Air France 2008 Annual Report Download - page 11

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11
“We must continue to build
an even stronger and competitive
industry leader”
What is your view of the 2007-08 financial year?
We achieved our objectives we had set out with and
created value. It was, therefore, an excellent financial year
with record operating income of 1.41 billion. Profitability
improved further, with the adjusted operating margin
gaining nearly one point to 6.7% and return on capital
employed reaching 7.1%, again in line with our objective.
Net income of 748 million was down on last year, but
this was after the 530 million provision booked to reflect
the current status of the US and European Union
competition authorities’ investigations of the cargo sector.
This was partially offset by capital gains on our
shareholding in WAM. Excluding these exceptional items,
net income would have increased by 10.8%. This led us
to increase the dividend per share by 21% to 58 euro
cents.
This performance is all the more remarkable when set
against an environment which began to deteriorate during
the second half, with the credit crisis originating in the
United States and the very sharp rise in the oil price.
Global economic growth and the oil price are key
elements for your sector. What impact are they likely
to have?
Forecasts for global economic growth have been
downgraded but remain positive, calling for growth of
some 3% over the next few years, driven by emerging
countries. This should normally underpin an increase of
around 6% in long-haul traffic demand. Unfortunately, the
rise in fares needed to offset the higher fuel cost will put a
temporary dampener on demand. We expect all of this to
lead to a redrawing of the air transport landscape, with
the leading players, which of course include Air France-
KLM, becoming stronger.
How do you see the restructuring in the air transport
landscape?
With oil at $135 a barrel and without hedging, fuel
represents on average around 40% of costs for our
industry, compared with just 5% only a decade ago.
Cost-cutting is no longer sufficient to offset this sharp
increase, so we need to increase fares and, as I
mentioned earlier, this will weigh on demand. Over the
next two years, I expect demand to be stable or even
slightly down. Add to this the fact that some airlines
operate old, fuel-hungry fleets and don’t have fuel hedging
to reduce the impact of this increase. In these
circumstances, restructuring looks inevitable. It will involve
capacity reductions already announced by many carriers,
the acceleration of mergers - particularly in the United
States - and, unfortunately, the disappearance of a
number of players.