In case you haven't noticed it, oil prices are surging, and the impact of these high prices is not going unfelt by the major airlines. Today, Europe's largest airline, Air France-KLM, stated what most of us already knew... it's not going to be a pretty year for the company's bottom line.During its fiscal fourth quarter the airline swung to a loss of $853.81 million. During the same period last year the company was able to show a profit of $44 million.
The current surge in oil prices (which hit $135 earlier today), definitely played a role in the weak quarter, but were not the main culprit in the hefty loss. Most of the loss was due to $834 million after-tax provision due to a European and U.S. investigation into the air-cargo industry.
While the airline predicts that its 2008 fiscal year will be challenging, it is expecting to show an operating profit of $1.5 billion. While this is well below its 2007 operating profit (operating profit = earnings from ongoing operations) of $2.21 billion, it is still respectable given the current marketplace, and shows that the company has been better than most airlines at dealing with the rising costs of keeping their planes in the air. It noted that its annual fuel bill increased by 7.4% to $7.2 billion.
While current oil prices are definitely having an impact on the company's bottom line, in the end the airline could actually emerge as a strong player as a result. Andrew Lobbenberg, an analyst with ABN Amro, noted that the current economic situation is going to weed out the smaller players, and in the end, larger carriers like Air France are going to end up with a higher market share than they had before oil prices starting shooting to the moon. The only question is, what damage is going to be done between now and then.
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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