Air France-KLM's third quarter results have been stung by the negative impact of fuel hedging, exchange rates and the gloomy economic environment, swinging to a €194 million ($250 million) operating loss from a €311 million operating profit.

During the three months ended 31 December 2008 Air France's revenues remained stable at just under €6 billion, but the group's fuel bill rose 45.3% to €1.6 billion, sapping its profitability. Air France-KLM says the fuel cost spike was driven by a 1% decline in volume, a 7% negative currency impact and a 39% hit from unfavourable hedging.

The quarter's net loss stood at €294 million, compared with a €190 million net income for the comparable period in 2007-08.

Operating costs for the three-month period were up 8.9% at €6.2 billion, but just 0.1% excluding fuel. Unit revenues fell 2% and unit costs rose 7.9%, but at constant currency and fuel price unit revenues would have risen 1.8% and costs would have fallen 1.2%. The group says its 'Challenge 12' cost savings plan shaved €212 million from its expenditure during the quarter.

But Air France-KLM says it is taking several new measures to counter the market deterioration. These include a 2% capacity cut this summer, unwinding fuel hedging to give 43% coverage for 2009-10 and 20% for the next two years and slashing capital expenditure by €1.2 billion including €600 million in the coming year.

It adds: "Our target for the 2008-09 financial year is still a positive operating result, but its level will depend on economic developments between now and the end of the year, their impact on the passenger activity, and especially on cargo which is facing extremely difficult conditions, as reflected in recent monthly traffic statistics.

"In the meantime, we will continue to assess all our costs in order to achieve additional savings wherever possible."

On a nine-month basis, group revenues rose 3% to just under €19 billion, operating income fell 69.3% to €445 million and net income fell from €924 million to €103 million.

Source: Air Transport Intelligence news