Can Air France-KLM Overcome Cost Pressures? Q1 Loss Raises Concerns

Air France-KLM (AIRF.PA) reported a higher-than-expected first-quarter operating loss of 489 million euros ($524.31 million) on Tuesday, citing high customer compensation at Dutch carrier KLM and one-time payments to employees.

European airlines have been struggling with rising costs associated with labor disruption and geopolitical turbulence in recent months, with German group Lufthansa (LHAG.DE) issuing a profit warning earlier in April due to strikes.

Nonetheless, Air France-KLM maintained its outlook, including a commitment to keep unit cost increases to 1-2% for the fiscal year 2024, despite rising to 4% in the first quarter.

“As anticipated, our operating income was impacted by disruption costs and a slower cargo business. We nonetheless remain confident in our ability to achieve our 2024 unit cost outlook,” Chief Executive Ben Smith said in a statement.

According to a company-compiled consensus, analysts expected the group’s first-quarter loss to be 424 million euros, compared to 306 million euros last year.

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Net income was also below expectations, with analysts expecting a loss of 407 million euros ($436.39 million) and the company reporting a loss of 480 million euros ($559.69 million).

Specifically, KLM’s poor operational performance between December 2023 and early March resulted in compensation payouts to customers totaling approximately 50 million euros, with costs increasing at suppliers and air traffic control services in general.