Air France-KLM Group (AF:FP) reports Q3 results that prove impact of global economic slowdown. Operating loss for the third quarter 2008 were at 194 million euros. The company also announced a cost cutting measure of eliminating as many as 2,000 jobs or 3 per cent of the total workforce.

Third Quarter reflects deepening economic crisis

Activity in the third quarter reflected the increasing severity of the economic downturn. The passenger business held up, underpinned by our balanced network and efficient hubs, with traffic up 3.4% and capacity by 2.9% (including VLM). The load factor gained 0.3 points to 79.5%. The long-haul and medium-haul networks experienced differing trends. Long-haul traffic proved relatively resilient, but saw a decline in premium class revenues which the more robust performance of economy class was insufficient to offset. Medium-haul suffered from a poor performance on the French domestic market in terms of both traffic and unit revenues.

The cargo activity suffered a sharp decline. The drop in traffic (12.5% in Q3) was accompanied by a significant decline in unit revenues linked to the removal of a considerable proportion of the fuel surcharges as well as general overcapacity in the sector which continued to put pressure on pricing.

Finally our fuel hedging policies had a negative impact on our results in an environment of falling oil prices.

Outlook for Full Year 2008-09

The economic environment continues to deteriorate, and the group is taking several new measures to face up to this situation including:

- a reduction in capacity of 2.0% for Summer 2009;
- the unwinding of several of the fuel hedging positions giving a current hedged position of 43% for 2009-10 and 20% for each of the next two years;
- a cut in capital expenditure of 1.2 billion euros, of which 600 million euros in the coming year.

Our target for Financial Year 2008-09 is still of a positive operating result, but its level will depend on economic developments between now and the end of the year, their impact on the passenger activity, and especially on cargo which is facing extremely difficult conditions, as reflected in recent monthly traffic statistics. In the meantime, we will continue to assess all our costs in order to achieve additional savings wherever possible.

IATA chief executive Giovanni Bisignani sees 2009 as “one of the toughest years ever for international aviation.” It goes without saying that if the airline industry will face its “toughest year ever” then tourism around the globe will also get its fair share of doom and gloom.

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