Air France-KLM looks back on its best-ever Q3

Air France-KLM can look back on a stable third quarter, with strong summer demand and fewer operational disruptions. It shows the financial results as the airline group produced a €931 million net profit, up €431 million year on year. This makes this Q3 the best in the group’s history. As in the previous quarters, Air France did better than KLM. Group CEO Ben Smith was most pleased with the results, which confirm that the group maximized the good momentum in Q3. The consolidated net profit of €931 million compares to €460 million in Q3 2022. Total revenues were up seven percent to €8.660 billion from €8.112 billion, while total expenses increased 3.6 percent to €6.667 billion from €6.434 billion. EBITDA is €1.993 billion versus €1.667 billion, the operating profit was €1.344 billion versus €1.0 billion. This brings the operating margin to 15.5 percent. Unit revenues were up 3.3 percent. For the first nine months, the group reports a net profit of €1.190 billion, up from €232 million last year. Total revenues improved to €22.612 billion from the restated €19.264 billion last year. EBITDA was €3.607 billion versus €2.829 billion, and the operating profit was €1.830 billion versus €1.060 billion. The 9M operating margin is 7.8 percent. Air France-KLM reported a €612 million net profit in Q2. Air France versus KLM By airline, Air France produced a Q3 operating profit of €806 million versus €507 million last year. Revenues grew by 7.5 percent to €5.374 billion. EBITDA was €1.209 billion, up from €1.008 billion. The operating margin improved to 15.5 percent. For 9M, the operating profit was €1.107 billion versus €340 million, revenues grew 18.9 percent to €13.966 billion, EBITDA was €2.267, and the operating margin was 7.9 percent. French domestic continues to struggle and has spurred Air France into a strategy review, with all flights except those to Corsica moved from Paris Orly to Charles de Gaulle by 2026 at the latest. The drop of forty percent in domestic traffic due to competition from the high-speed rail network and continued working at home post-Covid have changed the market dynamics for good. Transavia France, which already has over fifty percent of slots at Orly, will take over the capacity left by Air France. Thanks to improved operations at Amsterdam Schiphol, KLM was slightly behind with an operating profit in Q3 of €539 million versus €443 million and revenues up by 5.9 percent to €3.425 billion. EBITDA was 786 million, up from €688 million, and the operating margin was 15.7 percent. The operating profit for 9M was €668 million, down from €708 million last year, despite 14.3 percent higher revenues to €9.058 billion. EBITDA was €1.345 billion, up from €1.273 billion. The operating margin was 7.4 percent. KLM still operated at a 12 percent lower capacity compared to 2019 compared to minus two percent for Air France. The two network airlines carried 19.8 million passengers in Q3 (Air France: 11.4 million, KLM: 8.4 million), up 4.5 percent, at a load factor of 89.4 percent. KLM CEO Marjan Rintel expressed continued concerns about Amsterdam operations: “Ongoing problems with the delivery times of parts worldwide and the still-tight labor market mean that we cannot solve the bottlenecks that arose during corona as quickly as we would have liked. What’s more, uncertainties are now threatening the future of Schiphol and Dutch aviation. (…) We stand for the well-connected Netherlands and continue to invest in achieving this objective, which enjoys commitment from everyone at KLM. We also need clear and stable government policy to support this.” Including Transavia, passengers carried totals 26.9 million or up by 7.6 percent, resulting in an average load factor of 89.7 percent. Air France-KLM operated at 94 percent of pre-pandemic capacity at the end of September. In 9M, the network airlines carried 54.4 million passengers (+16.4 percent) and the group 71.2 million (+14.3 percent). Unit costs were down to 3.4 percent versus 5.6 percent in Q2 and will drop further in the coming quarters. Capacity was up by on average six percent in Q3 year on year but grew slightly higher on long-haul at five percent versus three percent in short and medium-haul. Transavia saw the biggest capacity growth at plus fourteen percent. Yield improved the most on long-haul by 6.1 percent. Premium yields were flat on average but reported a 20.2 percent growth to the Caribbean and Indian Ocean regions with a capacity of 24.4 percent down. Yields in Economy were up 5.7 percent. Capacity to South America grew by 8.7 percent. China is still 56 percent and Japan 46 percent down on 2019. Business travel is leveling out, but Domestic France is behind. Transavia improves Transavia and Transavia France produced an operating profit of €188 million in Q3 versus €123 million last year. The two airlines carried 7.1 million passengers at a 91.2 percent load factor and generated €1.014 billion in revenues, up from €855 million. Unit revenues grew 2.2 percent while unit costs were down by 2.9 percent. Transavia still suffered from operational issues, notably the late arrival of new and wet-leased aircraft, but the problems were far less dramatic than during Q2. For 9M, the leisure airlines reported an operating profit of €16 million, up from €13 million in 2022. Total revenues grew 23.4 percent to €2.104 billion from €1.705 billion as the airlines carried 16.9 million passengers. AFI KLM Maintenance & Engineering reported an operating profit for Q3 of €63 million, up from €46 million last year, with revenues up 27.6 percent to €1.053 billion. For 9M, the operating profit is €125 million versus €147 million last year, with revenues up 18.1 percent to €3.034 billion. Air France-KLM Cargo including Martinair generated €558 million in revenues, down 32.8 percent on Q3 last year. Unit revenues were down -39.8 percent, but results are still up in 2019. Tonnes carried was down by 2.1 percent to 218K, in line with lower demand this year compared to 2022. 9M revenues were down by 30.9 percent to €1.837 billion, with tonnes carried down by eight percent to 640K. Different financial picture Air France-KLM is in much better shape compared to last year. CFO Steven Zaat said that this is the best Q3 in the airline’s history and marks a drastic change in the situation the group has been in during the past four years. With all state aid redeemed, the group continues to work on further strengthening its financial position. The group ended September with €10.2 billion in cash and reduced net debt by €1.3 billion to €5.0 billion, with more than ninety percent fixed interest rates. The airline announced on Thursday that it had reached a definitive agreement with Apollo Global Management for the sale of the FlyingBlue loyalty program for €1.3 billion through a quasi-equity (perpetual bonds) arrangement. Apollo has the option to increase the nominal amount to €1.5 billion. Nothing will change for the customers, but the loyalty program will be run by a new dedicated company. Free of any constraints that came with the aid packages from the French and Dutch states, Air France-KLM is also on the acquisition path again. In early October, it announced its intention to acquire a 19.9 percent stake in SAS Scandinavian Airlines, which can be extended into a majority stake in two years’ time. Air France-KLM also signed a new partnership with Etihad Airways and renewed the partnership with Brazil’s GOL for another ten years, which also includes cooperation on maintenance activities. The group also continues its fleet renewal, announcing an order for fifty Airbus A350s plus forty options in September, which need to be finalized. Without specifying, the airline will continue to invest in new aircraft. This year through September, Air France-KLM has taken delivery of three Boeing 787-10s, two A350-900s, sixteen B737-800s, fourteen A220-300s, four Embraer 195-E2s, and one Embraer 190. The net increase was 23 aircraft as seventeen aircraft were phased out. Outlook In its outlook, Air France-KLM expects to operate at an average of 95 percent, in line with previous projections. The network carriers will end the year at 90 percent, while Transavia will operate at 130-135 percent. Long-haul forward bookings are slightly below last year. The group is not giving guidance on its FY23 financial metrics except for a low single-digit increase in unit costs compared to 2022.

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