Cargo IT Meltdown Hits Air France-KLM Earnings

Air France-KLM Group AFLYY said Tuesday that the bungled rollout of a new cargo IT system in March contributed to lower revenues during the first quarter, which in turn acted as a drag on earnings for the corporation.

The joint venture reported cargo revenues fell 16.5% year over year to 562 million euros ($602.3 million) even as traffic in revenue ton kilometers — a measure of revenue generation based on how much cargo is carried times distance — increased 4%. More broadly, the company's operating loss widened to $524 million compared to $333 million a year ago, partly due to operational disruptions and slower cargo business.

The Air France-KLM Group operates six cargo jets: KLM's three Boeing 747-400 production freighters, Martinair's one 747-400 converted freighter and Air France's two 777-200s. The Air France and KLM cargo divisions also manage shipments carried by their large passenger fleets.

Lower cargo revenues were attributed to a 26% decrease in yield and problems implementing new software at Air France's main warehouse at Paris Charles de Gaulle Airport.

Air France began migrating customers to a new cargo management system in early March but quickly experienced problems, according to a notice on the Air France-KLM-Martinair Cargo website last month. The airline was forced to stop accepting new bookings to, from and via the Paris hub for nearly two weeks. Dangerous goods and transshipments moving on passenger aircraft were embargoed from Paris for several more days because their specialized characteristics required extra programming.

Customer shipments were stranded at the cargo terminal because Air France couldn't identify many of them while the system wasn't working smoothly.

The situation resembled one faced by Qantas Freight in Australia last year after problems switching over to a new cargo platform caused shipment backlogs for several weeks at airport terminals.

Global air cargo demand increased 11% during the first quarter, exceeding capacity growth, behind strong e-commerce activity out of Asia and a mode shift related to Red Sea shipping disruptions. Air France-KLM said it wasn't able to take full advantage of the positive market conditions because of low capacity in China and payload restrictions on Asian flights due to the Russian airspace closure, which forces aircraft to carry more fuel.

The cargo division's first-quarter revenue still represents an improvement from last year, when sales fell 29%. During the fourth quarter, cargo revenue fell 23% from the same period in 2022. And it's on par, on a percentage basis, with American Airlines and Delta Air Lines, which saw revenues decline 15% and 16% year over year, respectively. The U.S. airlines, however, don't operate cargo jets.

Air France-KLM said load factors were essentially flat at 47%.

In January, Air France-KLM and CMA CGM Air Cargo, based in Paris, pulled the plug on their one-year alliance to share cargo capacity. They said the tight regulatory environment in the U.S. and other markets prevented the cooperation from working optimally.

The post Cargo IT meltdown hits Air France-KLM earnings appeared first on FreightWaves.

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