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Overcapacity: Air France-KLM latest to warn on profits

July 10, 2014 Aviation, Headline News 1 Comment Email Email

egtmedia59IATA may have proclaimed “healthy demand for air traffic” for the month of May but carriers are still issuing profit warnings.

Air France-KLM is the latest, warning that its 2014 profits could be 12% lower than previously forecast. The main reason: overcapacity, keeping prices low in both the passenger and cargo sectors. That may be good for passengers and freight forwarders but it’s not great for airlines.

Lufthansa issued a similar warning a few weeks ago on profit targets for 2014 and 2015. The German carrier also blamed weaker-than-expected passenger revenue and cargo trends – particularly overcapacity on North Atlantic routes and competition from low-cost and Gulf carriers.

Just a few days ago, the International Air Transport Association (IATA) announced global passenger traffic results for May showing demand growth of 6.2% compared to May 2013. While this represented a slowing compared to April year-over-year traffic growth of 7.6%, IATA said the performance indicated improving demand drivers. May capacity rose 5.2% and load factor climbed 0.7 percentage points to 79%. All regions except Africa experienced positive traffic growth.

“We are seeing healthy demand for air traffic to support and help sustain the pick-up in global economic activity,” IATA director general and chief executive Tony Tyler stated.

IATA said May international passenger traffic rose 7% compared to a year ago. Capacity rose 6% and load factor climbed 0.8% to 78.1%. All regions recorded year-over-year increases in demand.

As well as Lufthansa, smaller European airlines like Icelandair and (a British low-cost carrier based in Leeds) have warned on profit. SAS said it will cut costs more rigorously, and Delta disappointed with its revenue figures, pointed out.

Air France-KLM said the lower expected result, at EUR 2.2 billion to EUR 2.3 billion (AUD 3.19 billion to AUD 3.33 billion) still represents a 20% improvement on 2013 earnings before interest, tax, depreciation and amortisation.

Written by : Peter Needham

Currently there is "1 comment" on this Article:

  1. stingforever says:

    ….i really don’t understand why airlines keep on increasing capacity and then complain about low profit… why cant they just use a380 planes and reduce flight frequency….. i’m quite sure the travelling public can work around airline flight schedules going and coming back… it will reduce carbon emission too…

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