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The Board of Directors of Air France-KLM, chaired by Jean-Cyril Spinetta, convened on 19th May 2009 to approve the accounts for Financial Year 2008-09. Pierre-Henri Gourgeon, Chief Executive Officer, made the following comments: "The financial year 2008-09 was one of contrasting halves, with a resilient performance in the first half, wiped out by the full force of the economic crisis in the second. Business traffic and cargo were especially affected, leading to a decline in revenues which accelerated in the fourth quarter. The sharp decline in oil prices had a negative impact on the fuel bill in the second half, whereas our hedging policy had been efficient in the first half. In the face of these unprecedented conditions we moved rapidly to lower capacity, reinforce cost-saving measures, reduce our investments and unwind part of our fuel hedges. The current year is likely to be equally challenging.
Visibility remains low, even though we have seen some signs of stabilisation in recent weeks. We will therefore continue our strategy of adapting capacity and costs, while at the same time reinforcing our fundamentals, notably via the strategic partnership with Alitalia and the North Atlantic joint venture with Delta. Our responsiveness will continue to help us face up to the current challenges while ensuring we are prepared for the economic recovery.”
Full year results reflect deteriorating environment in the second half
Despite a relatively resilient performance in the first half, results for the full year were clearly affected by the sharp downturn in the second half, and especially the fourth quarter. Revenues amounted to 23.97 billion euros, down 0.6% after a negative currency impact of 1.9%, for production measured in EASK (equivalent available seat kilometer) up 3.6%. Unit revenue measured in EASK declined by 4.0% and by 2.2% on a constant currency basis. Operating costs reflected the high oil price, rising 6.1% to 24.1 billion euros.
Excluding fuel the rise was contained to 1.4%. Unit cost per EASK was up 3.3%, but fell 0.8% on a constant Φuel and currency basis, thanks to 675 million euros in cost-savings under the ‘Challenge 12’ program. The main operating costs evolved broadly in line with activity levels with the exception of fuel and marketing and distribution costs. The fuel bill recorded a 1.1 billion euro (+24.7%) rise to 5.70 billion euros under the combined effect of a 1% increase in volumes, a 9% increase in price after hedging and a positive currency effect of 3%. Marketing and distribution costs were reduced by 14.1% thanks to the further reduction in commissions and a cut in advertising spend.
The operating loss amounted to 129 million euros versus income of 1.41 billion euros at 31st March 2008. Adjusted operating income1 stood at 91 million euros and the corresponding adjusted operating margin at 0.4%, down 6.3 points. The loss from operating activities stood at 193 million euros, compared with income of 1.28 billion euros at 31st March 2008. Lastly, as indicated in March, Air France’s practice of settling its fuel bill on the basis of the previous month’s price resulted in a 200 million euro negative impact which would not have existed had the invoiced prices been in synch with consumption.
Outlook for Full Year 2009-10
Trading conditions in the first half of the current year remain challenging and visibility for the second half of the year is still low. Although we have experienced some signs of stabilization in our operating environment in recent weeks in both the cargo and passenger activities, it is too early to tell whether they indicate the start of an economic recovery. We therefore continue to take appropriate measures to protect our business, including a reduction in capacity of 4.5% in passenger and 11% in cargo for summer ’09 and a reduction in the initial investment plan of 2.9 billion euros to 1.4 billion euros. We have also increased our cost-savings target to 600 million euros, including the adaptation of our workforce in line with current activity levels. These measures, combined with a 1.9 billion dollar reduction in the fuel bill (on a comparable consolidation basis and based on the forward curve at 14th May) should offset a significant proportion of the anticipated drop in revenues. These measures will not compromise our ability to rebound once signs of a recovery become more pronounced.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
