Air France-KLM targets expanded partnership with Etihad

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Negotiations continue between Air France-KLM and Gulf carrier Etihad over the possible extension of the recently agreed codeshare agreement between the two parties.

Speaking on a 31 October earnings call, Phillipe Calavia, chief financial officer of the SkyTeam carrier group, said he hopes to expand the deal to cover more routes and to potentially forge "closer links with Air Berlin", in which Etihad holds a 29% stake.

Air France sees further potential for growth into Asia, notably India, through Etihad's Abu Dhabi hub, he adds. "Having such a partner, it will be possible for us to continue serving and maybe growing the Indian market, while on our own it would be very challenging," Calavia said.

"We will see in the next few months what further steps will come in this agreement."

Air France-KLM will also continue to trim cargo capacity next year in the face of a sustained slump in demand for freight movements. The carrier group will cut a further three aircraft from its freighter fleet in 2013, Calavia says.

Net losses in the cargo operation have widened in the first nine months of 2012 to €197 million ($255.6 million), up from a loss of €60 million over the same period last year.

Calavia sees continued weakness in the cargo market for the rest of the year, including in the run-up to Christmas - normally a peak time for freight movements.

"I do not anticipate a busy season during the fourth quarter," he says.

Passenger forward bookings also remain uncertain, says Calavia, with the economic crisis in southern Europe and France "not favourable to busy business activity".

However, northern Europe, North America and Asia continue to show resilience, he says. As a consequence, Air France-KLM will increase capacity on long-haul routes by 0.5 percentage points in 2013, with similar cuts in the short- and medium-haul operations.

Only a handful of new aircraft will be added to its fleet next year - a solitary Airbus A380 for Air France and "some" A330s for KLM. Overall capacity will be increased by about 1.5 percentage points, Calavia notes.

Meanwhile, negotiations continue with Airbus over Air France's tentative commitment for 25 A350-900s, with engine supplier Rolls-Royce remaining the key stumbling block.

Air France wants its engineering division to be able to carry out engine overhauls on its A350 fleet, while R-R is seeking to keep this work in-house. Calavia expects the two parties to come to an agreement, but he stresses that Air France will not allow R-R to "impose unacceptable conditions on us".