FEAR FACTOR

We are concerned about France as a travel destination, says Air France

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France’s spate of terrorist attacks is scaring tourists away, and Air France-KLM is worried. “There is clear pressure on France as a destination,” Pierre-François Riolacci, the airline’s chief financial officer, said today on an earnings call. “And that’s where we are the most sensitive.”

The airline’s warning came a day after two ISIL supporters slit the throat of an elderly priest during mass in a church outside Rouen, in northern France. Repeated attacks over the last 19 months have shaken the country, from the bombing on the satirical Charlie Hebdo newspaper in January 2015 to the massacre across Paris in November and the truck attack that killed 84 people two weeks ago in Nice.

France’s tourism industry had already been struggling before the Nice attack. For several months now, hotel bookings have been falling year-on-year.

All this, along with other geopolitical instability (such as the recent attacks in Brussels and Istanbul) will hurt Air France-KLM’s revenue this year, the airline said. Rival carrier Lufthansa issued a similar warning a week ago, saying terrorism is hurting demand for routes to Europe.

The combination of falling demand for travel to Europe and increased competition from other carriers has forced airlines to slash fares. They are now the lowest in years for many transatlantic routes.

Up to now airlines have been enjoying windfall profits because low oil prices have made jet fuel cheap. Despite reporting a 5% decline in second-quarter revenue, Air France-KLM still posted a profit (pdf).

But those profits from cheap fuel may be short-lived. The Franco-Dutch carrier said weaker revenue in the coming months, along with exchange-rate fluctuations, would “more than offset” its fuel savings.

Nevertheless, the fear of terrorism means airlines may have to offer even cheaper fares as they try to make Europe more enticing.

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