Air France-KLM plans capacity splurge as discount rivals circle

Air France-KLM Group plans to accelerate capacity increases and step up cost cuts in order to defend its share of an air-travel market that's becoming flooded with discount rivals.  
The Paris-based carrier will boost seating as much as 4 percent this year, helping to combat the low-cost challenge and cope with rising fuel costs, it said on Friday. Partnership will also be key in defending long-haul markets, but the company played down the prospect of it investing in Italy's Alitalia.

“As we enter 2018 in a context of rising oil prices and even more intense competition, we will go on the offensive,” chief executive Jean-Marc Janaillac said in a statement.

Air France-KLM is keeping its foot on the gas after breaking a cycle of losses and labour unrest, helping to propel the stock up more than 160 percent last year. The company is set to face an increased domestic challenge as Ryanair Holdings seeks to open its first French bases, while long-haul discounters led by Norwegian Air Shuttle are encroaching on trans-Atlantic routes.

The planned capacity jump will follow a more modest increase of 2.6 per cent in 2017, encouraged by bookings indicating higher demand and unit revenue, a measure of fares. Seat increases will include inter-continental services, where the Level discount arm of British Airways is preparing to offer Paris-New York flights for 129 euros ($162).

There are as yet no plans for Air France-KLM to launch its own low-cost long-haul unit, chief financial officer Frederic Gagey told Bloomberg TV.

Air France-KLM agreed to buy 31 per cent of Britain’s Virgin Atlantic Airways in July and partnerships are set to become increasingly important, Gagey said, describing them as “weapons to answer attacks from competitors”. At the same time, he talked down the likelihood of taking a stake in Alitalia, saying that while his carrier is “not totally uninterested” given an existing joint venture, that “doesn’t mean we will be involved in the equity of company”.

Air France-KLM plans to cut unit costs as much as 1.5 per cent in 2018 after they were flat last year, aided by increased productivity, higher fleet utilisation and the expansion of its reduced-fare brand, Joon. That excludes a forecast 150 million-euro jump in the fuel bill.

Operating profit last year jumped 42 per cent to 1.49 billion euros, the company reported. Analysts had predicted a figure of 1.52 billion euros, based on 13 estimates. The Dutch KLM arm made the biggest contribution and had an 8.8 per cent margin, versus 3.7 percent at Air France. The group had a net loss of 274 million euros following a one-time pension expense of 1.43 billion euros.