Air France-KLM, the world's largest airline by revenue, announced Thursday that its net profits dropped 2.4 percent to 891 million euros (1.198 billion dollars) for the 2006-2007 financial year compared to previous year, although revenues rose 7.6 per cent, 23.07 billion euros.

"This past year has demonstrated the benefits of our profitable growth strategy. We have taken advantage of global growth to develop our business in all major markets and increase our profitability through cost control while continuing to invest in our future ", said Chairman Jean-Cyril Spinetta during the Board of Directors meeting of May 23rd 2007.

“This financial year also draws to a close the first phase in the merger of Air France and KLM which has resulted in significant value creation for both the group and its shareholders. Today marks the start of a new phase, which will see the deeper integration of the strategic functions of the group. This will enable us to further enhance our profitability, with a target return on capital employed of 8.5% by 2009-10," Spinetta added.

Operating income increased by 32.5 percent to 1.24 billion euros. In the last quarter, operational result was 9 billion euros, compared with a negative figure of 4 billion euros for lat year’s same period. Company expenses were 6.4 percent higher than last year, primarily because of petrol prices increased by 18.7 percent to 4.26 billion euros.

Cargo division made a good start but later was staggered by harsh competition. Nevertheless, turnover rose by 0.9 per cent to 2.91 billion euros. Operational profit from cargo traffic dropped to 62 million euros.

The French-Dutch airline announced cutbacks of 1.4 billion euros over the next three years, 560 million euros of which would be made in 2007-08.

Shares of Air France-KLM edged up 1.3 percent to 37.38 euros in early Paris trading Thursday.