Air France KLM issues profit warning

Overcapacity has been to blame after Air France-KLM issued a profit warning on Tuesday (July 8th).

Shares in the Franco-Dutch airline dropped over five per cent to €8.9 (£7.08) in early trading following the announcement. It represented their lower levels since late February and provided yet another blow to the European airline sector lower. Air France-KLM also stated that the issue of overcapacity could lead to more job cuts.

The European airline, the second-largest traditional network carrier on the continent, warned that its 2014 profits could be 12 per cent lower than previously predicted. It has faced increased competition from other low-cost airlines operating long-haul flights across the Atlantic and current restrictions in Venezuela have also hit its earnings.

Air France-KLM has encountered problems in the South American country which have prevented airlines from repatriating revenues from tickets sales there. Despite the company having to revise its yearly earnings forecast from €2.5 billion to between €2.2 billion and €2.3 billion it is still expecting earning jump over 20 per cent compared to 2013.

The company said: "While not representing a turning point in market trends, the June traffic figures published today as well as bookings for July and August nevertheless reflect the over-capacity on certain long-haul routes, notably North America and Asia, with the attendant impact on yields."

Air France-KLM's announcement comes after German airline Lufthansa also announced a profits warning. It prompted a 14 per cent drop in share which the company blamed on increased competition on its main US and European routes.

Lufthansa has also been hit by issues in Venezuela which had lowered its results by a further €60 million while its 2015 earning target had to be downgraded from €2.65 billion to €2 billion. A three-day pilot strike in April wiped another €60 million of its annual profit.

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