By Pierre Bertrand
Air France-KLM reported a lower net profit for the key summer quarter after costs rose more than expected, sending shares tumbling.
The Franco-Dutch carrier group said expenses linked to the global CrowdStrike IT outage in July and disruptions at its KLM and Transavia airlines over the summer added to expected cost increases from higher salary costs and one-time payments because of the Paris Olympic Games.
Air France-KLM said Thursday that it made 780 million euros ($837 million) in net profit for the third quarter compared with 931 million euros a year ago. Revenue grew 4% to 8.98 billion euros.
The company's operating profit came to 1.18 billion euros, a 12% decrease. This missed analysts' expectations of 1.25 billion euros, according to a company-provided consensus.
When excluding a hit of 160 million euros in the quarter due to the Olympic Games, however, operating profit was largely flat on year, Air France-KLM said.
Shares fell 11% to 7.85 euros in early afternoon trading in Europe, nearing the all-time lows reached earlier this year.
The company had previously warned that this summer's Olympics would weigh on its earnings as many international passengers avoided the group's main hub, Paris, and French residents postponed their vacations.
This was compounded by higher costs. Excluding fuel, unit cost per available seat kilometer grew 3.4%, reducing operating profit by 230 million euros. Air France-KLM had forecast a 2% increase.
The company said costs rose due to staffing needs as well as operation and maintenance expenses at KLM, the Dutch arm of the carrier group. Costs at KLM outpaced revenue growth in the third quarter, Air France-KLM added.
"At KLM, persistent cost challenges spiked higher than anticipated, putting pressure on parts of its business model and reinforcing the need for more concrete structural improvements," Chief Executive Benjamin Smith said.
The group last month launched a plan to turn around KLM's finances, as the business has been suffering from high costs and shortages of staff and equipment while it invests $1 billion in renewing its aircraft fleet.
The group raised its 2024 unit cost growth expectation to around 3% from 2%, citing the increased costs in the third quarter and higher-than-anticipated costs in the fourth quarter. The increase in fourth-quarter costs is driven by KLM, it said.
Looking further ahead, Air France-KLM warned that a proposed French tax increase on flight tickets would hurt the group's profitability and ability to compete. Should France's government approve the measure, the tax would hit the company's operating profit by between 90 million to 170 million euros next year, it said.
In addition, Schiphol Airport's tariff increase from April next year is estimated to hit 2025 earnings in the 65 million to 110 million euro range, it said.
The company said long, short and medium-haul bookings were up on year for the fourth quarter.
Write to Pierre Bertrand at pierre.bertrand@wsj.com
(END) Dow Jones Newswires
November 07, 2024 06:47 ET (11:47 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments