August 1, 2018 / 5:15 AM / a year ago

Air France pledges unit-revenue gain despite strike fallout

PARIS, Aug 1 (Reuters) - Air France-KLM got a break from a strong second-quarter sales performance to beat profit expectations dampened by strikes that have so far cost the airline group 335 million euros ($392 million) and one chief executive.

The company, still hunting for a new CEO three months after Jean-Marc Janaillac’s surprise resignation over a pay stand-off with unions, also announced an upgrade to cooperation with Air Europa as it forges ahead with new and deeper partnerships.

It posted a 345 million-euro recurring operating profit on an upbeat 1.7 percent improvement in unit revenue at constant exchange rates, a key measure of airline proceeds in relation to capacity, that the Franco-Dutch group had predicted would be flat. It now expects an increase for the full year 2018.

“The environment was better than we expected,” Chief Financial Officer Frederic Gagey told reporters, citing strong medium-haul demand through the group’s Paris and Amsterdam airport hubs.

Long-haul bookings for the next four months are ahead of their year-ago level, Air France-KLM said.

The operating result, down 41 percent year-on-year largely because of the industrial action, nonetheless beat analyst expectations of 252 million euros, based on the company’s own consensus survey of 13 named financial institutions.

Lufthansa also raised its unit-revenue outlook on Tuesday as the German airline benefits from the demise of domestic rival Air Berlin.

Air France’s short-haul business got a similar competitive boost from strikes afflicting the country’s national railway operator, Gagey said. “I won’t hide the fact that we were helped by the problems our friends at the SNCF have been having.”

But the airline’s own disruption crimped second-quarter capacity growth to just 0.4 percent for the group overall.

It also unveiled plans on Wednesday to expand an existing partnership with Spain’s Air Europa into a full-blown joint venture focused on South American routes.

The new venture, if it goes ahead, would complement Air France-KLM’s successful pairing with Delta Air Lines on North Atlantic routes, to be joined by Virgin Atlantic next April.

Gagey said joint ventures had “proved their worth as a means of consolidation in aviation”, a sector where takeover options are often severely curtailed by national ownership rules.

The CEO search is “in progress”, he added, declining to elaborate on what he described as a board matter. Air France-KLM aims to name a new boss in September, it told staff last month.

Resolving the pay dispute with unions, which have suspended strike action until a new CEO is installed, will be one of the first tasks facing the appointee.

The Air France business saw its quarterly profit margin all but evaporate to 0.3 percent from 6.1 percent, while Dutch stablemate KLM maintained an 11.7 percent margin.

Excluding changes to passenger network capacity, expected to rise 2.5-3.5 percent in 2018, costs increased 2.4 percent in the second quarter, inflated by the prolonged strikes.

Air France-KLM also predicted a 450 million-euro hit this year from rising fuel costs that would have been 850 million euros higher still without hedging contracts in place. It had previously forecast a negative impact of 350 million.

Net income fell sharply to 110 million euros from a year-earlier 594 million, restated under new accounting rules. Revenue slid 1.2 percent to 5.697 billion euros, dented by a 259 million-euro exchange-rate effect. ($1 = 0.8547 euros) (Reporting by Laurence Frost)

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