UPDATE 1-Air France-KLM in Q1 loss, launches review

* Air France-KLM posts steeper than expected Q1 loss

* Revenues at Europe's largest airline down 21 percent

* Announces review of medium-haul route network

(Adds details)

PARIS - Air France-KLM (AIRF.PA) posted wider than expected fiscal first-quarter losses on Thursday weighed down by unprofitable fuel hedging contracts but predicted some stabilisation in unit revenues if the economy starts to recover.

It also promised a string of measures to shore up profitability including a further cut in cargo capacity, a review of its medium-haul network and continued efforts to tailor its staff headcount to the global aviation crisis.

The Franco-Dutch group said it had swung to an operating loss of 496 million euros ($699.1 million) in the three months to end-June compared with a profit of 217 million a year earlier.

Results were hit by a negative fuel hedging impact of 252 million euros.

The group posted a net loss of 426 million euros, compared with a profit of 149 million in the same period last year.

Europe's largest airline by revenues had already posted a 20.5 percent drop in sales for the quarter which runs from April to June.

That led to predictions of losses for a period that usually generates profits. [ID:nLN422112]

Analysts were on average predicting first-quarter operating losses of 266 million and net losses of 227 million, according to Reuters Estimates.

Air France-KLM said unit revenues fell 3.9 percent in the first quarter.

It said that "if the scenario of a stabilisation in the global economy, followed by a gradual recovery at the end of 2009 is confirmed," unit revenues in the passenger business would deteriorate in the second quarter but at a slower pace.

They would then stabilise in the second half relative to the same period of 2008/09 which was already hit by the crisis.

In cargo, the airline predicted a "continuation of the current trend followed by a progressive stabilisation in the second half".

Air France-KLM had previously predicted lower revenues for the year to end-March 2010 and executives had said it would probably post a full-year loss, without giving specific targets.

Thursday's statement contained no profit forecast.

The airline said it would cut cargo capacity by a further 5 percent in the winter season by grounding four freighters, taking the number grounded since the start of the crisis to 10.

"The group is also undertaking a review of the medium-haul network, both in terms of destinations and products, and the outcome of this process will be implemented at the beginning of 2010," it said.

The medium-haul network typically covers flights to Europe, the Middle East and North Africa.

"At the same time, we continue to adapt our employee headcount to current levels of activity," a statement said.

It did not say whether this would mean an increase in 3,000 job cuts already planned.

Air France-KLM shares closed earlier up 2.8 percent at 9.2070 euros. ($1=.7095 Euro)