Transport Airlines

Savings Plan Puts Air France-KLM on Track to Reach Operating Profit in 2013

Jul 26, 2013 8:44 am

Skift Take

The carrier progressed from a $105 million Q2 loss in 2012 to $105 million Q2 profit in 2013, suggesting the airline’s savings plan and increased passenger load are starting to overcome still high fuel costs.

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Patrick DeLang  / Flickr

An Air France-KLM pilot waves at Amsterdam's Schipol Airport. Patrick DeLang / Flickr


Air France-KLM Group expects to make an operating profit this year after higher passenger numbers, lower fuel expenses and a cost-savings plan boosted second- quarter earnings at Europe’s biggest airline.

Operating profit of 79 million euros ($105 million) fell short of the 89-million-euro estimate in a Bloomberg survey of analysts, and compared with a loss of 79 million euros a year earlier. Air France said it sees improvement in the second half “in line with that of the first half.” From that, one can infer a profit this year, said Chief Financial Officer Philippe Calavia, without being more specific. The company made a loss of 300 million euros in 2012.

“We’re on the right track,” Chief Executive Officer Alexandre de Juniac said at a briefing in Paris today. “The improvement in our results is in large part the result of our implementing the savings plan.”

Juniac took the helm this month after running the Air France unit for a year and a half. He’s designed a cost- and job-cuts plan to improve profits amid southern Europe’s economic slump and rising competition from low-cost carriers in Europe and Middle Eastern airlines overseas. He pledged to improve performance at the Paris-based carrier’s short- and medium-haul network and cargo business with measures next year.

The shares rose as much as 4.2 percent in Paris, the biggest intraday increase in a month, and were trading up 1.9 percent to 6.48 euros at 1:36 p.m. local time.

Progress Challenging

Juniac cautioned that the economic environment is still more difficult than previously anticipated, with fuel prices at record highs, making progress challenging. Average ticket prices, or yield, should “rise slightly” in the second half after declining by 0.1 percent in the first half, he said.

Average ticket fares, a measure of how the airline juggles supply and demand to win the best pricing, remains a key concern for investors. Revenue per available seat kilometer was down 1.3 percent in the second quarter after rising 1.3 percent in the first quarter, James Hollins, an analyst at Investec said in a note to clients.

“The results reflect the continued woes in its business in driving yields,” Hollins wrote, referring to average ticket prices. He recommends clients sell the stock.

Strict Discipline

Second-quarter sales rose 1.2 percent to 6.58 billion euros, Air France said, while net debt fell to 5.3 billion euros at the end of the period from 5.97 billion euros in December.

While progress on the Transform 2015 cost-savings program is on schedule, the company plans “additional major measures” from 2014 to address lagging performance in medium-haul passenger operations as well as in cargo, Juniac said. Those will be announced in the autumn.

“Short- and medium-haul operations are not a lost cause,” Juniac said, pointing to improvements KLM had made in its European network. Air France has already sought to lower costs with the introduction of Hop!, a low-cost, point-to-point operation. The savings plans will improve use of the capacities of low-cost subsidiary Transavia in France, Air France CEO Frederic Gagey said today.

Commercial Links

Air France owns 25 percent of Alitalia and has commercial links with the Italian carrier through their common presence in the SkyTeam alliance.

The french carrier will wait until year-end to assess the progress Alitalia makes on its new, three-year business plan before deciding whether to change its shareholding, Calavia said on Bloomberg Television’s “Countdown.” A sale of the CityJet regional airline is “close” to conclusion, he said.

Air France’s shares have underperformed competitors’ this year as it had resisted providing a full-year outlook until today. The stock has declined 7.3 percent in the year to date, giving the carrier a market value of 1.95 billion euros.

Deutsche Lufthansa AG has gained 9.7 percent this year, valuing Europe’s second-biggest carrier at about 7.2 billion euros.

With assistance from Mark Barton and Robert Wall in London. Editors: Kim McLaughlin and Robert Valpuesta.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net. To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.

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