Air France-KLM has reported a big quarterly fall in earnings as it struggled with an economic slowdown and higher oil prices. It estimated its fuel bill will be 28% higher this year than in 2007.

The French-Dutch carrier said it will step up cost-cutting measures in response to what it called “the new economic environment.” It is now aiming for total savings of 620 million euros this year, but did not detail exactly how it would make them.

Air France-KLM’s net profit between April and June fell 59% to 168 million euros.

And Spain’s Iberia posted a net profit of just over 21 million euros, down two thirds from last year’s 62.5 million euros. The airline, which is in merger talks with British Airways, is also suffering from high fuel costs up by 49% from the same period last year. It is also facing fierce competition from budget airlines and a high-speed rail link between Madrid and Barcelona that started in February.

Shares of both Iberia and Air France-KLM rose, helped by weaker oil prices which slipped to a three-month low.

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