Air France-KLM plans €800m in cost cuts

Air France-KLM Group rose as much as much as 4.1 per cent in Paris trading after reports that Europe's largest airline may seek €800 million (Dh4.1 billion) in fresh cost savings that could lead to thousands of job cuts.Air France rose to €6.19 and traded 3.2 per cent higher at €6.14 at noon after Les Echos said the company was preparing the savings plan, citing a person it didn't identify. Spokeswoman Brigitte Barrand declined to comment on the report.Chief executive officer Pierre-Henri Gourgeon has enforced a hiring freeze and told union officials Tuesday that further cost-cutting measures may be necessary, without giving any targets or discussing job cuts, Barrand said after the meeting. "It's good to hear, however I think it means things are probably getting worse for Air France," said Chris Logan, an analyst at Echelon Research & Advisory in London. "My guess is they're seeing something they don't like in forward bookings." Air France-KLM shares have plunged 55 per cent this year, the worst performance on the Bloomberg EMEA Airlines Index, valuing the company at €1.84 billion. High fuel costs and sluggish business-class demand will clip growth and lead to a weak end to the year for an industry already hurt by unrest in the Middle East and an earthquake in Japan, the International Air Transport Association said on Thursday. Air France, which is targeting a positive 2011 operating profit, may cut as many as 10,000 jobs if economies slow more severely than expected, Le Figaro cited an unidentified union official as saying. The carrier is already seeking €500 million in savings in 2011 via productivity and procurement gains, it said in July, up from the €470 million first pledged. "Cost cutting in France has always been difficult," said Chris Tarry, an independent aviation analyst who has followed the industry for almost three decades. "When they announced the first cost-cutting exercise that was a major step forward." The carrier, which is switching its accounting to the calendar year, earned €122 million in the 12 months to March 31, its first operating profit in three years, before posting a €145 million loss for the quarter ended June 30.Air France-KLM will post a full-year operating profit of €25 million, according to the average of eight analyst estimates compiled by Bloomberg.That compares with estimates of €1.09 billion for Deutsche Lufthansa AG and €644 million for International Consolidated Airlines Group SA, formed from the merger of British Airways and Spain's Iberia.The French company will reduce planned capacity increases next summer, it said yesterday, after trimming growth for the current winter timetable to 2.7 per cent from 5.1 per cent in July, two months after announcing a 10 per cent seat reduction in its joint venture with Atlanta-based Delta Air Lines. "There's nothing like a crisis to increase the focus on reducing costs, but the most important thing is that you don't compromise your business for when the upturn comes," Tarry said. From / Gulf News