Air France, Norwegian flying high on 2016 revenue, but expect turbulence ahead

An Airbus A320 aircraft (L) and an Airbus A321 (R) stand on the tarmac at Roissy Charles de Gaulle airport in Paris, France.
Antoine Antoniol | Bloomberg | Getty Images
An Airbus A320 aircraft (L) and an Airbus A321 (R) stand on the tarmac at Roissy Charles de Gaulle airport in Paris, France.

European airlines Air France-KLM and Norwegian have propelled into the New Year with above expectation results; however headwinds from rising fuel prices, cost-cutting and government policy threaten a bumpy ride ahead.

Air France-KLM's's chief financial officer Frederic Gagey told CNBC Thursday that geopolitical factors have ensured that the airline must remain "extremely strict" in its cost reduction strategy in 2017, including cutting approximately 1,800 jobs across the group.

The Franco-Dutch carrier saw revenues of 24.8 billion euro ($26.4 billion) for the full-year 2016, fuelled partly by a dip in oil prices last year. Operating income rose to 1.04 billion ($1.1 billion) from 780 million euros.

As the energy market rebalances in 2017, Air France-KLM is expecting to see its fuel bill increase by $100 million in 2017 to $4.9 billion, before reaching $5 billion in 2018. This will offset the 25.7 percent drop in fuel costs seen in 2016.

To counter this, the airline is targeting a 1.5 percent reduction in unit costs this year. Last year it cut costs by 1 percent.

Air France-KLM's cost-cutting plans come at a difficult time for the airline industry.

Geopolitical difficulties have weighed heavily on airlines generally, and not least Air France-KLM which was suffered largely from a drop in tourism levels on the back of the terrorist attacks which hit the country in 2015 and 2016.

In addition, greater competition, particularly from Middle Eastern carriers who benefit from cheaper labor and fuel costs, has increased downward pressure on fares.

The EU is currently looking at new ways to counter the cost advantages received by government aided firms, which Gagey says he supports as a means of achieving "fair competition".

"We continue to play a position; we hope there will be a result. We are for the competition. We think we can open the markets to new actors if they apply the same rules," he said.

Meanwhile Thursday, Norwegian Air reported a 16 percent increase in total revenue for the full-year 2016 at 26 billion Norwegian krone ($3.12 billion).

Tomm W. Christiansen | Bloomberg | Getty Images

This marks the firm's "best ever results in a year of strong international growth," the company's chief executive Bjørn Kjos said in a press release.

Norwegian's net profit was $1.36 billion and passenger numbers grew 14 percent over the year to 29.3 million.

Both Air France and Norwegian have pledged to grow passenger numbers and increase routes in 2017, with a particular focus on long-haul routes.

Air France's passenger numbers were up 4 percent in 2016 to 93.4 million. It plans to grow capacity by 3-3.5 percent in 2017 in order to regain the offensive in long-haul and to improve the performance in medium-haul," the company said in a press note.

With geopolitical issues set to hamper airlines for the foreseeable future, currency fluctuations may however benefit the industry somewhat and Gagey is hoping that a stronger dollar against the euro will help the euro zone become "more attractive in 2017".