 330 million euros The company reported an operating profit of 150 million euros in the final quarter, beating estimates, despite losing about 120 million euros in revenue after the terror attacks.
Unit costs were reduced by 0.6 per cent in 2015, in line with November guidance, which while below the initial target of 1 to 1.3 per cent still indicates progress, said Yan Derocles, an analyst at Oddo Securities in Paris.
“The results show that in a year of transition they managed to cut unit costs and were able to exercise financial discipline and capacity control,” he said.
Air France-KLM said it expects another operating profit in 2016, without providing a specific target, guidance Derocles said was ‘vague.” The impact of fuel savings will be “significantly offset” by negative currency impacts and downward pressure on unit revenue, a measure of fares, as other airlines add seats, it said.
The CEO said he’ll continue to seek a reduction of between 0.8 per cent and 1.2 per cent in 2016 unit costs, together with a 1.5 per cent average reduction in the 2016 to 2018 period, pushed back from 2015-2017.
Management aims to revive employee talks in coming months, with pilots yet to sign off on final terms for savings agreed under the old Transform plan that expired last year, let alone the Perform 2020 strategy that De Juniac says is key to the company’s future.
The CEO has pledged that in the absence of a breakthrough he’ll pare jobs, planes and weaker routes to shrink the airline to a size where it can be sustainably profitable. He has already announced a reduction of 1,000 posts after the failure of earlier talks.