Air France-KLM warns on profits as air travel numbers fall

Air France-KLM, Europe's largest airline, issued a profits warning yesterday against a backdrop of figuresshowing the first monthly decline in worldwide air travel since 2003.

The French-Dutch group said it will find it "very difficult" to meet its full-year profit target of €1bn (£802m) in light of current economic conditions. The company is also to limit increases in capacity for both this winter and next summer to between 1 per cent and2 per cent. It has put in place a cost-saving plan and is slimming down itsinvestment programme.

Although Air France-KLM maintains that it will still make a full-year profit if conditions do not deteriorate further, this stability is by no means guaranteed. The International Air Transport Association (Iata) figures for airline passenger traffic show a 2.9 per cent year-on-year drop for September, the first such fall in five years, as both tourists and lucrative business travellers rein in their travel. Cargo traffic was down 7.7 per cent compared with the same month in 2007.

Giovanni Bisignani, the director general of Iata, said: "The deterioration in traffic is alarmingly fast-paced and widespread. We have not seen such a decline in passenger traffic since [the health scare over] SARS in 2003."

The rapidly falling oil price, which had been increasing carriers' jet fuel costs, is not offsetting the problems caused by recessionary worries across the world, Mr Bisignani said. "At this rate, [the airline industry's] losses may be even deeper than our forecast $5.2bn (£3.3bn) for this year."

Air France-KLM shares closed down 3.29 per cent in Paris. In London, British Airways (BA) was off 4.69 per cent.

It has already been a difficult year for airlines. More than two dozen companies have gone bankrupt so far this year, including Zoom, Silverjet and Oasis. In August, Willie Walsh, the BA chief executive, warned that theindustry was facing its "worst ever" trading conditions, as BA reported an 88 per cent slump in profits in the first quarter of its financial year.

Yesterday's news from Brussels that the European Council has signed off on a plan to include the aviation sector in its carbon emissions trading scheme (ETS) did nothing to improve the mood. Whilst environmentalists applauded the decision, Iata accused Brussels of "acting in a bubble – even in the middle of a global economic climate."

Mr Bisignani said: "Crisis is not the time for rubber stamps, but that is exactly what the Council of Justice and Home Affairs Ministers used today – without a word of debate – to seal into law the €3.5bn cost of bringing airlines into the European ETS."

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