Air France chief wants action on volatile oil price

The chief executive of Europe's largest airline has called for a new regulatory framework to drive down soaring fuel prices and reduce volatility due to speculative trading.

Speaking aboard the first commercial Airbus A380 flight from the African continent last week, Air France-KLM boss Pierre-Henri Gourgeon said he wanted to see increased co-operation to cut the impact of unpredictable oil prices during the downturn.

"It is totally abnormal that two days ago, fuel went up by 5 per cent and a week before it went down by 5 per cent," he said. "It's uncontrollable. This is the fuel for all the economy. How can we have a world where just by trading you create a variation of the fuel price of 10 per cent through the week, without any reason?"

Describing the fuel price situation as "unmanageable", Gourgeon called on authorities to "create coalitions to limit this indecent spiral. It's only a market bubble and it's killing the real economy," he said.

Air France attributed a disastrous third quarter loss of €245 million ($475 million) in part to an unsuccessful fuel hedging strategy, as well as its ailing cargo business. Oil prices are particularly important to the airline's finances as fuel accounts for about 25 per cent of costs, well in excess of salaries.

Paul Butler, an aviation analyst at Macquarie, forecast that Air France would suffer a €400 million hit over the next 12 months.

"They got burnt but now they hedge over two years rather than four, in line with other European airlines," he said.

However, Butler questioned whether an alliance with other airlines would be powerful enough to result in any significant savings. Management recently warned investors of a possible €500 million operating loss for the first three months of 2010. Its share price slumped nearly 10 per cent.

Gourgeon welcomed the recent announcement from French authorities that the investigation into the Air France flight from Rio de Janeiro to Paris which disappeared while flying over the Atlantic will be reopened in March. "If they can find the wreckage of the aircraft, that's important for us," he said. We can pay for that. It's costly research but we say it's important to understand what is going on."

Boeing's managing director for environmental strategy, Bill Glover, said in London last week he believed an eco-friendly petrol, made 50 per cent from biofuels, should get regulatory approval from two key appraisal bodies by December.

- INDEPENDENT