Air France-KLM flew back to its first yearly net profit since 2008, sending its stock price soaring Thursday, after cheaper jet fuel and successive cost-cutting plans finally made its operations more profitable, repoirts The Wall Street Journal.
Air France-KLM’s turnaround came despite difficult labour relations and the terrorist attacks in and around Paris last year which deterred visitors to the French capital.
But it remains a work in progress. Long-haul rivals like British Airways, owned by International Consolidated Airlines Group, and Dubai-based Emirates Airline as well as discount carriers such as Ryanair are much more profitable.
“These results confirm Air France-KLM is now out of the danger zone, but they don’t change our competitive situation compared with our rivals,” Chief Executive Alexandre de Juniac said in an interview with The Wall Street Journal.
Air France-KLM shares were up nearly 9% on Thursday after the airline group said it swung to a net profit of 118 million euros ($132 million) in the 12 months to December 31st from a 225-million-euro net loss the year before. Revenue rose 4.6% to 26.06 billion euros.
A 20% drop in fourth-quarter fuel costs led to 6.7% or 446 million-euro reduction in the annual fuel bill, offsetting a 2.8% rise in staff costs. Jet fuel prices have fallen around 41% in dollar terms in the past year as crude oil prices have tumbled.
Even so, the group’s 3.1% operating profit margin is meager by European standards, contrasting with an 11% margin at IAG in the nine months to end-September and a 26% margin at Ryanair in the nine months to end-December.
Air France-KLM’s performance would have been more robust had it not been for the November terror attacks in Paris and Bamako, Mali in West Africa which cost the group 120 million euros in lost revenue in the fourth quarter.
Restored profitability at Air France-KLM could complicate Mr. de Juniac’s efforts to convince restive unions in France of the need for further belt-tightening. Negotiations between management and unions are continuing over a plan to reduce the airline’s payroll through voluntary departures by April 2017. The company has announced plans to eliminate 1,600 positions for this year.
Mr. de Juniac said the group has to make further economies to allow it invest in new, more efficient and comfortable aircraft. The group’s budget airline Transavia isn’t profitable.
“There is a competitiveness gap we must absolutely close or else we won’t have the means to buy planes, open new lines and take advantage of the market growth,” Mr. de Juniac said.