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Air France-KLM is latest airline to warn on profit as overcapacity hits prices

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Air France-KLM is latest airline to warn on profit as overcapacity hits prices
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There was a bumpy ride for shares of European airlines on Tuesday after Air France-KLM issued a profit warning, setting the stage for possible further job cuts by the company.

Europe’s second-largest traditional network carrier warned its 2014 profits could be as much as 12 percent lower than previously predicted.

The problem is overcapacity: too many planes and too few passengers and companies wanting to ship cargo, which is pushing prices down.

Even so, the lower expected result of 2.2 to 2.3 billion euros for 2014 is a 20 percent improvement on last year’s pre-tax earnings by Air France-KLM.

A string of airlines have raised profit worries in recent weeks, including Germany’s Lufthansa, Icelandair, Jet2.com and SAS.

“This warning is not entirely surprising given Lufthansa’s warning in June for the same reasons and the recent 21 percent decline in Air France-KLM’s share price,” said Citi Research analyst Andrew Light in a note.

“We expect further restructuring actions to be announced later in the year.”

Air France-KLM said that job cuts it announced in October 2013 had been completed in June and that it had begun a programme to cut some 700 cabin crew posts.

European airlines were among the region’s worst-performing shares on Tuesday, as well as Air France-KLM, Lufthansa and British Airways and Iberia parent IAG all declined.

with Reuters

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