July 24, 2015 / 5:50 AM / 4 years ago

CORRECTED-UPDATE 3-Air France-KLM speeds up cost cuts as key markets lag

(Corrects day of week to Friday from Thursday)

* To seek 300 mln euros admin savings, half already identified

* Reiterates financial forecasts

* Scales back winter capacity growth plans

* Shares up 1 pct

By Cyril Altmeyer and Tim Hepher

PARIS, July 24 (Reuters) - Air France-KLM pledged on Friday to accelerate and expand its restructuring plans after a weak economy in several markets pushed down a key revenue measure in the second quarter.

Europe’s second-largest network carrier said it was on course with 1.8 billion euros ($2 billion) of restructuring already under way, but the cumulative effective of 12 months of revenue pressures had forced it to beef up its plans.

The latest measures include 300 million euros in administrative cost cuts, of which half had already been identified but not previously announced.

The Franco-Dutch airline group also expects to scale back capacity growth plans for the winter season amid a tough climate in Japan, Brazil and its traditional African oil routes.

The moves came as Air France-KLM reported lower second-quarter operating profit and slipped further into the red with a net quarterly loss of 79 million euros.

However, the company maintained its objectives for the year, including the key goal of reducing debt, sending its shares about 1 percent higher in midday trading.

Chief Executive Alexandre de Juniac urged Air France pilots, who staged a lengthy strike last year, to reach a productivity agreement by the end of September and warned that without a deal, the airline would have to take “severe measures” to cut routes in its long-haul network as early as October.

The group has already reached deals with KLM pilots and with staff involved in provincial bases in France, lifting a question mark over their future.

The group reiterated plans to improve unit costs by between 1 and 1.3 percent or 250 to 300 million euros over the year as a whole. Unit costs fell 0.5 percent in the second quarter.

It still plans to reduce net debt to 4.4 billion euros by end-2015. At mid-year, Air France-KLM’s debt stood at 4.55 billion euros, down from 5.41 billion a year earlier.


Including the winter capacity adjustments, the group said it would increase capacity by just 0.6 percent over the year as a whole, compared with 1.1 percent planned in February.

It posted second-quarter core earnings or EBITDA of 569 million euros. Revenue grew 3 percent to 6.64 billion, but fell 4.5 percent on a comparable basis.

Analysts were on average expecting EBITDA of 575.5 million euros and net profit of 2.97 million on sales of 6.51 billion, according to consensus data from Thomson Reuters I/B/E/S.

Air France-KLM said the gains from lower fuel prices were being swallowed by the latest pressures on unit revenue and currency swings, forcing it to accelerate cost savings.

Unit revenue per available passenger-kilometre, a closely watched measure of revenue per seat adjusted for the capacity on offer, fell 4.8 percent on a like-for-like basis.

“We are pessimistic on both the revenue outlook and management’s ability to deliver sufficient cost savings, with talks with the Air France unions still to be concluded,” brokerage Liberum said in a note.

Echoing concerns by U.S. airlines about competition from the Gulf, Air France-KLM meanwhile called on the European Commission to negotiate a “balanced” agreement with Gulf states whose airlines have drawn traffic from Western rivals.

He also dismissed what he described as speculation that Abu Dhabi’s Etihad could take a stake in Air France-KLM.

Pieter Elbers, head of Dutch wing KLM, dismissed reports that its Martinair unit could be sold to Russia’s Air Bridge Cargo.

“We are implementing our plan to reduce the number of freighters and to save as much as we can for bellies (of passenger planes). We are not having any discussions with other parties,” he said.

$1 = 0.9142 euros Additional reporting by Alexandre Boksenbaum-Granier; Editing by David Holmes and Mark Potter

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