KLM has worried financial markets with an unexpectedly poor set of first-quarter figures, revealing a steep rise in costs and further bad news from its cargo operations. Attention has focused on a drop in the Dutch carrier's operating profits, which slumped by half over the quarter to the end of June.
"The results were exceptionally disappointing," says one financial analyst, and KLM admits that the full-year results are likely to fall short of the 1995/6 performance.
Traffic continued to rise steadily, but costs rose virtually twice as fast, at 11%. In part, KLM blames the increase on a 24% surge in fuel bills and a steep rise in the US dollar-exchange rate, but wage costs also spiralled. Sales growth was held back by a further dip in yields.
Much of the poor performance stems from the depressed cargo market, where KLM has been struggling to fill the capacity added towards the end of 1995. Traffic was up by 2% over the June quarter, against a capacity increase of 8%.
Passenger traffic showed stronger (10%) growth, but KLM warns that fares are coming under pressure from Europe's low-cost start-up carriers. On 7 August, UK low-cost carrier easyJet announced that it is pressing ahead with a legal action against KLM, alleging predatory pricing on the London-Amsterdam market. The start-up has also lodged a complaint with the European Commission.
KLM nevertheless, doubled net profits to DFl271 million ($163 million) for the quarter, thanks to returns from its shareholding in Northwest Airlines.
The underlying weakness of the KLM result is emphasised by a solid quarterly performance from British Airways. Despite weathering a similar rise in costs, led by an increase in fuel prices, BA held operating profits steady and ended with an improved net result of £115 million.
As forecast, passenger-load factors were down from 1995's record levels, but that was offset by a boom in yields, which were up by 6.6%, because of a stronger dollar, fewer discounts and the strength of premium traffic growth.
Source: Flight International
