Air France-KLM to restructure short and medium-haul network
Air France-KLM (the biggest carrier in Europe based on annual revenue) will cut its short and medium-haul fleet and freeze the pay of its French employees for the next 2 years as part of a 3-year plan to return to profitability and turn the business around by 2014. It wants to cut its net debt from the current €4.5 billion to €2.5 billion over this period. One of its central aims is to get its short and medium-haul business back to break-even within three years – this part of the company lost €700 milion last year – through a major restructure. It is planning to shrink its fleet by deferring the arrival of mid-haul aircraft and not taking up options on aircraft orders.
Air France-KLM to restructure short and medium-haul network
Air France-KLM will cut its short and medium-haul fleet and freeze the pay of its French employees for the next two years as part of a three-year plan to return to profitability.
The carrier, which is the biggest in Europe based on annual revenue, has unveiled details of its plans to turn around the business by 2014. It wants to cut its net debt from the current €4.5 billion to €2.5 billion over this period.
One of its central aims is to get its short and medium-haul business back to break-even within three years – this part of the company lost €700 milion last year – through a major restructure.
Air France-KLM said it was already planning to shrink its fleet by deferring the arrival of mid-haul aircraft and also failing to take up options on aircraft orders.
Other moves include the two-year pay freeze at Air France and a policy of “wage moderation” at KLM. The freeze on hiring introduced in September 2011 will also continue.
Air France-KLM stressed its commitment to its short and medium-haul network calling “indispensable to the group’s developments” as it gave both airlines “presence throughout Europe” and also acted as a feeder for the long-haul network form Paris-Charles de Gaulle and Amsterdam.
“As the financial results of recent quarters demonstrate, the long-haul operations, also subject to increasing competition cannot alone offset these losses,” said the company in a statement.
It said that it would be looking for “better utilisation” of its aircraft as well as “improved productivity” from employees in its mid-haul business. The company may also consider more “extensive outsourcing in some areas”.
Air France-KLM Announces First Stage Of Austerity Plan
Wall Street Journal (12.1.2012 )
— Plan aims to generate EUR2 billion of cash flow through 2014
— Investments plan through 2014 cut by EUR1 billion
— Air France, KLM to delay deliveries of new Airbus, Boeing Jets
— Air France salaries frozen through 2013, hiring freeze prolonged
By David Pearson of DOW JONES NEWSWIRES
PARIS (Dow Jones)–Air France-KLM (AF.FR) announced a wide-ranging austerity plan on Thursday to reverse the drain on its cash from high fuel prices as traffic growth slows, but stopped short of politically sensitive measures such as outright job cuts to reduce overheads. The Franco-Dutch airline said it will reduce investment by 1 billion euros over the next three years compared to the EUR6 billion it spent over the 2009-2011 period, notably by limiting the growth in its capacity to a little over 5% between 2012 and 2014. In recent years the company has increased capacity by 3% a year on average. The reduced capital spending will come partly from a decision to push back deliveries of new jets from Toulouse, France-based Airbus and Boeing Co (BA) of the U.S. Three medium-haul Airbus A320s are being postponed from 2012 by one or two years, one wide-bodied Boeing 777 is being delayed from 2015 to 2016, and Air France will now take delivery of two Airbus A380 superjumbos in 2016 instead of 2014. In addition, options on other aircraft are being scrapped. Air France-KLM said measures aimed at producing immediate results to stop the hemorrhage of cash include freezing wages in 2012 and 2013 at Air France, while KLM will pursue a policy of wage moderation. A hiring freeze that was set in place in September is being extended for an undetermined period. And the salaries and bonus packages of some 400 senior executives will be slashed by between 15% and 20%. The group said additional measures would be necessary to fully restore its finances to full health, particularly at Air France’s medium-haul network that is estimated to have generated losses of EUR700 million in 2011, or more than the red ink expected for the entire group. “The Board of Directors decided to implement a transformation plan, encompassing all its businesses, with a target of generating an additional one billion euros in free cash flow over three years,” the group said in a statement. Air France-KLM, 15.7%-owned by the French state, said the required productivity improvements will involve renegotiating labor agreements with many of its staff, who also control some 9% of the company’s capital. Thursday’s announcement follows a sharp deterioration in Air France-KLM’s performance in recent months as rising fuel costs and increased competition from low-cost and Gulf airlines ate into profit margins. At the same time, the economic slowdown is weighing on airline traffic inside Europe, where Air France generates much of its revenue. The airline reported a loss of EUR183 million for the six months through September 2011 and said it would post a loss for the full year. It blamed weak airline