Turismo
Q2 2023 Financial Results
xx
July 28, 2023
Commenting on the results, Mr. Benjamin Smith, Group CEO , said:
“We have again delivered a strong set of results during the Second Quarter of 2023. In spite of the inflationary context, we posted double-digit growth in our revenues and a record operating margin. The rollout of new award-winning products across our airlines continued unabated, which serves as a testament of the commitment of our employees, whom I would like to thank.
We were also busy throughout the quarter, actively preparing for the summer. I am very glad to see that the situation at airports is much better, including at KLM's hub at Amsterdam Schiphol Airport. This season notably serves as a test run for 2024, when France will host the Olympic and Paralympic Games, of which Air France is an official partner. Lastly, we have also continued delivering on our strategic roadmap, and secured ambitious partnerships in the field of sustainability, preparing for our medium to long-term future.”
Operating result improved compared to 2022 driven by strong revenue growth
In Q2 2023, revenues were up +14.1% compared to Q2 2022, driven by a higher capacity (+8%), a higher passenger load factor (+3 pt) and a higher passenger yield (+9%). The operating result improved compared to last year by €347 million while last year the operating result was supported by €42 million furlough contribution. A lower jet fuel price and a higher yield compensating inflation accelerated the growth in operating result and translated into a margin at 9.6%.
As a result, compared to last year, net income strongly grew by €280 million, amounting to €604 million, supporting the equity restoration.
The adjusted operating free cash flow in the second quarter amounted to €557 million, a reduction of €975 million compared to last year. This different pattern is explained by a catch up in summer ticket sales in Q2 2022. The net debt ended at €4.9 billion, an improvement compared to year end 2022 of €1.4 billion.
Increase in Group unit revenue driven by passenger unit revenue
In the second quarter 2023, Air France-KLM welcomed 24.7 million passengers which is 8.2% above previous year. As capacity increased by 8.3% and traffic grew by 11.6%, the load factor increased by 2.6 points compared to last year.
The Group reached a very strong group passenger unit revenue per ASK, up +12.3% compared to last year. This increase was driven by load factor increase especially on the long haul network (North America, Africa, Asia & Middle East and Transavia) and yield on the full network except Asia.
Group unit cost per ASK at constant fuel and constant currency is up 6.4% versus last year (5.6% excluding furlough). The inflation related to salary increases started last year in the third quarter and especially in the fourth quarter. The increase in the second quarter is mainly coming from higher salaries including profit sharing, but also from an increase in ATC charges, airport charges, ETS and higher cost due to a higher load factor.
Equity restoration
Air France-KLM and Apollo Global Management announced post-quarter that they have signed a definitive agreement for Apollo-managed funds and entities (“Apollo”) to raise a €500 million financing into an operating affiliate of Air France that will own a pool of components dedicated to Air France's Engineering and Maintenance activities.
Under this agreement and subject to customary closing conditions, Apollo will subscribe to perpetual bonds issued by this ad hoc operating affiliate and this financing will be accounted as equity under IFRS. The financing's proceeds will be allocated to general corporate purposes and support future components expenditures related to the maintenance activity.
The perpetual bonds will bear an interest rate of 6.9% for the first 3 years and gradual step ups and caps will be applied thereafter. Air France will have the ability to redeem them at any time after 3 years.
On July 27, 2023, Air France-KLM announced that it has entered into exclusive discussions with Apollo Global Management regarding the potential financing of €1.5bn to a dedicated operating affiliate of Air France-KLM. This entity will hold the trademark and most of the commercial partner contracts related to Air France and KLM's joint loyalty program (Flying Blue), and will become the exclusive issuer of miles for the airlines and partners.
This financing would be accounted as equity under IFRS, allowing Air France-KLM to make a further step towards its commitment to restore its equity and strengthen its balance sheet, aside from net profit generation and/or straight hybrid bonds.
OUTLOOK
Capacity
The Group expects the capacity in Available Seat Kilometers for Air France-KLM Group including Transavia at an index of:
All indices compared to the respective period of 2019.
Unit cost
Due to the inflationary pressure, mainly driven by CLA increases, profit sharing, load factor impact and a decrease in the forecasted capacity, the Group expects from now on for 2023 a low single digit increase of the unit cost increase compared to 2022.
Capex
Full year 2023 net capex is estimated at 3.0 billion euros.
MEDIUM TERM OUTLOOK
The Group continues its swift transformation initiatives and confirms its medium-term financial ambition with the long-term focus of achieving increased competitiveness. To do this, the Group remains agile in optimizing fleet, workforce, network, costs and continues its sustainability efforts. The Group expects capacity in Available Seat Kilometers back to 2019 levels as from 2024.
The transformation efforts of the Group, including FTE reduction, fleet renewal and spend optimization, will compensate the inflationary pressure on cost. Therefore, the Group expects to decrease its unit cost in the period 2024-2026 year over year against a constant fuel price, constant currency and excluding Emission Trading Scheme costs (ETS).
The Adjusted Operating Free Cash Flow excluding exceptionals is expected to remain positive. Exceptionals include the payment of the air-freight litigation and the deferrals of social charges, pensions and wage taxes accumulated during the Covid 19 period.
The Net Debt/EBITDA target ratio is expected to remain between 1.5x and 2.0x.
The Group's medium-term financial ambition is to reach an Operating Margin of 7% to 8%.
Business review
Network: Operating result more than doubled
Compared to the second quarter 2022, total revenues increased by +13.3% to €6,520 million. The operating result improved by €340 million and amounted to €692 million. The increase in revenues was driven by the network passenger business while the Cargo revenues declined compared to a strong second quarter last year and a further softening of the market.
