Air France KLM profit tops forecasts, shares soar
By Benoit Van Overstraeten
PARIS (Reuters) - Air France KLM <AIRF.PA>, the world's biggest airline by revenues, posted a stronger-than-expected 28 percent jump in quarterly profit on Thursday, lifting its shares nearly 12 percent.
Profits were powered by strong demand, especially on longer routes, and by fuel surcharges and hedging which buffered the airline from surging oil prices.
Air France KLM shares jumped on the news and were Paris' biggest gainers, up 11.17 percent at 24.58 euros by 1606 GMT.
"Is the financial crisis hurting air transport demand? Reservations do not reflect a decline in demand for air transport .. We think this situation will last for the current fiscal year and beyond," Chief Executive Jean-Cyril Spinetta told a news conference.
Spinetta would not say if he was in contact with his counterparts at struggling Italian partner Alitalia <AZPIa.MI> or at Spain's Iberia <IBLA.MC>, both of which are looking for buyers, but repeated his group was closely looking at the pair.
"European players must obviously think about European consolidation. We are closely looking at the Alitalia and Iberia dossiers ... Consolidation must strengthen the players' profitability, it must be its only goal," he said.
Vice Chairman Leo Van Wijk said this week that Air France KLM, formed from a 2004 merger, had not yet decided whether to bid for either firm.
Separately, La Tribune newspaper reported on Thursday that Air France-KLM was considering placing orders for about 100 long-range medium-sized aircraft and launching a tender for them next year that would pit the Airbus A350 <EAD.PA> against the Boeing 787 <BA.N>.
Air France-KLM Chairman and Chief Executive Jean-Cyril Spinetta confirmed the airline would launch a tender for new aircraft but said it was too early to determine for how many, he told LCI television.
"What is true is that Air France-KLM needs to modernize its fleet," he said, adding it applied to a significant part of the airline's long-range fleet.
"So a choice will have to be made between Boeing's 787 and the A350 of Airbus." He said tenders would be launched in 2008 for delivery around 2013-2014.
Air France KLM said operating profit rose to 725 million euros ($1.08 billion) for the three months to the end of September, while revenues of 6.489 billion euros were up 5.8 percent.
The operating results beat analysts forecasts which averaged 659 million euros while revenues were in line with expectations, according to Reuters Estimates.
Its fuel costs rose just 1.8 percent, as overall operating costs rose by 3.6 percent to 5.7 billion euros.
The airline said while passenger revenues grew by 6.1 percent, cargo revenues fell 0.3 percent.
"The passenger activity was dynamic during the second quarter, still driven by long-haul. In cargo, the recovery in traffic levels from the end of the first quarter was confirmed, but unit revenues remain under pressure," it said.
A capital gain of 202 million euros on the sale of a stake in the Amadeus reservations system helped boost the group's pretax performance.
"These are excellent results, essentially due to the strength of passenger demand, but also due to a plan of cost savings," Finance Director Philippe Calavia told journalists.
"We are not seeing any weakness in passenger demand, even with the level of fuel prices where they are today, and even with the fuel surcharges we are applying."
The airline's financial charges also fell sharply.
Air France KLM confirmed its objectives of a further rise in operating income in 2007/08 from last year's 936 million euros and a return on capital employed of 7 percent after tax for the full year, up from 6.5 percent. The group aims to lift its return on capital to 8.5 percent by 2009-10.
It has promised its investors it will only pursue possible mergers with other European airlines if the deals protect its medium-term financial goals.
KLM, the Dutch arm of the company, said separately that it had ordered two Airbus <EAD.PA> A330-200 airliners and five from Boeing Co <BA.N>, including 2 777-300ER long-range planes and three single-aisle 737-700s.
(Additional reporting by Tim Hepher, Astrid Wendlandt, Dominique Vidalon in Paris, Jason Neely in London, Foo Yunchee in Amsterdam; Editing by Matthew Tostevin/Elaine Hardcastle/David Gregorio)