In what usually is its strongest quarter, Air France-KLM’s Q3 results outperformed those of 2019. This mirrors the situation of Lufthansa Group on Thursday. Long-haul and cargo have been very strong, but short-haul is still a bit behind. Air France-KLM also back at 2019 levels in Q3.
“The Group posted a strong operating result in spite of rising fuel costs and inflation, and the Group remains confident in its ability to further increase capacity during the Winter season”, Group CEO Benjamin Smith said.
Air France-KLM reported a €460 million net profit for Q3 compared to a €-193 million loss last year. Total revenues were €8.112 billion, up from €4.567 billion. The operating profit was €1.024 billion versus €130 million. Unit costs were up 2.9 percent, caused by inflation, airport costs at Amsterdam Schiphol, ATC costs, and higher labor costs at outstations, with KLM no longer benefitting from Covid payroll support.
If we compare results to Q3 2019, the net profit back then was €366 million, revenues €7.696 billion, and the operating profit €900 million.
For January-September, the group reported a profit of €232 million compared to €-3.164 billion last year. Total revenues increased to €19.264 billion from €9.477 billion. The operating result was €1.060 billion versus €-1.804 billion. Adjusted free cash flow from operations improved to €2.453 billion from €-856 million in 2021.
Air France at a higher capacity
By airline, Air France was more profitable in Q3 at €570 million (2021: €-45 million) ahead of KLM at €443 million (€168 million). This reflects the higher capacity at which Air France operated (+42 percent) compared to KLM (+14 percent) and includes the effects of cost reductions at the French airline. Revenues at Air France were €5.0 billion versus €3.2 billion at KLM. The operating margin at Air France improved to 11.4 percent and to 13.7 percent at KLM. For the 9M period, KLM was more profitable at €708 million (€-354 million) than Air France at €340 million (€-1.451 billion).
The lower Q3 performance of KLM has everything to do with the operational restrictions that it suffered at its Amsterdam Schiphol home base after the airport imposed capacity restrictions in April due to staff shortages at security. Schiphol has extended the cap will at least late December and likely until March next year, which will force KLM to reduce capacity in Q4 and Q1 2023. The capacity restrictions had a €175 million impact on KLM in Q3 in missed revenues and customer compensation payments, which is part of a combined €285 million in disruption costs/compensation for the whole group.
The two network airlines together carried 19 million passengers (Air France 11.5 million, KLM 7.5 million) at an average load factor of 88.3 percent. The load factor was the highest on the network to South America (92 percent) despite a 15.7 percent lower capacity, and at 91 percent on the North Atlantic at a 3.6 percent higher capacity. Long-haul load factors are closing in on 2019 levels, with the North Atlantic capacity already over pre-pandemic levels. Short-haul and medium-haul load factors remain behind at ‘just’ 85 percent and 68 percent capacity. Economy load factors are at 91 percent and Premium at 78 percent, while corporate travel recovered to 76 percent.
Transavia
Leisure airline Transavia/Transavia France produced a €123 million Q3 profit compared to €105 million last year. Revenues were €855 million, up from €522 million. The operating margin was fourteen percent. Transavia carried six million passengers in the quarter at an 88.9 percent load factor, but operational constraints in Amsterdam cost the Dutch subsidiary some €25 million. The nine-month results show a €13 million profit (2021: €-113 million) and revenues of €1.705 billion (€685 million).
The group has almost completed the transfer of forty percent of its Paris Orly slots from Air France and HOP to Transavia France, which operates at lower unit costs. Transavia will use the slots for domestic and new medium-haul routes. The transfer of slot capacity has changed the share of medium-haul versus domestic traffic at Orly from 38/61 percent to 61/38, with the remaining one percent used by long-haul routes. The two Transavia units have now a combined fleet of over 100 aircraft. The Dutch airline will induct five Boeing 737-800s that are coming from Blue Air but have been repossessed by the lessor after the Rumanian carrier hit trouble. Transavia and Transavia France will transition to an all-Airbus A320neo family fleet from late 2023 onward.
Cargo reported €830 million in revenues, slightly down from €835 million in Q3 last year. Nine-month revenues were €2.658 billion (€2.568 billion). With more belly space available, capacity increased by 15.9 percent but traffic was 13.5 percent down. Thanks to higher yields, revenues were up 61 percent over 2019.
The maintenance business benefitted from higher activity to produce a €46 million Q3 profit (€29 million) on €826 million in revenues. The 9M profit was €147 million (€19 million) with revenues at €2.568 billion. The business unit just won a maintenance contract for CFM LEAP engines as well as new customer contracts from ITA Airways, Virgin Atlantic, and China Airlines.
Outlook
Capacity constraints at Schiphol will impact Q4 capacity, which will remain level at 85 percent compared to Q3 compared to the previous guidance of 85-90 percent. This will bring the average capacity for 2022 to 80 percent. Long-haul capacity should reach 87 percent in Q4 and 91 percent in Q1 2023, with short/medium-haul at 80 and 83 percent respectively. Transavia is well ahead of that and will operate at 143 percent in Q4 and 142 percent in the first quarter of the new year.
Air France-KLM expects to end 2022 with an operating result above €900 million. While fuel costs were up 181 percent to €2.3 billion in Q3 and €5.2 billion, hedging should bring a €1.0 billion benefit. The carrier has hedged fuel at seventy percent in Q4.
Its liquidity position remains strong at €12.3 billion, with net debt down to €5.965 billion from €8.216 billion last December. In November, the group will repay €1.0 billion on its €3.5 billion state-guaranteed bank loan to deleverage its unsecured debt position, with the remaining debt expected to be repaid beyond May 2025. No date has been set for the issuance of €1.2 billion in new hybrid bonds as the airline awaits the best market conditions.
Smith said that the airline is waiting for a final decision from the new Italian government on the partial acquisition of ITA Airways, as part of a joint proposal from Certares and Delta Airlines. He added that Air France-KLM is pursuing other acquisition options in Europe without specifying at which airline he is looking, but it is believed that TAP Portugal is a likely candidate as the Portuguese government intends the divest part of its shares.
Including deliveries and retirements, the Air France-KLM fleet counted 530 aircraft by the end of September. The carrier expects more aircraft in the coming months, supply chain issues at the OEMs permitting. Deliveries of more Boeing 787-10s to KLM will move to early 2023.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.