Robust growth in unit revenue
Second quarter 2023 capacity in Available Seat Kilometers (ASK) was 8.1% higher than last year and at 88% of 2019 level, which is in line with the Group's guidance provided during the first quarter 2023 results presentation (c.90% versus 2019).
Unit revenue per ASK increased by 13.1% at a constant currency thanks to strong demand which resulted in an increase in load factor of 2.4 points and a yield increase of 10% compared to last year at constant currency.
During the second quarter we observed per area the following trends:
North Atlantic
Demand recovery continued to be driven by Point of Origin North America. Yield increased by 13% at a slightly higher capacity of 2% while the load factor increased 4 points compared to last year.
Latin America
Very strong yield performance, 12% up compared to 2022, mainly driven by strong yields close in.
Asia & Middle East
Capacity in the second quarter has significantly increased vs 2022 by 56%, mainly driven by China's reopening. Nevertheless, this is still -34% below 2019 levels. Yields are stable compared to 2022 which is lower than the other areas, but this is mainly driven by the exceptional yields in 2022 due to the low capacity.
Caribbean & Indian Ocean
The second quarter showed significant capacity reductions compared to 2022 (-16%) due to redeployment of fleet to other long haul areas. The reduction in capacity resulted in very good performance on yield, 22% up versus 2022.
Africa
Strong traffic dynamics with load factor up 3 points compared to 2022. Robust yield at 6% above 2022.
Short and Medium-haul
In April the domestic network was impacted by ATC strikes. Yield improved by 10% compared to last year while capacity grew 4%. Load factor slightly up by 1 point.
Cargo: demand continued to soften resulting in pressure on unit revenues
Total revenues dropped by -33.9% compared to last year. The resumption of the passenger travel resulted in an increase in Available Ton Kilometers of 6.5% versus the second quarter of 2022. Last year, the second quarter still showed a strong demand and therefore the traffic decreased year over year by -8.5%. As global economic growth is slowing down, container prices for sea freight declined and therefore demand for air cargo softened. The load factor was 7.3 points below 2022 and due to the increased belly capacity, the yield declined as well resulting in a decrease in unit revenue per Available Ton Kilometer of -42.1% against a constant currency.
Transavia: Encouraging unit revenue development resulting in a break-even result
Compared to the second quarter 2022, the demand in leisure traffic continued to grow, despite operational disruptions due to ATC strikes in France and fleet issues in the Netherlands. The capacity increased by 9.6%, traffic increased by 14.5%, and the number of passengers increased by 12.8% resulting in a load factor 3.9 points above 2022. Transavia is still expanding its network, with a capacity growth in available seat kilometers of +20% compared to 2019 and the routes are yet to mature further. Transavia was able to improve further in the second quarter to a break-even operating result, which is promising for the Q3 peak season for which strong bookings are already visible.
Maintenance business: continued growth on third party revenues despite supply chain
Total revenues increased by 15.8% compared with the same quarter last year while third party revenues increased by 12.0% at constant currency, showing a robust recovery. Due to the tight labour market and supply chain disruptions, the average time for maintenance increased, resulting in less growth opportunities for third party revenues impacting the profitability. The operating margin in the second quarter stood at 4.4%, which is 1.9 points lower than in 2022.
Fleet
Compared to the end of 2022 the group added three B787-10, fifteen B737-800, nine A220-300 and two Embraer 195-E2. The following aircraft left the fleet, three B737-700, two A321, four A319 and two CRJ-1000, as a result the fleet increased by eighteen aircraft.
The Group will continue to invest in new generation aircraft in order to improve its economic performance and will decrease its C0 emission and reduce noise.
Acceleration in revenue generation for both airlines
Air France Group
Air France performance is stemming from a strong performance of long-haul and a high load factor resulting in an increase of revenue of +14.9%. Operating result up +349 million euros compared to last year.
KLM Group
KLM operations stabilized despite supply chain, tight labor market and fleet issues at KLM Cityhopper and Transavia the Netherlands. Revenue grew by +11.8% compared to last year.
Nb: Sum of individual airline results does not add up to AF-KLM total due to intercompany eliminations at Group level.
******
The external auditors carried out limited review procedures. Their limited review report was issued following the Board meeting.
The results presentation is available at www.airfranceklm.com on July 28, 2023 from 7:15 am CET.
A conference call hosted by Mr. Smith (CEO) and Mr. Zaat (CFO) will be held on July 28, 2023 at 08.30 am CET.
To connect to the webcast, please use below link:
https://channel.royalcast.com/landingpage/airfranceklm/20230728_2/
Income statement
* Restated figures include the change in accounting principles for CO2 quotas
Consolidated balance sheet
* Restated figures include the change in accounting principles for CO2 quotas
Statement of Consolidated Cash Flows from January 1 until June 30
* Restated figures include the change in accounting principles for CO2 quotas
Return on capital employed (ROCE)
* Restated figures include the change in accounting principles for CO2 quotas
The ROCE is positively impacted by high working capital due to payment deferral of social charges and salary taxes.
Net debt
Adjusted operating free cash flow
* Restated figures include the change in accounting principles for CO2 quotas
Bridge from EBITDA to Self-financing capacity
* Restated figures include the change in accounting principles for CO2 quotas
Unit cost: net cost per ASK
Group fleet at 30 June 2023
2023 TRAFFIC
Passenger network activity
Transavia activity
Total Group passenger activity
Cargo activity
Air France activity
KLM activity
1 change is nominal and not corrected for fuel price
2 against a constant fuel price, constant currency and excluding furlough contribution
3 refers to 2024-2026 period
4 Excluding Transavia
Attachment
2321 Rosecrans Avenue. Suite 2200
90245 El Segundo Stati Uniti