PARIS (Dow Jones)–Air France-KLM (AF.FR) reported Tuesday it swung to a better-than-expected fiscal first-quarter net profit due to recovering cargo and passenger traffic and a one-time EUR1 billion gain, and despite the cost of the Icelandic volcanic ash cloud that closed airspace over most of Europe for almost a week.
Net profit in the three-month period ended June 30 rose to EUR736 million from a loss of EUR426 million in the same period a year ago, above an average estimate of EUR607 million from a panel of four analysts polled by the company.
Revenue in the quarter rose 11% to EUR5.72 billion, and the airline posted an operating loss of EUR132 million, down from a loss of EUR496 million a year before. Adjusted for the portion of financial costs in operating leases, operating income totaled EUR878 million due to a EUR1.03 billion capital gain from an initial public offering of the Amadeus reservation network, compared to an operating loss of EUR496 million a year before.
The year-ago figures were affected by the steep drop in freight and passenger traffic due to the global economic downturn.
Like other airlines with extensive European operations, Air France was affected by the closure of air space over much of Europe for almost a week in April due to an ash cloud from an Icelandic volcano, and the airline estimated this would reduce its earnings by EUR158 million.
It traffic contracted 2.3% in the quarter due to the ash cloud, but that it was up by over 4% in May and June. At the same time, Air France-KLM reduced its capacity 4.9%, allowing a 2.2 percentage point gain in load factor, a measure of the proportion of seats an airline fills with paying passengers. Unit revenues also recovered close to the pre-crisis levels of 2007-2008 so that passenger revenue was up 8.8% year-on-year.
The airline noted that without the impact of the air-traffic closure, its passenger business would have broken even in the first quarter.
Cargo revenue surged 42% from a very depressed year-ago level to EUR774 million on a 2.6% increase in capacity, and this business showed an EUR11 million first-quarter profit compared to a EUR197 million loss a year before.
Air France-KLM said that although there was an acceleration in the recovery in business travel and cargo activity in the first quarter and forward bookings for the second quarter were solid, “uncertainty surrounding the economic environment and the fuel price leads us to remain prudent for the second half of the year.”
However, it said it still expects to break even at the operating level in the financial year ending March 31, 2011, excluding the impact of the April air traffic closure, due to a quicker-than-expected turnaround in cargo activity and positive results from the revamp of its medium-haul operations.
Air France said first-quarter operating costs rose 3.3% year-on-year due to a 27% rise in the cost of fuel. Excluding the fuel impact, operating costs would have fallen 2.6%. It said that it incurred a loss of EUR160 million in the quarter from pre-2009 out-of-the-money fuel hedges. Labor costs declined 1.4%.