HSBC HSBC Holdings PLC

PARIS—Air France-KLM expects long-haul passenger traffic to Paris to keep falling during the last quarter of the year as fears of terror attacks keep tourists away.

The number of long-haul passengers flown to and from France by Air France-KLM will likely decline between 5% and 10% in the fourth quarter, Chief Executive Jean-Marc Janaillac said Tuesday.

The number of passengers to France, particularly from the U.S., Japan, China and South Korea, had fallen by 14% in July and August.

France's tourism industry, one of the world's largest, has been severely hit since late 2015 as travelers stayed away following terror attacks that have killed more than 200 people since November. A wide range of companies and institutions, including AccorHotels and major museums in Paris, have already reported lower attendance during the summer.

Overall, Air France-KLM has managed to keep raising the number of passengers during the summer, thanks to the development of its budget airline, Transavia, and demand for other destinations. The group's overall passenger traffic rose 2.9% in July and 1.9% in August.

Air France-KLM's predicament in its home market comes as the industry's outlook has become less rosy. Many European airlines, buoyed by low oil prices, are adding capacity to a market already fully supplied.

"The airline industry is doing what it usually does and is adding too much capacity at the wrong time," HSBC said research in a report.

Air France-KLM also faces rising competition from Gulf carriers, which are growing their share of the lucrative long-haul Asian market. Meanwhile, low-cost carriers such as Norwegian Air Shuttle are making forays into the long-haul market.

Unlike 15 years ago, when legacy airlines didn't consider low-cost airlines a threat, Air France-KLM is now working on a response to long-haul budget carriers, though Mr. Janaillac declined elaborate.

Write to Inti Landauro at inti.landauro@wsj.com

(END) Dow Jones Newswires

September 20, 2016 15:25 ET (19:25 GMT)

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