Summary
- While Air France-KLM’s Q1 losses deepened YoY, it remained optimistic about its near-term outlook.
- That optimism had been reinforced by revenue outpacing capacity growth during the quarter.
- Still, cargo remains a troubling are for the group, including the fact that its partnership with CMA CGM ended on March 31, 2024.
While its Q1 losses deepened Year-on-Year (YoY), the Air France-KLM group, consisting of Air France, KLM, Transavia, Transavia France, and the cargo airlines, remains optimistic about its financial performance during the three-month period.
Challenging quarter for Air France-KLM
According to the group, the network airlines, which includes Air France, KLM, and its cargo airlines, had an operating loss of €356 million ($381.7 million), which is €206 million ($220.9 million) worse YoY. The capacity within the network airlines grew by 3.7%, while revenues improved by 3.9% to €5 billion ($5.3 billion).
Photo: Markus Mainka | Shutterstock
Detailing the results of Air France and KLM, the group concluded that revenue outperformed capacity growth, yet it was still a challenging quarter for the two de facto flag carriers of their respective countries. Air France added 3% more capacity YoY, with revenues improving to €4.03 billion ($4.321 billion). Its operating result, a loss of €249 million ($266.9 million), resulted in its operating margin declining by only 1.6%.
Meanwhile, KLM’s operating margin dropped by 5.6% YoY, driven largely by around €100 million ($107.2 million) of unusual costs, which was split evenly between a one-time salary payment following a collective labor agreement with one of its unions and high customer compensations during the quarter.
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The group’s forward-looking load factors are higher or on par with last year’s first quarter.
Transavia’s bright spot
However, Transavia managed to improve its results in every segment, including capacity (up 11%), unit revenue (up 9.9%), revenue (up 22.4% to €426 million ($456.8 million), and operating result, which improved by €6 million ($6.4 million) to a net operating loss of €166 million ($178 million).
Photo: M.J.J. de Vaan | Shutterstock
There were other highlights as well, with Benjamin Smith, the chief executive officer (CEO) of Air France-KLM, noting further revenue growth with the group capitalizing on robust travel demand. In total, Air France-KLM’s revenues were €6.6 billion ($7 billion), yet with operating expenses of €6.4 billion ($6.8 billion) and other unfavorable factors, its net loss measured at €522 million ($560 million).
“We nonetheless remain confident in our ability to achieve our 2024 unit cost outlook and are focused on executing our strategic roadmap to deliver our mid-term commitments.”
Still, cargo was another weak spot for the group. While its partnership with the French shipping company CMA CGM ended on March 31, the last day of Q1, Smith commented that the group’s operating income was still affected by weakening demand for air freight, with its Q1 cargo load factors decreasing by 0.4% YoY.
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While the Dutch government abandoned the plans to cut capacity at AMS, the decision continues to have an impact to this day.
Differently performing markets
The group provided more detail about some of its core markets’ performance, including North America, where its capacity grew by 3% YoY. With a slightly improved load factor (up 1.9%), its yields on flights across the Atlantic Ocean to Canada and the United States improved by 0.3%. Similarly, Latin America-bound flights exhibited strong demand, with a stable load factor of 90%, resulting in yields increasing by 1.1%. However, capacity was down 2.4% due to a high comparison basis last year.
Capacity to Asia and the Middle East ballooned 31.8% YoY since Air France-KLM deployed more capacity to both regions. Nevertheless, while load factors remained stable, despite the capacity increase, its yields were affected by the geopolitical tensions in the latter area, resulting in 6.9% lower yields YoY.
Photo: Vincenzo Pace | Simple Flying
At the same time, the group significantly reduced capacity to the Caribbean & Indian Ocean regions, as well as Africa, with 14.2% and 5% reductions. Air France-KLM explained that fewer seats in the latter region were because of the redeployment of its long-haul fleet, while the former’s capacity was affected by “the geopolitical situation.” Still, yields improved on flights to both regions, increasing by 11.2% and 1.6%, respectively.
Lastly, in Europe and on other short and medium-haul routes, KLM’s capacity improved, while Air France’s seat amount was affected by a test rollout by the air traffic control system (ATC) during the first two months of Q1. Still, load factors and yields improved by 1.2% and 2.6% YoY.
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Continuously reducing costs and the upcoming Summer Olympic Games
One of the major upcoming developments for the group, especially Air France, will be the forthcoming Summer Olympic and Paralympic Games, which are scheduled to occur in Paris, France, between July and September, a timeline that includes both games.
Air France-KLM stated that in preparation for the games, it focused on three areas, namely customer & operations, network & commercial, and brand & partnership. Speaking about the former, the company said it had optimized its end-to-end journey with proactive communication while also developing fluid hub operations with dedicated tracks and task forces.
Furthermore, it is preparing for high international travel demand during the peak weeks of August and September, saying that it has added additional capacity in the medium and long-haul sectors across all of its platforms.
Data from the aviation analytics company Cirium showed that Air France, KLM, and Transavia will average 3,657 weekly flights, amounting to 639,062 weekly seats between July and September 2024. During the same period a year prior, the four airlines – including Transavia and Transavia France – averaged 3,460 weekly flights, resulting in 603,335 weekly seats.
Photo: Airbus
The group’s latest outlook said that its capacity should grow by 5% while unit costs should remain relatively flat and increase by 1% to 2%. In Q1, its unit cost per available seat kilometers (ASK) grew by 4%.
Meanwhile, capital expenditures (CapEx), primarily related to the acquisition of new aircraft processes, such as pre-delivery payments, should be €3 billion ($3.2 billion). The group plans to welcome 79 aircraft in 2023 and 2024, with plans to increase its fleet by eight Airbus A350, two Boeing 787-10, nine Airbus A220, 24 A320neo/A321neo, and four Embraer E195-E2 aircraft in 2024.
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Aircraft retrofits will also continue.
