News / Terror attacks, strikes and rising costs giving AF-KLM Cargo a bumpy flight

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Restructuring at Air France-KLM Cargo has started to take effect, despite a weak market and overcapacity, the group said today, as it also announced the cancellation of some 10% of AF long-haul flights due to strike action.

In AF-KLM Cargo’s first-half results, freight volumes fell 6.5% to 558,000 tonnes, year-on-year, while cargo revenues fell 15.7% to €1.03bn. However, the operating result improved by €25m, to a loss of €116m, while a like-for-like calculation showed an improvement of €38m.

The group has cut three MD-11Fs from its fleet since January, a 25% reduction, and expects its freighter fleet to break even next year.

The full freighter business made a loss of €12m in the first half, a €25m improvement on last year. Overall, the carrier reduced cargo capacity by 8.1% in the first quarter, and 3.2% in the second.

Cargo accounted for 9% of the group’s revenues in the first half of the year.

This month Martinair saw its final MD-11F fly to the desert to be dismantled. The Dutch carrier now has just one aircraft in its livery, a 26-year-old 747-400BCF, which is to be used as a spare. Three other 747Fs are on Martinair’s AOC, but in KLM livery. Air France Cargo operates two 777Fs.

The carrier said continued pressure on unit revenues, which were down 12% per available tonne km, to €0.13, and down 10%, to €0.23, per revenue tonne km, had impacted results.

According to Dutch media, KLM CEO Pieter Elbers said on the eve of the results announcement that, while he didn’t want to use the phrase “price-dumping”, rates in the market were difficult to match.

Total group revenue fell 2.6% to €11.8bn, while EBITDAR was €1.5bn, up €486m.

The airline warned that the recent terrorist attacks in France was likely to hit revenue, and lower fuel prices would  be “more than offset” by the pressure on unit revenue and negative currency impacts. Feul costs fell by nearly 30% in the first half.

As part of its Transform 2020 plan, the group is targeting 1,405 voluntary redundancies for ground staff between September and March, and 200 cabin crew jobs by the end of this year.

KLM recorded an operating result of €207m, up €286m, on revenue of €4.6bn in the first half, a markedly stronger result than that of Air France, which made €15m on revenue of €7.37bn – a €149m improvement.

Air France expects a hit of more than €40m – the same cost as June’s pilots’ strike – from the current week-long cabin crew strike. Some 10% of long-haul flights and about 30% of short- and medium-haul services are expected to be cancelled, at the height of the busy summer season. KLM is not affected.

The group said the outlook for 2016 was uncertain.

“The global context in 2016 remains highly uncertain, regarding the geopolitical and economic environment in which we operate, fuel prices and the continuation of the overcapacity in the airline industry, increasing pressure on unit revenues and a special concern about France as a destination.”

Meanwhile Kenya Airways, of which KLM owns 26%, posted a net loss of around $252m for the year ending March 31, a significant improvement. Cargo revenues fell 9%.