The Air France-KLM group reported this week its biggest loss since the merger of the two carriers in 2004 with a loss of of €1.56 billion for the full-year ended 31 March, up from a loss of €814 million a year earlier. Revenue fell 15 per cent year-on-year to €21 billion.

The group’s finances were starting to improve at the end of 2009 on signs of an upswing in traffic, but earnings have been pulled down since April due to the impact of ash clouds from an Icelandic volcano, which closed much of Europe’s airspace for six days last month. Air France-KLM said the ash cloud closures had caused it to lose €260 million of revenue together with costs for looking after stranded passengers. The impact on the airline’s operating earnings so far has been €160 million.

For the three months ended 31 March, Air France-KLM reported a net loss of €691 million, more than double the loss of €295 million in the third quarter and up from a loss of €479 million in the three months to 31 March 2009.

The airline said it had taken a hit of €637 million from out-of-the-money fuel hedges in the year and €173 million in the last quarter alone. Chief executive Pierre Henri Gourgeon said in a statement that the company reaffirms its objective of “break-even at the operating level in the current financial year excluding the impact of pre-2009 fuel hedges, and subject to the definitive cost of the closure of European airspace.”

Gourgeon described Air France- KLM’s financial year as its “annus horribilis.” He said the priority in the current financial year is to contain costs through headcount reduction, and to restore unit revenue by limiting capacity growth to 1 per cent for the passenger side and zero for cargo as a means of improving yields.

The airline said revenue in the three months to March 31 was only 0.8 per cent below that of the same year-ago period at EUR5.02 billion, due to a pickup in passenger demand at the end of the quarter. Cargo traffic also revived, thanks to a drastic reduction in capacity, and revenue for the three-month period was up 12 per cent year-on-year at €674 million. The division still incurred a loss of €63 million.

Air France-KLM said it plans to reduce its headcount by between two and four per cent through March 2011 following a seven per cent reduction in the previous 12 months as a way to reduce its fixed costs and improve profitability.