Air France-KLM Reports Q3 Results

Shares of Air France-KLM (EPA:AIRF) dropped more than 11% on Thursday following a significant decline in its third-quarter operating profit, which was greater than expected.

The group posted an operating result of €1,180 million, falling 4.5% below analysts' consensus estimates. This decrease was driven by multiple factors, including rising costs, an impact from the Olympics, and below-par performance from its KLM division.

The third quarter posed challenges, with the Olympics contributing €160 million in operating impact and an additional €50 million in bonus payments to staff.

Analysts at Barclays stated, “Underlying trading at AF looks strong, but the challenges at KLM are significant, with costs rising very fast.” While fuel prices are decreasing, the consensus for fiscal year 2024 looks fragile.

Operating profits declined by €74 million at Air France and €143 million at KLM, with UBS analysts noting, “Unit CC CASK ex-fuel was 3.4% (which we think is somewhat disappointing).”

Passenger revenues also faced a decline, with revenue per available seat kilometer down 1.9% year-on-year. However, cargo operations showed improvement, with revenue tonne kilometers increasing by 5.9% due to disruptions in Red Sea shipping lanes.

Transavia, the low-cost segment, reported a positive performance with a €70 million increase in operating profit year-on-year, thanks to strong demand and new revenue streams, including a recently introduced wheelie bag fee.

Looking ahead, the airline has not provided specific guidance for the remainder of 2024, but analysts expect an operating profit of around €1.48 billion. Although the airline's full-year capacity plans are unchanged, unit cost expectations have risen, with a projected 3% increase in unit costs excluding fuel and foreign exchange, up from a previous estimate of 2%.

Fuel costs for the year are now anticipated to be lower than initially expected, with hedging covering 70% of the group's fuel needs at a price of $881 per metric tonne.

Despite these weaker results, Air France-KLM remains cautiously optimistic about specific business segments, including maintenance, repair, and overhaul services, along with loyalty programs that continue to show resilience.

However, analysts caution that KLM's performance may remain susceptible to macroeconomic pressures in France and globally, alongside ongoing cost challenges, potentially impacting results in 2025 and beyond.