Air France-KLM reported a steep slide in profitability in the quarter ended Sep. 30, as passenger traffic was insufficient to offset a higher fuel bill, and set a three-pronged recovery plan to get the airline back on an even keel.

The airline issued a profit warning for the full year, saying it now expects to report an operating loss in the year's last quarter, as well as for the 12 months through Dec. 31, compared with previous guidance of a higher operating profit.

Air France-KLM is changing its financial year to the calendar year from a year that ended on March 31.

Net profit for the three months ended Sep. 30 -- the second quarter of the current financial year that exceptionally will be for only nine months --was EUR14 million (US$19.4 million), compared with EUR290 million a year earlier.

The figure was well below an average estimate of EUR291 million from a panel of 19 analysts. The analysts had also estimated operating profit for the period of EUR478 million and revenue of EUR6.97 billion.

Air France-KLM posted operating profit of EUR397 million, down from EUR576 million the year before. Revenue rose 2.1% to EUR6.79 billion.

Air France-KLM's recently appointed Chief Executive Jean-Cyril Spinetta set out a three-pronged program to get the airline back into profit. "Despite many measures pursued over the last three years, our insufficient profitability in recent quarters, in an economic environment affected by weak global demand and high oil prices, shows that we need to go further," he said.

Mr. Spinetta said the company will focus on additional cost savings to reduce overheads; restructuring its short- and medium-haul activity; and reducing its debt rapidly, noting that the difficult economic environment is being exacerbated by volatile currency movements and high fuel prices.

Mr. Spinetta said Air France-KLM had made an operating loss of EUR151 million in the first nine months of 2011, and expects to remain in the red in the last quarter. Although the current financial situation is far from optimum, he said, "it isn't catastrophic."

Chief Financial Officer Philippe Calavia said the airline's fuel bill rose by EUR446 million in the six months through Sep. 30, and said fuel costs for the full year are projected to be around EUR9 billion. For 2012, he said, the fuel bill is likely to rise by 10%.

The airline last month decided to shelve a plan to revamp its organizational structure to streamline back-office operations and extract more synergies between Air France and KLM, saying the most urgent priority is to improve profitability. At the same time it fired its chief executive, Pierre-Henri Gourgeon. Mr. Spinetta has taken over Mr. Gourgeon's job.

The company's shares closed down 2.8% Wednesday at EUR4.87. They have lost 64% of their value over the past 12 months and 31% in the past three months alone, so that one of the world's largest airlines is now valued by the market at just EUR1.5 billion.

Like its European competitors, Air France-KLM is struggling to reduce costs amid signs that the pace of economic growth -- and closely correlated air traffic -- is heading for a slowdown because of concern about the sovereign-debt crisis. In July, the company scaled back its planned long-haul capacity growth for the winter season to 3% from 5%.

However, traffic has been holding up better than many analysts expected.

Global air-passenger traffic in September was up 5.6% from a year earlier, according to data from the International Air Transport Association, and Air France-KLM reported a 5.7% rise.

But airlines are suffering from a slide in demand for cargo transportation, often considered an early indicator of economic activity. Global freight volume in September was 5% below the level observed in the first quarter, according to IATA. Air France-KLM's cargo revenue was down 1.7% in the three months to Sep. 30, and this segment turned in a EUR37 million operating loss for the period.

Deputy CEO Leo van Wijk said the airline won't hesitate to take more freight capacity off-line if the market stays weak, as there still is a lot of overcapacity, especially in Asia.