The biggest airline in Europe – Air France KLM SA reduced its full-year earnings projection due to overcapacity on North American and Asian routes combined with poor shipment demand.
The company said in its statement, which was cited by Bloomberg: “While not representing a turning point in market trends, the June traffic figures published today as well as bookings for July and August nevertheless reflect the over-capacity on certain long-haul routes, notably North American and Asia, with the attendant impact on yields.”
According to the statement of Air France KLM SA, its earnings before interest, tax, depreciation and amortization are expected to amount to between 2.2 billion euros (3 billion dollars) and 2.3 billion euros in 2014. The airline carrier lowered its initial forecast by about 12%. This projection falls short of the previous forecast of about 2.5 billion euros. In comparison, the 2013 earnings before interest, tax, depreciation and amortization of the carrier were 1.86 billion euros.
The reduced full-year projection of Air France KLM SAs is due to the relatively weak market performance in June and to the bookings for July and August. Overcapacity also turned to be a problem when it comes to flights between Europe and Asia, and between Europe and North America.
As reported by the Financial Times, Gerald Khoo, one of the analysts who work at Liberum Capital commented: “Overcapacity is the original sin of the airline industry – too much supply for too little demand.”
Currently, Air France KLM provides about 100 000 jobs and has been affected by six straight years of losses. In addition, recently it has been operating in the conditions of fierce competition especially from low-cost carriers.
Air France KLM SA was losing 5.74% to trade at 8.86 euros per share by 11:40 GMT, marking a one year change of +32.64%. According to the information published on the Financial Times, the 26 analysts offering 12-month price targets for Air France KLM SA have a median target of 11.00, with a high estimate of 16.00 and a low estimate of 2.75. The median estimate represents a 17.06% increase from the last price of 9.40.
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