Air France-KLM Warns of Challenging Year Ahead

PARIS --

Air France-KLM said Thursday it expects the coming year to be "challenging" amid sharply higher oil prices and a sluggish global economy which contributed to a net loss in its fiscal fourth quarter.

Europe's largest airline said in a statement that it lost 542 million euros ($853.81 million) in the three months ending March 31, compared with a profit of 44 million euros a year earlier.

CEO Jean-Cyril Spinetta said the group expects operating profit for the coming fiscal year to fall as skyrocketing fuel costs cloud the outlook for the industry.

Oil prices are setting new records nearly every day, and on Thursday hit an all-time high above $135 a barrel before falling back.

Shares fell 9.1 percent to 16.95 euros ($26.82) in Paris midday trade.

Petercam analyst Thijs Berkelder said investors are selling the stock because Air France-KLM's forecast is worse than expected. But he noted that the outlook is "much better than what most airlines can demonstrate."

"They can keep a profit while others will dive into losses," he said,

The Franco-Dutch group said it expects operating profit - a measure of earnings from ongoing operations - to fall to 1 billion euros ($1.58 billion) in the coming year from 1.4 billion euros ($2.21 billion) in its latest fiscal year.

In the quarter, Air France-KLM said it had an operating loss of 46 million euros ($72.46 million) after a profit of 9 million euros a year earlier.

For the full year, Air France-KLM reported a 16 percent drop in net profit to 748 million euros ($1,178.32 million) from 891 million euros.

Results were hurt by an exceptional charge of 530 million euros ($8,34.91 million) which the airline group took to cover possible penalties arising from an antitrust probe into airline cargo activities.

Spinetta said the soaring cost of fuel means the industry is in for a "profound transformation," predicting capacity reductions, the acceleration of mergers and the exit of some players from the market.

Spinetta pointed to the carrier's young fleet of fuel-efficient aircraft, fuel hedging that softens impact of record oil prices, and synergies from the merger of Air France and KLM.

"We have strong qualities to come out of this reinforced," he said at a Paris news conference.

ABN Amro analyst Andrew Lobbenberg said Air France-KLM stands to gain market share as weaker players fall out of the market.

"It's going to be ugly but they are going to come through it," he said.

To compensate for higher oil prices, some airlines raised ticket prices again last week. Air France, which operates separately from its Dutch partner KLM, announced its 17th fuel-related hike.

Airlines paying about 82 percent more for jet fuel than they did a year ago.

Air France-KLM said its yearly fuel bill rose 7.4 percent to 4.57 billion euros ($7.2 billion). In the coming fiscal year, Calavia said he expects the fuel bill to rise by an extra 1.2 billion euros ($1.89 billion).

Quarterly revenue rose 5.8 percent to 5.7 billion euros ($8.98 billion), and was up 4.5 percent to 24.1 billion euros ($37.96 billion) in the full year, the company said.