Air France-KLM projects fuel bill of over $9bn after ‘sharp rise’ due to Iran war

Air France-KLM expects its annual fuel bill to soar by $2.4 billion to more than $9 billion due to the war in Iran.

The European airline combine warned that price increases are “expected to weigh” on coming quarters of the year after imposing a ticket surcharge, freezing the hiring of non-operational staff and reallocating capacity as part of measures to mitigate the impact.

The projection came as the group, which also includes Transavia, said first quarter results were not affected, with year on year losses trimmed to €27 million from €301 million as revenues rose by 4.4% to €7.5 billion.

Passenger numbers rose by 2.3% over the equivalent first quarter of last year to 22.3 million as capacity grew by 4%.

The sharp fuel cost increase since the start of the Middle East conflict was not visible in the first quarter “due to a standard delay in pricing”.

However, the group trimmed its capacity growth for the year to between 2%-4% as part of a revised outlook “given current geopolitical uncertainty”.

Air France-KLM said it retained an “agile approach” to the rest of the year with a fuel bill expected to hit $9.3 billion, including $1.1 billion in the current quarter.

Pointing to a rolling fuel hedging policy, the group said: “Geopolitical tensions in the Middle East resulted in higher fuel prices, with jet fuel prices rising significantly more sharply than those of gasoil and brent.”

Chief executive Benjamin Smith said: “In a highly volatile geopolitical context, we demonstrated the resilience and agility of our network and successfully reallocated capacity to best meet demand.

“We also demonstrated once again the strategic role of aviation by participating in repatriation efforts at the beginning of the war in the Middle East.

“While fuel price increases are not yet reflected in the results we present today (Thursday) they are expected to weigh on the coming quarters.

“We’ve already introduced measures to support our financial performance through disciplined cost management and continue to monitor the situation closely.

“While the environment remains uncertain, we remain committed to the execution of our strategy.”

Air France-KLM was one of two bidders alongside Lufthansa Group for a minority stake in TAP Air Portugal selected to submit a binding offer.

“Any potential transaction would be assessed in line with the group’s strategic priorities,” Air France-KLM said.