Air France-KLM swings to quarterly loss as Middle East conflict bites

By Joanna Plucinska and Diana Mandia

LONDON/GDANSK (Reuters) -Air France-KLM swung to an unexpected loss in the last quarter of 2023, hit by higher costs and disruptions caused by conflict in the Middle East, sending its shares down 10% in early Thursday trade.

European airlines have reported strong demand for the coming year, but supply chain constraints have led to higher costs and maintenance delays while geopolitical tensions have also disrupted plans and schedules.

The Franco-Dutch airline group reported record full-year revenue up 14% to 30 billion euros and operating profit of 1.7 billion euros ($1.8 billion), up from 1.19 billion a year earlier and in line with expectations.

However, it also posted a fourth-quarter operating loss of 56 million euros, missing a consensus 88 million euro profit forecast in a company poll of analysts, owing to a 3.5% increase in unit cost that was only partly offset by lower jet fuel prices.

Though the company said in October that flight disruptions resulting from the conflict in the Middle East would not have a significant impact on the group, it also warned of a slight drop in demand for some destinations it serves around Israel.

Flights to and from Tel Aviv were suspended until Jan. 24 but have since resumed with three weekly trips.

The group recorded an increase in operational disruption costs of 70 million euros in the period.

Shares in the company were down 8% at 0918 GMT.

The annual operating margin rose to 5.7%, up 1.2 percentage points.

A scarcity of spare parts and a shortage of engineering labour has proved challenging for the group, but it was able to pay down 1.3 billion euros of debt, much of which was amassed during the pandemic travel shutdown, leaving outstanding net debt at 5 billion euros.

($1 = 0.9230 euros)

(Reporting by Joanna Plucinska and Diana MandiáEditing by Deepa Babington, Mark Potter and David Goodman)