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Air France KLM profit nose dives

Paris, August 5, 2008

Air France KLM, the world's biggest airline by passenger numbers, said on Tuesday its first-quarter net profit more than halved due to a spike in oil prices and an economic slowdown.

The net profit fell 59.4 percent to 168 million euros ($262 million), but still beat the average forecast from 15 analysts of 145 million euros.

Air France-KLM confirmed that its first-quarter results were in line with its objective of achieving operating income in the order of 1 billion euros for the full year.

It said that despite the slowdown in global growth and the increase in fares designed to absorb some of the rise in oil prices, passenger traffic rose 3.7 percent and its load factor was 80.3 percent.

Premium traffic remained dynamic, underpinning unit revenues. There was a further recovery in profitability at the cargo division, with a significant increase in unit revenues.

Maintenance and the other activities also made a positive contribution to group results, it said. The results come days after British Airways' reported a collapse in first-quarter profit in what the airline called the worst-ever trading conditions.

Ryanair, Europe's largest low-cost carrier, posted a 85 percent fall in net profit at the end of July and warned of a full-year loss if oil prices stayed high and fares fell.

Oil is currently below $120 a barrel, down from a record of $147 in mid-July. The fuel prices have worried airline investors, knocking 32 percent of Air France-KLM shares this year, giving it a market value of $7.6 billion euros.

Operating profit fell to 234 million euros from 415 million in the same period of 2007, while the analysts' average forecast was for 231 million euros. First-quarter sales were up 5.8 percent at 6.288 billion euros.

The fuel bill amounted to 1.36 billion euros against 1.09 billion euros at June 30, 2007, a rise of 266 million euros or 24.3 percent. This was due to a 3 percent rise in volume, an increase in jet fuel costs after hedging of 40 percent and after a favourable currency impact of 14 percent.

Air France-KLM's already reported passenger traffic rose 2.6 percent in June. The group said that "in response to the new economic environment", it would reinforce its Challenge 10 plan with an additional 190 million euros in cost-savings. This would take the total for the financial year 2008-09 to 620 million euros.

Air France-KLM will adjust its capacity plans, with a rise of around 2 percent for the Winter 2008 and Summer 2009 seasons.

On the basis of a forward price of oil of $126.82/bbl at 25th July 2008 and a euro/dollar exchange rate of 1.56, the fuel bill for the full year is estimated at 5.86 billion euros.

Operating cash flow stood at 1.01 billion euros at end-June against 769 million euros a year ago and available cash flow  stood at 532 million euros. The balance sheet was strengthened, with net debt down by 518 million to 2.17 billion euros, and the group's gearing ratio reduced to 0.16 from 0.25. The company has cash of 4.7 billion euros and credit facilities of an additional 2 billion euros at its disposal, it said. -Reuters




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