LONDON: Air France-KLM expects its fuel bill to increase by 2.4 billion dollars this year because of the energy market disruption caused by the Iran war, it said on Thursday, as it downgraded its capacity outlook.
As jet fuel makes up more than a third of most airlines' costs, European airlines, including easyJet and TUI, have revised their outlooks following the onset of the Middle Eastern conflict at the end of February.
The jet fuel hedges they had taken out against price rises are increasingly unable to shelter them given the scale of spikes.
CEO SAYS WORST IMPACT HAS YET TO BE FELT
"While fuel price increases are not yet reflected in the results we present today, they are expected to weigh on the coming quarters," Air France-KLM Chief Executive Ben Smith said in a statement.
The company said its total fuel was expected to be 9.3 billion dollars for the year and of that 1.1 billion dollars would be for the second quarter.
Robust bookings before the Iran war began and as passengers favoured European airlines meant the company reported a smaller first-quarter loss than analysts expected.
It lowered its expectations for group capacity to an increase of 2% to 4% this year from 2025. It previously expected an increase of 3% to 5%.
Analysts said that the capacity cut was much smaller than expected.
Bernstein analyst Alex Irving said in a note it reflected "an ongoing strong earnings environment and high demand for travel".
Air France-KLM reported a first-quarter operating loss of 27 million euros ($31.55 million), compared with a loss of 389 million euros projected by analysts polled by LSEG. That represents a 301 million euro improvement over last year, with fuel price increases not yet affecting first-quarter results.
It said it had seen an initial boost after the Iran war broke out as more travellers favoured European carriers for flights to Asia.
However, as the conflict drags on, it said it planned smaller increases to its long-haul capacity as people postpone booking travel over concerns of the financial risk of long-haul trips. - Reuters
