AIR FRANCE CARGO FORECAST: PROFIT, BUT COSTS MUST FALL

AIR FRANCE CARGO FORECAST: PROFIT, BUT COSTS MUST FALL

Air France expects to make a reasonable profit on cargo operations this fiscal year, but the cargo division still needs to slash costs if it is to hold its own against other European airlines, according to Sten Grotenfelt, the carrier's director general of cargo.

Mr. Grotenfelt said cargo revenue should total about 7.5 billion francs ($1.5 billion) in the year that began April 1, but declined to give a specific forecast on profit. The carrier had a "marginal profit" on cargo last year, he said, but lost money on it the year before."The network and system are quite impressive, and with the right kind of utilization one should be able to make a lot of money," Mr. Grotenfelt said.

The mere hint of profit is encouraging for a company expected to lose more than 1.2 billion francs this year on top of much larger losses in recent years.

According to Mr. Grotenfelt, who came to the company a year ago from Cargolux Airlines of Luxembourg, the sales figures are not quite on target

because of currency fluctuations.

He said Air France also has lost significant cargo revenue since it pulled out of Algeria at the end of last year after one of its planes was hijacked.

Air France is in the midst of a radical restructuring aimed at increasing productivity 30 percent by 1997.

Cargo operations have benefited from an expanding global market, so measures taken in that area to raise productivity appear less Draconian than elsewhere. Mr. Grotenfelt said that by next April he will have trimmed 7 percent off a 3,000-strong work force.

The payroll cuts are considered necessary because the company's freight operations have a higher cost structure than those of other European airlines. Mr. Grotenfelt said his own comparisons show that companies like the German carrier Lufthansa are 15 percent more efficient than Air France.

In order to further improve its results, Air France has just gone ahead with its second rate increase this year. Mr. Grotenfelt said it will mean price increases of 2 percent to 3 percent depending on the destination, with increases more likely in Asia, where demand is higher.

But this probably won't be enough to put the French carrier on the same footing as competitors such as British Airways, Lufthansa and KLM Royal Dutch Airlines.

Air France needs to be able to lease aircraft and cheaper crews when necessary, something that French unions are not prepared to accept, said Mr. Grotenfelt, a Swede who is one of the few foreigners in a top management position at a French state-owned company.

According to the Association of European Airlines, Air France transports 20 percent of the cargo moved by the association's 25 members on scheduled flights worldwide. The French market share lags Lufthansa's 25 percent but is ahead of British Airways, which has almost 15 percent.

Mr. Grotenfelt hinted at a major investment plan for cargo installations at Charles de Gaulle Airport outside Paris, where Air France plans to set up its hub. The French government is expected to decide soon whether to go ahead with plans to expand the airport.

In addition to cost-cutting changes within the cargo division, a much larger reform could also be in the works. Air France's management is fine- tuning a plan to create a company grouping its domestic arm, Air Inter, with its European operations.

There also has been talk of eventually carving out a separate cargo company, as Lufthansa did at the beginning of this year.

"It would be logical to do it," said Mr. Grotenfelt, adding, however, that the move is not "on the agenda."

He also said it would be logical to develop a close partnership agreement on cargo with some other company, but refused to say whether there are any candidates.