France-KLM said it will accelerate capacity increases, despite an uncertain economic climate, in order to defend its share of an air-travel market that’s becoming flooded with discount rivals.

The Paris-based carrier will boost seating by up to 4% this year, in a bid to combat the low-cost challenge, even as fuel expenses jump by a forecasted €150m, it said.

The shares dropped as much as 7.5%, to the lowest in eight months.

Operating profit, last year, jumped 42%, to €1.49bn.

“As we enter 2018, in a context of rising oil prices and even more intense competition, we will go on the offensive,” chief executive, Jean-Marc Janaillac, said.

More partnerships are planned to help defend long-haul markets, but the company played down prospects for investing in Italy’s Alitalia.

Air France-KLM is keeping its foot to the pedal, after breaking a cycle of losses and labour unrest, helping to propel the stock up 160% last year.

The company faces a heightened challenge, as Ryanair moves to open its first French bases, while long-haul discounters, led by Norwegian, are encroaching on trans-Atlantic routes.

Shares of Europe’s largest airline, which cautioned that the “global context remains uncertain,” have slid 26% this year, after the mammoth 2017 advance.

Mr Janaillac pledged to keep a close eye on Ryanair, which said, this week, it aims to open at least two bases in France, starting with five aircraft apiece, as a reluctant embrace of unions removes barriers to expanding in a market where companies are required to let workers join unions.

“We are for competition, but fair competition,” the CEO said, adding that his company will watch “to see they respect the laws”.

Air France-KLM’s planned capacity jump follows a more modest, 2.6% boost in 2017, encouraged by higher bookings and unit revenue (a measure of fares) in most arenas other than the French domestic market.

Seat increases will include inter-continental services, where the IAG’s British Airways discount arm, Level, aims to offer Paris-New York flights for €129.

IAG also owns Aer Lingus and Iberia, as well as low-cost airline, Vueling.

Chief financial officer, Frederic Gagey, said there are no plans for Air France-KLM to launch its own, low-cost, long-haul unit, and that partnerships, including the purchase of a 31% in Virgin Atlantic Airways, are “weapons to answer attacks from competitors”.

Bloomberg

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