Air France-KLM Warns on Impact of Terror Attacks

The Wall Street Journal The Wall Street Journal

Franco-Dutch airline group signals profit outlook has dimmed in recent weeks in light of attacks in France

Air France-KLM, Europe’s largest airline group by traffic, said sales in the second quarter declined to €6.2 billion ($6.8 billion). The Paris-based carrier still managed to swing to a net profit for the April through June period.

An almost 30% decline in fuel costs in the period helped deliver a €41 million second quarter profit after a €79 million loss a year earlier.

But the Franco-Dutch airline group warned the full-year benefit from lower fuel costs to the bottom line are expected to be “more than offset in the coming quarters by downward pressure on unit revenue and negative currency impacts.” The fuel bill for this year is expected to be around €4.6 billion, or €1.6 billion below last year’s total.

The results are the first for the airline’s new chief executive, Jean-Marc Janaillac.

France has suffered from a wave of terrorist attacks dating back to last year. A terrorist on July 14 plowed a truck into Bastille Day revelers in Nice killing 84 people. On Tuesday two attackers killed a priest and seriously injured another person in the city of Saint-Etienne-Du-Rouvray. All three attackers were linked to Islamic State.

On Nov. 13 in Paris, attackers killed 130 people in shootings and bomb blasts.

Air France-KLM said there was “special concern about France as a destination.” Terrorist attacks typically cause a sharp drop in bookings, which can take months to recover.

The carrier is the latest of several European airlines to signal their profit outlook had dimmed in recent weeks. Deutsche Lufthansa AG , a week ago, said terrorist attacks had depressed sales and would cause the airline to deliver a lower profit this year. EasyJet PLC followed hours later saying the flurry of terrorist attacks were forcing it to heavily discount tickets to fill planes.

Terrorist attacks have only been partly to blame. A number of air-traffic control strikes, principally in France, have forced European airlines to cancel thousands of flights. Britain’s vote last month to exit the European Union has caused regulatory uncertainty and concern that demand would fall. Hours after the vote, British Airways ’ parent International Consolidated Airlines Group SA said profit growth this year would be lower than expected.

Air France, the French arm of the Franco-Dutch airline group, also has had to contend with a pilots strike in June. Additionally, some cabin crew are on strike from Wednesday through Aug. 2 in a dispute about employment terms.

The disruptions have stalled Air France efforts to push through cost savings measures. The airline is struggling to become more competitive in the face of strong competition from discount carriers in Europe and aggressively expanding Middle East airlines on long-haul routes.

Air France-KLM said it would review capital expenditure and disposal plans and make adjustments as needed. The airline group stuck to its commitment to deliver €600 million to €1 billion in free operating cash flow after disposals. Net debt also would fall, it said, and nonfuel unit costs would decline 1%.