Air France-KLM boosts profit, orders planes

Paris, May 24: Air France-KLM on Thursday posted a 32.5 percent rise in 2006-07 operating profit, led by passenger traffic growth, and announced a plan to save 1.4 billion euros over three years, boosting its shares.

Europe's biggest airline in terms of passengers, and the world's largest by revenues, said its widely watched operating income reached 1.240 billion euros in the year to March 31 as revenues rose 7.6 percent to 23.073 billion euros.

The figures imply a one percentage point gain in the operating margin to 5.4 percent, compared with 2005-06.

The Franco-Dutch airline group's shares rose more than two percent on the results, which despite coming in slightly below market forecasts, highlighted a better performance than British Airways and were buttressed by fresh cost-cutting.

Its French network, Air France, also announced a billion aircraft order, split between Airbus and Boeing.

The deals include an order for two more A380 superjumbos, the world's largest airliner, whose two-year production delays have left manufacturer Airbus facing penalties to airlines.

The airline also ordered 30 A320-family single-aisle jets from Airbus and 18 wide-body 777s from Boeing.

Air France merged with Dutch national airline KLM in 2004 but the two still operate separate fleets and networks.

Shares in the combined group were up 2.5 percent at 37.82 euros at 0929 GMT.

Analysts had on average expected 2006-07 operating profit of 1.251 billion euros on revenues of 23.185 billion euros for an operating margin of 5.3 percent, according to Reuters Estimates.

Net income declined to 891 million euros from 913 million euros.

The year-ago figure included a capital gain of 419 million euros from the sale of travel technology firm Amadeus.

Air France-KLM proposed a dividend of 0.48 euros.

For the current 2007-08 year, Air France-KLM is targeting a capacity increase in the order of 5 percent and a further improvement in operating profit.

The group reaffirmed synergy targets from its 2004 merger.

It also upgraded its forecast for return on capital employed to 7 percent in 2007-08, two years earlier than planned, and 8.5 percent by 2009-10. Last year's outcome was 6.5 percent.

''Our strong fundamentals combined with our significant competitive advantages, as well as the positive outlook for global growth and our employees make me confident we can achieve this target,'' Chairman Jean-Cyril Spinetta said in a statement.

The new cost-savings programme, ''Challenge 10'', should generate savings of 560 million euros during the year and reduce unit costs by 3 percent over 3 years, the airline group said.

It said the fiscal first quarter would be affected by negative calendar effects in May. But activity both in terms of traffic and advance bookings was in line with expectations.

The 2006-07 results included a 9 million euro profit for the fourth quarter for which the group had predicted breakeven. A year earlier it had lost 4 million euros on cargo difficulties.

Passenger traffic increased by 5.4 percent in 2006/07 on 4.4 percent higher capacity, pushing the load factor the proportion of seats sold up 0.8 percentage points to 81.4 percent. The group carried 73.5 million passengers.

British Airways last week reported a 13 percent decline in operating profit in the year to March 31. Its shares were down 1.2 percent in early trading on Thursday.

Spinetta sidestepped questions at a news conference on whether Air France-KLM was interested in bidding for Spanish airline Iberia, which is being courted by BA.

''We remain attentive to what is happening in the European sector,'' he said. Consolidation is not over in Europe, he said.

Analysts say Iberia's strong position on fast-growing Latin American routes is attractive to European carriers, but that BA's 10 percent stake in Iberia is a barrier to Air France-KLM.

British Airways said this week it had decided to join a group bidding for Iberia led by private equity firm Texas Pacific Group.

Reuters>