Air France-KLM profits rise 33% on back of merger

Air France-KLM, Europe's leading airline by turnover, said yesterday that it was reaping the economic benefits from last year…

Air France-KLM, Europe's leading airline by turnover, said yesterday that it was reaping the economic benefits from last year's merger of the French and Dutch national carriers more quickly than previously forecast.

The airline increased its pretax profits by 33 per cent from a pro-forma €341 million to €455 million ($575 million) in the year to March 31, helped by synergies in the first year of the enlarged group totalling €115 million up from €65 million forecast.

Jean-Cyril Spinetta, chairman and chief executive, said that cost-cutting and the merger synergies combined with an 8.9 per cent increase in passenger traffic and almost flat yields (average fare levels) had allowed the group to raise operating profits by 21 per cent from €405 million to €489 million.

This was despite the sharp rise in oil prices during the second half of the year, he said. The flat yields were supported by revenues from the fuel surcharges imposed last year to compensate in part for the rising fuel bill.

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The group increased capacity by about seven per cent last year, in line with the average for European network carriers.

Leo van Wijk, vice-chairman, said: "We have not compromised on yields. This shows that we have not introduced too much capacity into the market place, and we have benefited from increased demand." At the time of the Air France acquisition of KLM, the first takeover of a national flag carrier in Europe, the group was criticised for failing to reduce capacity and basing its strategy on growth.

Mr Spinetta said yesterday: "We were right not to cut capacities." He said the group was planning a further 5 per cent increase in capacity this year with investments due to rise from €2.13 billion to €2.4 billion.

He forecast that operating profits would be flat this year, as the rise in oil prices offset expected merger synergy benefits of €165 million and savings from further cost-cutting.

Net profit this year should "rise substantially" from last year's level of €351 million thanks to proceeds from the restructuring of the group's stake in Amadeus, the Madrid-based global distribution system, - (Financial Times Service)