Air France Shows Signs of Recovery on Improved Bookings, Fares

(Bloomberg) -- Air France-KLM Group showed signs of a turnaround, with ticket-price declines almost halted in the first quarter as bookings increased and business-class fares surged.

The positive demand-trend continued into April, and Europe's biggest carrier is also benefiting from an increase in cash flow, reduced costs and a declining fuel bill, it said in a statement Thursday. The advances build on an announcement in February that the group would relax capacity curbs and seek to win back long-haul travelers after full-year earnings rose by more than a third.

“We were among the first to announce that commercial conditions were improving,” Chief Financial Officer Frederic Gagey said on a conference call. “What we indicated then has been confirmed since. We have seen a much less negative evolution of the unit revenues from last year.”

Air France-KLM is only just recovering from the collapse in travel that followed terrorist attacks on cities including Paris and Nice. Its cautiousness is reflected in the fact that it provided no forecast for full-year earnings. After years of labor strife, the company is also pushing ahead with plans to start a lower-cost subsidiary, known as Boost, with a fleet of 28 medium- and long-haul planes.

Air France shares rose 0.2 percent to 7.64 euros at 9:08 a.m. in Paris trading. The stock has surged 47 percent this year, valuing the company at 2.3 billion euros ($2.5 billion).

Lower Costs

Unit revenues, which reflect average fares, rose 4.9 percent in premium classes in the traditionally weak first quarter at constant currencies, while traffic increased 4.2 percent, outstripping capacity gains and boosting seat-occupancy levels to 85 percent. Asian revenues improved and trans-Atlantic bookings were boosted by an easing of the economic situation in Latin America.

Unit costs decreased 1.7 percent in the three months, better than the 1.5 percent reduction forecast for the full year. Cash flow improved by 133 million euros from a year ago. While Air France-KLM's three-month operating loss widened to 143 million euros, the figure was burdened by exchange-rate fluctuations.

Fuel expenses should be “slightly down” over the 12 months, compared with earlier predictions for a 100 million-euro gain. Still, there's a high degree of uncertainty tied to the geopolitical environment, said the Franco-Dutch company.

Air France-KLM said Wednesday that it had submitted proposals for the establishment of the new Boost unit to its pilot representatives. Open for signature until May 31, the plan builds on an outline deal with the SNPL union in February, though Gagey declined to say on the call whether the labor group had backed the final draft.

Chief Executive Officer Jean-Marc Janaillac plans to use Boost and low-cost European unit Transavia to lower expenses as Air France-KLM seeks to better compete with long-haul rivals based in the Persian Gulf and discounters led by Ryanair Holdings Plc closer to home. Clashes over cost cuts led to the exit of his predecessor Alexandre de Juniac last year.

To contact the reporter on this story: Benjamin Katz in London at bkatz38@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Christopher Jasper