Air France – KLM Blame Overcapacity and Venezuela for Further 2014 Shortfalls

The Franco-Dutch airline group seems not to be able to come through 2014 as previously stated by them and is forced to officially correct its financial prognosis downwards for this year.

Boeing 747-400 of Air France at CDG  /  source: AF
Boeing 747-400 of Air France at CDG / source: AF

In a statement issued yesterday (8 July), Air France informed that combined earnings for this year, before interest, tax, depreciation and amortization will only reach a maximum of between 2.2 billion to 2.3 billion euros.
The previous target of 2.5 billion euros will fall behind in the worst case by minus 12%, or in best case by minus 8%.
This is a hard blow to bear considering that the carrier continues to lose money on almost all sectors.
It had been hoped that the 2013 results of only 1.86 billion euros would have been bettered, but if another revision were to happen this year, then 2014 figures might end up as miserable as those of 2013.

The blame lies elsewhere!
In its statement the carrier stresses that the shortfall results from over capacity on both Asian and North American routes as well as the continued dispute with Venezuela where they, along with other international carriers continue to try and repatriate revenues from ticket sales which were effected in local currency (bolivar) and the transfer of which has so far been blocked by the Venezuelan government.
It is said that a total to the equivalent of almost 4 billion USD in international ticket sales generated in Venezuela is stuck there.
How much of this is due to Air France-KLM is not disclosed.
The carrier has already dropped its flights to that country by almost half.

A further deciding factor for this decline lies according to the AF/KL management in an excess of capacity on long range routes, especially to and from Asia and North America. This has in their view resulted in a further fall in passenger fares and air cargo rates as well as lower forward bookings for July and August.

Cargo demand weakens further
Previous losses were citied to come mainly from the short and medium haul routes as well as the continuing drama on their cargo results.
Cargo revenues and bottom line figures seem to be falling further, thereby fueling strong rumors that the carrier will indeed have to do away with the cargo fleet and operations and maybe even disclose by July 25th that various regional bases will be axed as well.

Will this once proud duo in its present form ever be able to get back into black figures, or at least “break even?“
Lufthansa had announced earlier in June that they were revising their 2014 forecast downwards mainly due to competition from Gulf carriers. However they still maintain they’ll reach an operating profit of 1 billion euros in 2014 and even double that to 2 billion in 2015.
Cargo results issued today by LH Cargo management (refer to LH Cargo article here) show them being more of less on track despite market setbacks.
So, is the AF/KL problem really just one of overcapacity and Venezuelan bolivars?

John Mc Donagh

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