Air France-KLM pledged to lift core earnings by up to 10 per cent a year through 2017 as part of a new plan combining an assault on the European leisure market with efforts to retain the loyalty of long-haul travellers.

Europe's second-largest network carrier, facing a double threat from European low-cost rivals and fast-growing long-haul carriers in the Gulf, said the new 'Perform 2020' package would allow it to capitalise on three years of tough restructuring.

The current Transform 2015 turnaround plan is on course to deliver over one billion euros ($1.3 billion) in savings a year.

The new plan calls for further reductions in unit costs of 1-1.5 per cent a year, coupled with new investments and a plan to expand low-cost unit Transavia.

Traders in Paris said the airline had been expected to slow the pace of cost reductions, but that it remained vulnerable to the progress of labour talks and cost-cutting by rivals.

The targeted increase in core earnings '“ measured as earnings before interest, tax, depreciation, amortisation and aircraft rental payments '“ also beat some forecasts.

'We think Air France-KLM has been successful at cutting costs ... Our initial verdict: a small positive,' Robin Byde, transport analyst at Cantor Fitzgerald, said in a note.

Despite delivering on previous targets, Air France-KLM says more belt-tightening is needed to confront low-cost rivals easyJet and Ryanair in Europe, while trying to compete against fast-growing Gulf carriers on longer routes.

Air France-KLM said it would invest in improved products and services for long-haul networks and boost the performance of its hubs, while revamping its short- and medium-haul operations.

It said its targets were consistent with a return on capital of 9-11 per cent in 2017, against a revised 2.9 per cent for 2013, entering the territory of Europe's low-cost carriers.-Reuters