Air France-KLM sends shivers through jittery airline sector

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AIR FRANCE-KLM sent a further shiver through the airline sector when it slashed full-year profit forecasts due to overcapacity on its US routes.

Shares in British Airways owner International Airlines Group slumped five per cent in the wake of the warning, which comes weeks after Lufthansa cut forecasts for the next two years due to overcapacity and competition from Middle Eastern carriers such as Emirates or Etihad on US and European routes.

Air France-KLM, which flew 77.3m passengers across its fleet of 552 planes last year, cut its 2014 earnings target by 12 per cent to around £1.7bn.

Cantor Fitzgerald said the pressure on fares reported by Germany’s Lufthansa was also being felt by Air France-KLM. Analyst Robin Byde said: “The Middle Eastern carriers continue to put a lot of capacity into the market. We are seeing this on transatlantic routes and a number of other long-haul routes from Europe.”

Air France-KLM said its June traffic figures as well as bookings for July and August “reflect the overcapacity on certain long-haul routes, notably North America and Asia”.

It added that weak cargo demand and regulations also dragged on earnings. Despite the profit warning, Air France-KLM said that it still expected earnings to rise over 20 per cent compared with 2013.

A number of smaller airlines have also downgraded their profit forecasts including Leeds-based Jet2.com.