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Air France-KLM misses profit forecast on higher costs

Air France is seeing a €40m revenue hit from the Olympic Games in Paris, which open tomorrow
Air France is seeing a €40m revenue hit from the Olympic Games in Paris, which open tomorrow

Airline group Air France-KLM has today reported a worse-than-expected 30% drop in quarterly operating profit, as higher labour and fuel costs erode margins even as revenues are boosted by higher fares.

Second-quarter operating profit fell to €513m, below the €547m expected in a company-provided consensus of analyst forecasts.

"The miss is driven by 3% higher fuel costs & 2% higher D&A" (depreciation and amortisation)" said a Deutsche Bank note.

Several airlines, including Ryanair, have missed earnings forecasts recently amid rising costs and signs the post-pandemic boom in travel is fading, although EasyJet painted a brighter picture yesterday.

"Air France actually has all the headwinds this quarter", chief financial officer Steven Zaad told a press call, citing a €40m revenue hit from the Olympic Games in Paris, which open tomorrow, as well as higher costs from salaries linked to labour agreements.

The group said it expected unit costs - the average cost of flying an aircraft seat one mile - to rise 2% in 2024 from the year before, against 1-2% estimated previously.

It trimmed its annual capacity forecast to a 4% rise, from 5% previously.

Air France-KLM said it had taken measures to cut costs since April, including a hiring freeze for support staff.

Cuts in marketing expenses and a 20% reduction of discretionary costs should be implemented in the rest of this year, it said.

Quarterly revenue rose 4.3% to €7.95 billion, as expected, through the group issued a profit warning earlier this month as the Olympic Games spurred some people to rethink their travel plans.

"The Olympics is just once in a lifetime in your home country. I know it is a disappointment in terms of revenues, but I would like to invite everybody to see the beauty of Paris," said Zaad.

He expected a positive trend in French demand after the Games.