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Air France KLM to reduce investment following strikes

Article By: ,  Financial Analyst
February 19, 2015 11:26 AM

Air France-KLM has been forced to revise its outlook for the coming due to the strikes impacting on its full-year profits.

The French-Dutch airline announced that it would be speeding up it cost cutting programme and reducing investment across its operations. The company saw earnings slip by €266 million (£172 million) to €1.598 billion which was a culmination of the 2014 pilot's strike, the longest in 20 years, and the weakening euro.

Many airlines had benefited from tumbling oil prices by Air France-KLM's strike meant that any bonuses it would have gained from cheaper fuel was hampered by the strike. Revenues were down 2.4 per cent to €24.91 billion, this came despite passenger numbers rising by 1.3 per cent during the past year.

Air France-KLM saw high demand for its services to Asia, Latin America and Africa. However, this acted as somewhat of a double-edged sword as overcapacity of the routes weighed heavily on ticket prices.

In a call to journalists, Alexandre de Juniac, Air France-KLM chief executive, said: "The environment is challenging and mixed. We've reasons to be cautious."

The impact of the strikes

Air France pilots originally went on strike in September 2014. Their grievance was around the carrier's plans to expand its low-cost airline Transavia, via regional hubs across around Europe. The aim was to create a sustainable rival to budget airlines such as Easyjet and Ryanair, which had taken a large chunk of Air France's business.

The decision would see a variation of employment contracts for those working at the low-cost subsidiary. This angered the pilots who wanted to see the same contract offered to all pilot across all Air France operations. Pilots' union SNPL staged a 14-day strike which cost the airline €425 million.

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