Air France-KLM and Iberia reported big drops in earnings as the airlines struggled with an economic slowdown and higher fuel prices. Soaring fuel costs have forced airlines to put up prices and cut flights even though the impact of rising costs has been mitigated by a weaker dollar.
The French-Dutch airline, the world's biggest carrier by revenue, said on Tuesday first-quarter net profit fell 59 percent to 168 million euros ($262 million), although this still beat analysts' average forecast of 145 million euros. Iberia, which is in talks to merge with British Airways, posted a 3.9 million euro operating loss in the second quarter from a 56.8 million euro profit a year earlier as it also came under pressure from fuel prices and weak demand.
Shares in both airlines rose, helped by a weaker oil price which hovered at a three-month low around $119 a barrel, down from a record $147 in mid-July. Air France-KLM was up 5.9 percent at 17.22 euros, and Spain's Iberia jumped 7.8 percent to 2.07 euros, ahead of a 5.6 percent jump in the DJ European travel and leisure index.
"The (Air France) results really look good and the outlook has been confirmed. Beyond the results, the fall in the price of oil is supporting the whole sector," said Raymond James analyst Bruno de la Rochebrochart. Air France's operating profit fell to 234 million euros from 415 million, in line with analysts' average forecast of 231 million euros.
First-quarter sales were up 5.8 percent at 6.29 billion euros. Air France-KLM confirmed its full-year objective of operating income in the order of 1 billion euros. It said that "in response to the new economic environment", it would seek an additional 190 million euros in cost savings to take the total for the financial year 2008-09 to 620 million as it wrestles with a fuel bill expected to rise to 5.86 billion.
Iberia made sales of 1.37 billion euros, unmoved from a year ago, but net profit of 21.2 million from April to June was a third of last year's result. When asked about full year results, Chairman Fernando Conte was upbeat: "To give you a basic flavour, we are of course confident of having a positive result from our operations activities this year, and even more our net result."
Iberia's fuel bill in the half rose 38 percent year on year but analysts praised the airline for screwing down non-fuel costs by 4.5 percent in that time after cutting staff, routes and less efficient planes. Iberia said it had hedged almost all its fuel needs for 2008, but the unit cost of fuel would jump 40-43 percent for the full year, up from 35 percent in the first half.
Next year's bill is 30 percent covered, executives said, "at levels not far away from today's spot prices." The results come days after British Airways reported an 88 percent fall in quarterly pretax profit in what it called the worst-ever trading conditions.
Ryanair, Europe's largest low-cost carrier, posted an 85 percent fall in net profit at the end of July and warned of a full-year loss if oil prices stayed high and fares fell. Airline operators around the globe are struggling to stay profitable with the price of oil up about 60 percent over the past year. Many have shed jobs and are scrapping routes, the weakest face the threat of bankruptcy and others are merging or forming partnerships to cut costs.
Iberia Chairman Fernando Conte said British Airways, American Airlines and Iberia were about to present an anti-trust application in the United States to form a trans-Atlantic partnership. "We are just finishing the papers for the request that will be presented, almost for sure, next week. We view positively the reaction of the US government," he told the conference call.
Iberia's full merger with BA would create an airline worth a combined $8.4 billion, flying to over 200 destinations, and would help produce a rival to Air France-KLM and Germany's Lufthansa, who have both bulked up after mergers. Industry lobby group IATA estimates higher crude prices will add $91 billion to the global airline fuel bill and that jet fuel, at $141.9 per barrel, is up 76 percent from a year ago. The fuel prices have worried airline investors, knocking 32 percent off Air France-KLM shares this year, giving it a market value of $7.6 billion.
Lufthansa last week stuck to its 2008 goal to match last year's operating result after boosting first-half earnings by 45 percent. US airlines including United Airlines parent UAL Corp, US Airways and JetBlue Airways, in which Lufthansa holds 19 percent, have all reported second-quarter losses, citing soaring fuel costs.
However, Japan's second-largest airline All Nippon Airways Co Ltd (ANA) last week reported a 10 percent rise in quarterly operating profit on a rise in international routes and as hedging cushioned the impact of high oil prices. Troubled Italian carrier Alitalia on Tuesday said it had postponed a board meeting to approve its first-half results until August 29.