Air France-KLM to cut costs further after profits rise 35%

Air France-KLM has promised to cut costs and boost passenger capacity this year in an effort to “regain the offensive" in the lucrative long-haul market, as the group reported a 35% increase in full-year earnings. The Franco-Dutch carrier warned of a highly uncertain micro-environment in 2017 due to the still sluggish economy, political risk over the French and German elections and continuing overcapacity in several core markets. But the carrier said that unit revenues had been better than expected so far this year and vowed to lift capacity as much as 3.5% in 2017 in long-haul markets, and at the same time reduce unit costs by 1.5%, up from a 1% drop last year. “In an economic and geopolitical context that remains very uncertain, and faced with aggressive competition, the status quo is not an option,” said Jean-Marc Janaillac, the CE, adding that he was “resolutely committed to regaining the offensive”. The company has for years been under severe pressure from fast-expanding Middle East carriers including Emirates and European budget airlines such as easyJet. It has also suffered a number of costly strikes by Air France pilots. Janaillac last year announced plans to transform the fortunes of the group, focusing in particularly on improving the profitability of the struggling larger French unit, Air France. Air France-KLM on Thursday reported a jump in operating profit from E780m in 2015 to E1.05bn in 2016, helped by a lower fuel bill and productivity gains at the Dutch arm KLM, which has been quick to cut costs — unlike its French counterpart. Profit at the larger Air France arm, however, fell 54% to E372m over the year. The unit was weighed on by a drop in tourism to France following a spate of terrorist attacks as well as two strikes involving pilots and cabin crew.<br/>