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Overcapacity dents Air France outlook

Tuesday, July 08, 2014 - 02:15

Europe's aviation sector takes another knock as Air France warns profits this year will be much lower - following hard on the heels of a similar warning from Lufthansa. Can the industry deal with its overcapacity problem? David Pollard reports.

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The Airbus A380 super jumbo. The mighty king of the Air France fleet, it can fly at 500 miles an hour to destinations 8,000 miles away. With over 500 passengers. And that's the airline's problem. Overcapacity on long-haul routes means it's struggling to fill those seats. And there's only weak demand for its cargo services. As a result, profits will be down this year - by as much as 12 percent. Shares in Air France fell over five percent on the news. Others in the sector, like BA and Iberia parent IAG, also took a battering. Adding to a sense of unease in European markets over the recent rally in stock prices. William De Vijlder, CIO, BNP Paribas Investment Partners. SOUNDBITE (English) William De Vijlder, CIO, BNP Paribas Investment Partners, saying: ''The historical experience is that when European cyclical environment accelerates, that margins also grow. That, by the way, must make us very much attentive to the recent softness that we have seen in some data in the euro area, because if that would be confirmed in future data coming out, then of course the picture of earnings are going to power ahead and are going to push at the market, that base scenario would have to be revisited. So yeah, we're in kind of a tricky situation.'' It's the second high-profile profits warning from European aviation over recent weeks. Lufthansa saw nearly two billion dollars knocked off its market value when it, too, warned of overcapacity. That coming after a series of crippling strikes. The pressure is on new CEO Carsten Spohr to come up with new strategies when he makes a company statement this week. Including, it's expected, an 'if you can't beat them', join them' plan - for tie ups with state-owned airlines in the Gulf it's previously accused of distorting the market. For its part, Air France says it will follow on from a recent round of jobs cuts with a programme to get rid of 700 cabin crew posts. There's talk it may sell all or part of its Martinair cargo division. And despite the profit warning, it says it's on track to reduce its net debt to four and half billion euros next year.

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Overcapacity dents Air France outlook

Tuesday, July 08, 2014 - 02:15