Air France-KLM profits soar 16%

The Franco-Dutch group has lagged behind European rivals on profitability in recent years but delivered a stronger quarter than rival Lufthansa

epa07749543 (FILE) - A general view shows Air France and KLM aircrafts at Schiphol Airport, The Netherlands, 07 May 2018 (reissued 31 July 2019). The Air France-KLM Group published its first half 2019 results on 31 July 2019, saying that it increased operating results to 400 million euro, up 54 million euro compared to last year, and improved passenger unit revenue as rising fuel prices were countered by cost-cutting. The group made also decisions on the renewal of its fleet for a more environmentally friendly operation, including the order of sixty Airbus A220s and the accelerated phasing out of ten Airbus A380, CEO Benjamin Smith added in the group's statement.  EPA/ROBIN UTRECHT *** Local Caption *** 54314956

Air France-KLM said operating profit rose 16 per cent in the second quarter as new chief executive Ben Smith's cost-cutting helped offset rising fuel prices.

The Franco-Dutch group has lagged behind European rivals on profitability in recent years but delivered a stronger quarter than rival Lufthansa, which reported a 25 per cent earnings fall on Tuesday as increasing capacity intensified competition.

Operating income rose to €400 million (Dh1.63 billion), ahead of the €316m expected by analysts, according to the company's own poll of 20 estimates.

Better sales and "execution in unit-cost reduction enabled us to more than offset rising fuel costs", Mr Smith said. A 6.1 per cent increase in Air France-KLM traffic outpaced its 4.5 per cent capacity expansion year-on-year.

Mr Smith, who joined Air France-KLM last September from Air Canada, wants to boost efficiency through better co-ordination of the Air France and KLM networks and fleets while expanding services under the Transavia low-cost brand.

Revenue rose 6.4 per cent to €7.05bn, while unit costs fell 2.3 per cent excluding currency and fuel costs, which rose by €220m year-on-year.

Further gains on efficiency will come from simplification of the business as well as recent labour deals that mean Air France-KLM has "enormous flexibility now to drive productivity gains", Mr Smith said. The new chief executive has pledged to give investors a detailed strategy presentation in November.

Long-haul bookings for August-December are ahead of their level a year earlier, the company said.

"Forward bookings suggest the long-haul outlook remains encouraging, although we would expect further short-haul challenges," Liberum analysts said.

The operating margin improved to 5.7per cent from 5.2 per cent, largely reflecting the impact of Air France strikes a year earlier that led to the abrupt departure of Smith's predecessor.

Air France pilots overwhelmingly approved plans to expand Transavia's fleet beyond the 40-plane limit currently imposed by labour agreements, Mr Smith announced on Wednesday, hailing the SNPL union members' 78 per cent referendum vote as a "big positive".

In a sign of remaining hurdles, however, Air France-KLM trimmed its Transavia capacity growth forecast for 2019 to 7 to 9 per cent, from 9 to 11 per cent, citing pilot recruitment delays.

Unit revenue rose across all major long-haul regions except crisis-hit Latin America, with the lucrative North Atlantic market showing 2.6 per cent growth before currency effects. North America will show a smaller improvement for the third quarter underway, chief financial officer Frederic Gagey predicted.

Net income fell 27.3 per cent to €80m. Debt declined by €466m over six months to €5.7bn.

The fuel-cost impact reflected the expiry of hedging instruments that had benefited the group last year, Mr Gagey said. For the full year, however, Air France-KLM trimmed the expected fuel bill increase to €550 million from a previously forecast €650m.

To improve fuel-efficiency and costs, Air France-KLM said on Tuesday it will buy at least 60 Airbus A220s to replace ageing aircraft and retire all 10 A380 superjumbos from its 541-plane fleet earlier than planned, a decision that will incur about €400m in future writedowns, the CFO said.

Air France-KLM also reiterated its 2019 goals including a unit-cost progression between flat and a 1 per cent decline before fuel – a benchmark surpassed by a 1.4 per cent decline in the first half.