Air France-KLM misses profit forecast on higher costs

By Stephanie Hamel

(Reuters) -Airline group Air France-KLM reported a worse-than-expected 30% drop in quarterly operating profit on Thursday, as higher labour and fuel costs erode margins even as revenues are boosted by higher fares.

Second-quarter operating profit fell to 513 million euros ($557 million), below the 547 million euros expected in a company-provided consensus of analyst forecasts.

"The miss ... is driven by 3% higher fuel costs & 2% higher D&A" (depreciation and amortization)" said a Deutsche Bank note.

Air France-KLM shares were up 1.8% at 1245 GMT, after opening slightly lower.

Several airlines, including Ryanair, have missed earnings forecasts recently amid rising costs and signs the post-pandemic boom in travel is fading, although easyJet painted a brighter picture on Wednesday.

"Air France actually has all the headwinds this quarter", chief financial officer Steven Zaad told a press call, citing a 40 million euros ($43 million) revenue hit from the Olympic Games in Paris, which open on Friday, as well as higher costs from salaries linked to labour agreements.

The group said it expected unit costs - the average cost of flying an aircraft seat one mile - to rise 2% in 2024 from the year before, against 1-2% estimated previously.

It trimmed its annual capacity forecast to a 4% rise, from 5% previously.

Air France-KLM said it had taken measures to cut costs since April, including a hiring freeze for support staff.

Cuts in marketing expenses and a 20% reduction of discretionary costs should be implemented in the rest of this year, it said.

Quarterly revenue rose 4.3% to 7.95 billion euros, as expected, through the group issued a profit warning earlier this month as the Olympic Games spurred some people to rethink their travel plans.

"The Olympics is just once in a lifetime in your home country. I know it is a disappointment in terms of revenues, but I would like to invite everybody to see the beauty of Paris," said Zaad.

He expected a positive trend in French demand after the Games.

($1 = 0.9217 euros)

(Reporting by Stéphanie Hamel; Editing by Bernadette Baum and Mark Potter)