Refiles first bullet to clarify operating profit for the whole group

By Joanna Plucinska

LONDON, Nov 6 (Reuters) - Air France-KLM AIRF.PA reported third-quarter earnings largely in line with expectations and confirmed its 2025 outlook on Thursday, despite some expense increases and costly challenges for its Dutch subsidiary KLM.

The third quarter is usually the strongest period for European airlines as it covers the lucrative and busy summer travel season.

However, European airlines have been under pressure as travel from Europe to the United States has dropped since U.S. President Donald Trump, whose policies are perceived by many abroad as anti-foreigner and anti-trade, took office.

Air France-KLM shares were down 12% at 0849GMT, with investors spooked by the slight misalignment in expectations on the operating profit as a result of currency depreciation and ongoing challenges with budget carrier Transavia and Dutch subsidiary KLM.

The airline group reported an operating profit of 1.20 billion euros ($1.40 billion), compared to an LSEG analysts' poll of 1.27 billion euros. Operating profit for the same quarter last year was 1.18 billion euros, when the group took a substantial hit tied to the Paris Olympics.

Air France in particular reported an operating profit of of 799 million euros, compared to 732 million euros last year, showing the substantial impact the Olympics had as travellers sought to avoid the French capital.

"During the third quarter, Air France–KLM once again demonstrated its resilience in a challenging environment. We maintained solid revenue growth and a stable operating margin," Chief Executive Ben Smith said in a statement.

Air France-KLM's operating margin for Q3 came in at 13.1%, slightly down from the same time last year.

CAPACITY GROWTH AMID BOOKING CHALLENGES

The group benefited from lower fuel costs and solid bookings in its more luxurious premium cabins, although there was continued pressure on yields in its economy cabin when it came to travel to the United States.

KLM in particular was affected by lower yields in its economy cabin, as well as costly labour disputes in September. Costs tied to maintenance and other services also rose, meaning Air France-KLM saw a marginal increase in its debt compared to last year.

Capacity is set to increase in 2025 between 4% to 5% compared to last year, the group said, despite somewhat flagging bookings at Transavia this summer, which the group blamed on higher airport taxes at Amsterdam's Schiphol airport resulting in higher fares.

($1 = 0.8575 euros)

(Reporting by Joanna Plucinska; Editing by Cynthia Osterman, Louise Heavens and Kate Mayberry)

((joanna.plucinska@thomsonreuters.com, +44 7721 669853))