traffic and surging fuel costs. At the time, the airline said it would have to restructure its short- and medium-haul activity, while reducing net debt of EUR6.5 billion. Chief Executive Jean-Cyril Spinetta told journalists that reducing the debt load by at least EUR2 billion through 2014 is an absolute priority set by the group’s board. Alexandre de Juniac, a former chief of staff to Christine Lagarde when she was French finance minister, took the helm at the airline as part of a boardroom shake-up that saw Spinetta, formerly chairman of the Air France-KLM board, return to take over the group’s chief executive position. The previous leader, Pierre-Henri Gourgeon, was fired amid disagreements over strategy. Spinetta said Air France-KLM will probably have to cut some of its loss-making routes, but declined to elaborate. Chief Financial Officer Philippe Calavia said that the group could potentially get back to break-even this year, although that will depend on a variety of factors, notably on how the price of fuel evolves. “If we can finance EUR4.8 billion of investment and at the same time reduce our debt by EUR2 billion without selling any assets, clearly we have to be profitable,” Spinetta said. Although Thursday’s measures contained no plans to reduce head count, Air France’s labor union officials suspect that more radical moves to slash overheads, including job cuts, will be announced in June after the French presidential election in May. In the runup to the elections, the French government has been actively discouraging companies from cutting jobs or moving them outside France. Air France is in a more difficult financial situation than sister airline KLM, and two-thirds of the cost savings will come from the French operational unit, Spinetta said. Air France-KLM’s market capitalization is just EUR1.2 billion, and the stock has fallen 74% in the past year.
-By David Pearson, Dow Jones Newswires; +331 4017 17510, firstname.lastname@example.org
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COSTS, DEBT, COMPETITION WEIGH ON AIR FRANCE-KLM
Air France-KLM faces a bumpier ride than its peers through the turbulent economic times ahead, as it wrestles with high staff costs, a large debt pile and tough competition that have battered its shares this year.
The carrier’s stock is the worst performer on the broad Paris SBF 120 index this year, falling 52 percent — almost twice as much as German rival Lufthansa and under-performing International Airlines Group, formed from the merger of British Airways and Iberia.
The drop has shrunk the airline’s market cap to around EUR€2 billion, about the price of 34 Airbus A320 family aircraft, of which Air France-KLM has 145 in its fleet of 547 planes.
“It is simply a reflection of them under-performing those peers in all aspects of their operations,” Morgan Stanley analyst Penelope Butcher said. “Their revenue performance is weaker, their cost performance is weaker, their profit performance is weaker.”
Air France-KLM may suffer if the economic environment worsens as it has higher fixed costs than rivals, Cheuvreux analyst Loic Sabatier said.
The Franco-Dutch airline, which is 15.7 percent-owned by the French state and 9.8 percent-owned by employees, spends about a third of its revenue on staff costs, its biggest expense, according to its latest results filing.
This compares with about a quarter for Lufthansa and IAG.
Air France-KLM last year announced a plan to offer medium-haul flights from regional bases in France in an effort to reduce operating costs by 15 percent.
But the initiative is not due to begin until next month, giving European low-cost rivals such as easyJet and Ryanair plenty of time to prepare their counter-attack.
…… and it continues ……….
Air France-KLM ousts CEO, moving to boost financial performance
17.10.2011 (The Inquisitr)
In light of overwhelmingly poor financial performance over the past year, Air France-KLM is being forced to shake up the company a bit, starting with the ousting of Pierre-Henri Gourgeon, the now-former CEO.
The announcement came amidst reports that Air France was looking to replace Gourgeon in an attempt to pick profits back up to acceptable levels.
Gourgeon, 65, stepped into the role of CEO back in 2009. Since his reign, profits for Air France have reportedly fallen 60%, due in no small part to allegations from safety experts that a lack of proper pilot training resulted in the deadly 2009 Air France crash that killed 228 people.
“Air France is in a delicate situation, and will be all the more so if the macro-economic situation gets worse,” said Yan Derocles, an Oddo Securities analyst in Paris. “Gourgeon wasn’t particularly appreciated by investors and having new leadership could help build confidence and provide an electro-shock for the company.”
The aim of the changes in Air France, the company said in a statement today, is to “improve the group’s operating and financial performance in a context of economic uncertainties affecting the European air traffic,” the statement read.
“In the current economic context, top priority must be given to the recovery and improvement of the performance of Air France and of KLM, which must … better address these challenges.”
In light of the announcement, Air France-KLM shares rose around 6% today before falling back down to a gain of 1.4%.
Sources: Air France-KLM, Bloomberg, Associated Press
You can see passenger numbers for all European airlines on the Anna Aero website at