Air France-KLM (AFLYY)  shares surged to a seven month high Thursday after the flagship carrier posted better-than-expected full year profits and pledged further cost reductions in order to boost capacity and offset rising fuel prices .

Air France shares rose more than 8.2% in early Paris trading to change hand st €5.91 each, the highest since July 2015, before paring gains to €5.85. Over the past three months, the shares have gained nearly 9%, nearly double the 4.9% advance for the Stoxx Europe TMI Airlines index.

The group said full-year 2016 operating profits came in at €1.05 billion ($1.12 billion), modestly ahead of the €969 million forecast by analysts, even as per-ticket revenue fell 5%. Cost cuts in 2016 amounted to around 1% for the year, and the company said it plans to lift that figure to 1.5% in 2017 but will, at the same time, increase its capacity by between 3% and 3.5%, more than five times the pace of increase in 2016. The airline carried 93.4 million passengers in 2016, up 4% from the previous year, with revenues coming in at €24.844 billion.

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"While the fall in the oil price significantly reduced the Group's costs, the geopolitical context, competition and industry overcapacity all resulted in lower unit revenues," said chairman Jean-Marc Janaillac. "With Trust Together, our strategic project, we are resolutely committed to regaining the offensive, reinforcing our ability to innovate and improving our competitiveness. In an economic and geopolitical context that remains very uncertain, and faced with aggressive competition, the status quo is not an option."

However, the group cautioned that its 2017 outlook had a high level of uncertainty owing to "geopolitical, economical and airline industry capacity environment" conditions even as it said that January figures and performance had thus far been "resilient".