Air France-KLM Group and Deutsche Lufthansa AG (LHA), Europe’s biggest airlines, posted earnings that missed analyst estimates after fuel costs soared and demand was clipped by the Japanese nuclear crisis and Mideast uprisings. Air France, the European No. 1, reported an operating loss of 145 million euros ($208 million) for the three months through June after analysts had predicted income of 43.4 million euros. Lufthansa posted a second-quarter operating profit of 230 million euros, missing the mean estimate of 325 million euros. Earnings at Air France were battered by a 16 percent jump in the quarterly fuel bill to 1.67 billion euros, the Paris- based company said yesterday after markets closed. Both carriers said the impact of the Japanese earthquake and unrest in the Middle East and Arab North Africa curbed traffic growth, though Lufthansa reiterated that it aims to boost annual earnings, while Air France said its target remains to be profitable. “The impact of some of these events is even bigger than previously reported,” said Jonathan Wober, an analyst at Societe Generale in London. “There is also some vulnerability to the macro-economic environment and the euro situation. But even if both results came in lower than expected, there’s a big difference between the two. Air France is more disappointing.” Savings Plan Lufthansa, Europe’s second-largest carrier, maintained its target of increasing annual sales and operating profit beyond last year’s tallies of 27.3 billion euros and 876 million euros respectively. Quarterly traffic rose 11 percent across the group, the Cologne-based company said in a statement today, as disruption to flights caused by volcanic ash from Iceland eased, with revenue climbing by the same degree to 7.6 billion euros. The German company is also wrapping up a program this year to cut costs by 1 billion euros from 2008 and working to make its Austrian Airlines and British Midland units profitable. While a 25 percent jump in Lufthansa’s six-month fuel bill to 3 billion euros “burdened” earnings, the company cut its estimate of full-year fuel costs to 6.6 billion euros from 6.8 billion euros on May 5 and said it benefits from hedging with Brent crude above $92 a barrel. Yesterday’s price for September settlement was $118 on London’s ICE Futures Europe exchange. “Lufthansa is in a better position,” said Stephen Furlong, an analyst at Davy Stockbrokers in Dublin with an “outperform” rating on the carrier. “The oil price and the Middle East and Japan crises are taking some of shine off the overall numbers, but it’s still overall very solid.” Slower Growth Air France-KLM’s statement reiterated its forecast of a positive operating result for the full year after passenger traffic rose 9.4 percent in the quarter, spurred by gains of 15 percent in Europe and 13 percent on routes to the Americas, and revenue advanced 8.7 percent to 6.22 billion euros. Still, the Eurozone crisis and setbacks in Japan and the Mideast mean markets are “uncertain,” the company said, adding that it will reduce long-haul winter capacity growth from 5.1 percent to 2.7 percent, including cuts at KLM unit Martinair. Lufthansa said that all of its units are “revising their plans” for the winter timetable and adjusting them to the “new demand climate.” The restructuring of Austrian Airlines and British Midland will also be accelerated, it said. Higher Fares “You could say at first glance that this is negative, but I’ve always felt that the planned capacity increases were over- ambitious,” said Per Ola Hellgren, an analyst at Landesbank Baden-Wuerttemberg in Mainz, Germany. Slower growth in seating may also help airlines boost average fares, he added. Air France-KLM (AF) reported a net loss of 197 million euros for the quarter versus a year-earlier profit of 736 million euros, when earnings were boosted by the sale of a stake in the Amadeus booking system. The adjusted loss narrowed to 212 million euros from 252 million euros. Lufthansa’s three-month net income increased 55 percent to 301 million euros and demand and sales are likely to develop positively as the year progresses, it said, helped by a recover in Japan. The German company had a year-earlier operating profit of 159 million euros and Air France a loss of 132 million euros. Air France-KLM stock closed down 2.8 percent at 9.38 euros prior to yesterday’s results release, extending its decline this year to 31 percent and valuing the company at 2.82 billion euros. Lufthansa, which also published earnings after the close, earlier fell 1.1 percent to 14.48 euros and has slipped 11 percent this year for a value of 6.63 billion euros. International Consolidated Airlines Group SA, Europe’s third-biggest airline by traffic, formed from the merger of British Airways and Spain’s Iberia, is valued at 4.35 billion pounds ($7.1 billion) and reports earnings tomorrow. To contact the reporters on this story: Andrea Rothman in Paris at aerothman@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

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