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Air France-KLM raises targets

Air France-KLM, the world's largest airline by turnover, increased its operating profits strongly last year and raised its profitability targets for the next three years.
/ Source: Financial Times

Air France-KLM, the world's largest airline by turnover, increased its operating profits strongly last year and raised its profitability targets for the next three years.

Three years after the takeover of KLM, the Dutch flag carrier, the group also announced the close of the first phase in the merger and a "deeper integration of the strategic functions" of the two airlines.

Operating profit rose by 32.5 per cent in the 12 months to the end of March from €936m to €1.24bn ($1.67bn, £839m), while turnover rose 7.6 per cent from €21.5bn to €23bn.

It announced a 60 per increase in the dividend from €0.30 to €0.48 cents a share.

Jean-Cyril Spinetta, chairman and chief executive, said the group had set the target of raising its return on capital employed in the next three years from 6.5 per cent last year to 8.5 per cent by 2009-10.

He said he was confident of achieving the target given the group's "strong fundamentals," its significant competitive advantages – which include two of the leading airport hubs in Europe, in Paris Charles de Gaulle and Amsterdam Schiphol airports – and "the positive outlook for global growth."

The group planned a "solid dividend policy" subject to growth in net income excluding exceptional items.

Profit before tax fell last year by 6.8 per cent from €1.1bn, largely due to the inclusion a year ago of a capital gain of €504m from changes in the group's stake in Amadeus following the leveraged buy-out by private equity groups of the computer-based reservation system and aviation information technology group.

Net profits fell by 2.4 per cent to €891m but rose by 80 per cent excluding the Amadeus transaction.

Investors weclomed the results, sending the shares 2.3 per cent higher to €37.75 in mid-morning trading in Paris.

Mr Spinetta said the last year had shown the benefits of the group's "profitable growth strategy" since the takeover of KLM, the former Dutch flag carrier. It had taken advantage of global economic growth to develop its business in all main markets and improve profitability.

The group suffered a big drop in operating profits in its cargo operations from €166m to €62m, including a €22m loss in the last quarter.

Air France-KLM said that competition in cargo had increased both from other airlines and from shipping groups, adding that the strong euro had weighed on European exports, in particular to Asia.

However, the setback was more than compensated by the strength of the passenger business, where traffic increased by 5.4 per cent on a 4.4 per cent increase in capacity.

The group's French network, Air France, also announced a $7bn aircraft order, split between Airbus and Boeing. The deals include an order for two more A380 superjumbos, 30 A320-family single-aisle jets from Airbus and 18 wide-body 777s from Boeing.