Air France Reports 20.5 Percent Drop in Quarterly Revenue

Air France reported a significant drop in cargo business, a sharp decline in passenger unit revenues and a negative effect of fuel hedges on operating result for the first quarter. However it said that cost reduction had limited the impact of the decline in revenues and it had strong liquidity with 5.7 billion euros.

The airline said that revenues in the passenger business were down 18.7 percent and in cargo by 41.5 percent, leading to a drop of 20.5 percent in total group revenues to 5.17 billion euros.

Moreover, the results of the first quarter were affected by a negative fuel hedging impact of 252 million euros. Despite this difficult environment, the group benefits from a high level of liquidity of 5.7 billion euros including 1.2 billion euros in credit facilities.

During the quarter, Air France-KLM had a successful 661 million euro convertible bond issue, while on July 28, KLM extended the term of its 530 million euro credit facility from July 2010 to July 2012, with the possibility of a further prolongation to July 2013.

The group’s results do not include its 25 percent holding in Alitalia, which will be integrated by the equity method as of the second quarter on the basis of the previous quarter’s results. Alitalia reported its first half results in line with its budget. These results are encouraging in the context of the difficult trading environment currently experienced by the airline industry.

Despite a 7.1 percent reduction in production measured in equivalent available seat kilometers (EASK), unit cost per EASK was down 3.9 percent and was stable on a constant currency and fuel price basis, and excluding the impact of the additional pension fund charge. Operating costs declined 10.1 percent to 5.66 billion euros.

Excluding fuel they dropped 6.4 percent thanks to the 148 million euros in costs savings realized under the “Challenge 12” program. The fuel bill declined by 329 million euros to 1.14 billion (down 22.5 percent) under the combined effect of a 10 percent decline in volume, a negative currency impact of 15 percent and a drop in fuel prices limited to 27 percent by the hedging effect.