Air France-KLM profits drop in wake of terrorist attacks

Air France-KLM has unveiled a fresh set of cost-fighting initiatives in a move designed to turn around the group's struggling long-haul operations but which threatens to rile company's powerful unions.

The Franco-Dutch carrier outlined plans for a new French unit that will operate long-haul and medium-haul flights for Air France with lower costs in a bid to improve competitiveness and regain market share lost to Gulf rivals.

“The status quo is not an option,” said Jean-Marc Janaillac, the recently appointed chief executive of the company. However, the plan needs union approval and could meet heavy resistance.

Attempts by previous chief executive Alexandre de Juniac to create a new low-cost airline called Transavia caused a roar of protest from unions which saw it as part of a backdoor strategy to lower wages. The resulting Air France strike in 2014 cost the company €500 million.

Since then, industrial relations have been poor.

Severe pressure

As part of this new start, Mr Janaillac is replacing the chief executive of Air France, Frédéric Gagey, with

Franck Terner

, who was head of Air France-KLM’s engineering and maintenance unit. Mr Gagey will become finance director of the Air France-KLM group.

Mr Janaillac has one of the hardest jobs in aviation: trying to improve the lacklustre competitiveness of Air France, while at the same time facing severe pressure from fast-growing Gulf airlines on long-haul routes and EU budget carriers on short-haul routes.

Air France-KLM in July reported a net loss of €114 million for the first half of 2016, although this was considerably better than the €638 million loss it recorded during the same period last year.

On Thursday, the group said operating profits fell 16 per cent to €737 million in the third quarter, while revenues fell 5.1 per cent to €6.9 billion as pricing pressure and currency movements offset the impact of lower fuel prices compared to a year ago.

“There’s lots of uncertainty surrounding the economic rebound, and the geopolitical situation has been worrying, especially with the consequences of terrorist attacks on European destinations, particularly France,” said chief financial officer Pierre-Francois Riolacci.

– Copyright The Financial Times Limited 2016