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Air France-KLM speeds up cost cuts, curbs investments

Air France-KLM is accelerating cost cuts and deferring debt-reduction goals as pressure on revenue and a weak euro threaten to dampen the benefits of lower oil prices this year.

Europe's second-largest traditional network carrier, which issued three profit warnings last year, also announced plans to cut investments and delay some aircraft deliveries as it posted lower 2014 revenue and core profits on Thursday.

Although lower oil prices have boosted airline balance sheets, Air France-KLM expressed concern about currency swings and overcapacity in some long-haul markets. It has also had to contend with a costly Air France pilots strike.

The Franco-Dutch group said it would bolster its recently launched Perform 2020 strategic plan by reducing investments by 300 million euros ($342 million) a year in both 2015 and 2016 and confirmed it would shed the equivalent of 800 further jobs through voluntary measures.

It revised up its unit cost reduction target for 2015-17 to an average of 1.5 percent a year, instead of a previous goal of between 1 and 1.5 percent.

For 2015, the group intends to cut unit costs by 1 to 1.3 percent, saving 250-300 million euros.

Sia Kambou | AFP | Getty Images

It now targets net debt of 5 billion euros at the end of 2015 rather than the 4.5 billion euros targeted previously, down from an actual level of 5.41 billion at the end of 2014.

It eased its medium-target target for the ratio of net debt to gross operating profit before lease rentals (EBITDAR) to around 2.5 from 2017, compared with a previous target of below 2.5.

"With the way we see the market developing, except for the North Atlantic, we are being very, very cautious," Chief Executive Alexandre de Juniac told journalists.

Revenue fell 2.4 percent in 2014 to 24.912 billion euros despite a 1.3 percent increase in passenger numbers.

Earnings before interest, tax, depreciation and amortization (EBITDA) fell by 266 million euros to 1.589 billion, weighed down by the impact of the recent pilot strike.

Analysts were on average expecting EBITDA of 1.671 billion euros and revenue of 24.84 billion, according to a Thomson Reuters I/B/E/S consensus estimate.

Net losses narrowed sharply to 198 million euros due to changes in Dutch pension rules and the sale of shares in the Amadeus booking system.

Hit by weakening revenue since last summer and the lingering effects of the pilots strike, the airline group gave no profit forecast for 2015.

Its shares closed up 0.1 percent at 7.589 euros on Wednesday.