Turismo
Air France-KLM Half Year Results
xx
July 25, 2024
Commenting on the results, Mr. Benjamin Smith, Group CEO , said:
“The second quarter of 2024 confirmed an increasingly challenging environment for aviation, with rising fuel prices and a continued pressure on costs. In this context, KLM and Transavia delivered a stable yet sluggish performance, while Air France was in addition impacted by exceptional events, including the negative effect of the Olympic Games in June.
The Group has already taken strong measures to adapt to this situation, including a hiring freeze and additional cost cuts. The Group is preserving its major investments to renew its fleet, which is a strategic lever to improve our financial and environmental performance.
Going forward, we will continue to execute our strategy and deploy our transformation plan.
Our business model is robust and resilient, and we remain confident in our ability to achieve our mid and long-term objectives, notably by leveraging our strong assets and unique competitive position.”
Q2 Unit revenue stable
*IFRS Operating free cash flow corrected from the repayment of deferred social charges, pensions contributions and wage taxes granted during the Covid period and payment of lease debt and interests paid and received
Second Quarter 2024: Operating result at €513m
In the second quarter 2024, Air France-KLM welcomed 25.7 million passengers which is 4.4% above last year. As capacity increased by 4.1% and traffic grew by 4.1%, the load factor was stable compared to last year at 88%.
The Group passenger unit revenue per ASK was up +0.2% at constant currency compared to last year, despite less international inbound traffic to Paris as a consequence of the Olympic Games.
The operating result was €220 million below last year standing at €513 million and was mainly impacted by an increase of the ex-fuel unit costs (€109 million), an increase of unit fuel & ETS costs (€73 million) and a decrease of cargo unit revenues (€21 million).
The Group unit cost per ASK is up 1.7% versus last year which is slightly better than the outlook provided during the Q1 2024 results presentation (+2% year-over-year). This increase resulted mainly from higher salary cost due to collective labor agreements at Air France and KLM and a higher flight related cost due to airport tariff increases at Schiphol and in Paris. Operational disruption costs have been reduced compared to last year thanks to a stabilization of KLM operations.
Cash
The Group reported a positive cash flow before change in working capital and a positive working capital, although impacted by the payment of deferred pension, social charges and wages taxes inherited from the pandemic, and a net capex of €1.7 billion (full year outlook of net capex of €3 billion). As a consequence operating free cash flow for the first half year stood at -€44 million.
These deferrals correspond to the previously guided one time pension payment of €610 million by Air France in January 2024 to the Caisse des Retraites des Personnels Navigants (CRPN) as well as the social charges and wages taxes amounting to €120 million per quarter.
Recurring adjusted operating free cash flow excluding deferred social charges and wage taxes and including lease debt and net interest payment amounted to +€134 million.
In May, Air France-KLM has fully repaid the outstanding €48 million of the bonds convertible into new shares and/or exchangeable for existing shares due March 25, 2026 (the “OCEANE 2026”).
In the same month, the Group has successfully placed new bonds for a total nominal amount of €650 million with a 5-year maturity and a coupon of 4.625% under its €4.5 billion Medium Term Note Programme. The New Notes are rated BBB- by Fitch and BB+ by S&P. Strong investor demand, with an order book above €2.8 billion, covered the offering by a factor of c.4.3x.
€453 million of the proceeds were used to redeem partly the following bonds:
The cash at hand at the end of June amounted to €9.6 billion, a decrease of €0.9 billion versus the end of 2023 mainly due to the payment of deferred pension, social charges and wages taxes inherited from the pandemic. Net Debt / EBITDA ratio stood at 1.6x versus 1.2x at December 2023.
Post quarter, Air France-KLM and Air France announced the successful renegotiation of its Sustainability linked Revolving Credit Facilities, resulting in an increase in the number of banks from 16 to 17, an increase of the undrawn amount by €115 million to €1.4 billion, optimized financial conditions and extension of its maturity to July 2028.
Sustainability
Transition plan and trajectory
Since 2019, Air France-KLM has accelerated its environmental transition and has set ambitious sustainability performance targets to highlight its sustainability commitments. The Group's ambition is to reduce its greenhouse gas (GHG) emissions by 30% by 2030 compared to 2019 (gCO eq/RTK).
Sustainability key performance measures:
Fleet Renewal : Air France-KLM is committed to renewing its fleet with more fuel-efficient and less noisy aircraft. By the end of June 2024, 23% of its fleet was composed of new-generation aircraft, compared to 18% end of June 2023. The Group plans to increase this ratio up to 80% by 2030.
Compared to previous generation aircraft the A220 reduces CO emissions by 20%, the Airbus A320neo family by 15%, and the Airbus A350 by 25%.
Since the end of December 2023 the following new generation aircraft were phased in, five A350, three A320 Neo, five A321 Neo and four A220. In the same period the following old generation aircraft were phased out, one 737-800, two A319 and one CRJ-1000.
Sustainable Aviation Fuels (SAF) : Air France-KLM became a co-investor in a Sustainable Aviation Fuel (SAF) financing fund, together with Airbus and six other companies.
This financing fund aims at accelerating the availability of SAF by investing mainly in technologically mature SAF-producing projects using for instance waste-based feedstocks.
Air France-KLM and its partners will have to possibility of entering into priority contracts to secure SAF offtakes from the various projects the fund will invest in.
Already the world's first user of sustainable aviation fuel SAF in 2022 and 2023, Air France-KLM has set itself the target of incorporating at least 10% of SAF on all flights by 2030.
The Group adheres to a strict sourcing policy, committing to purchasing second generation SAF that do not compete with the human or animal food chain, are RSB or ISCC+ certified for their sustainability, and are not produced from palm oil. Compared to conventional fuel, Air France-KLM's SAF achieve a CO₂ emissions reduction of up to 75% over the entire fuel lifecycle.
2024 outlook
Capacity
The Group expects its capacity in Available Seat Kilometers for Air France-KLM Group including Transavia to increase by 4% in 2024 compared to 2023. (Previously +5% compared to 2023).
Unit cost
Q3 unit cost development expected at +2% compared to last year.
For the full year 2024, the Group expects a unit cost +2% compared to 2023 ( previously +1-2% compared to 2023 ) supported by the below action plan:
Capex
Further optimizing full year 2024 net capex, expected to be below 3 billion euros. (Previously at 3 billion euros).
Business review
Network result
Compared to the second quarter 2023, total revenues increased by +1.6% to €6,632 million. The increase in revenues was driven by the passenger network while Cargo revenues declined year over year. The operating result stood at €446 million which was €247 million below last year due to an increase in salary costs, fuel and other operating expenses, however disruption cost decreased versus last year. Q2 2024 unit revenues for Air France were impacted in June by the Olympic Games in France.
Stable passenger network unit revenue
During the second quarter 2024 capacity in Available Seat Kilometers (ASK) was 2.8% higher than last year. Traffic growth (+2.7%) was close to the capacity growth and has led to a broadly stable load factor at 87.4%, while yield corrected for currency remained stable, resulting in an almost stable unit revenue per ASK.
During the second quarter we observed per region the following trends:
North Atlantic
Q2 capacity increased by +6% compared to last year although traffic was not fully following this trend resulting in a load factor reduction of 1.7 point at 88% while yield was broadly stable at -0.2%. Industry capacity grew double digit in the same period.
Latin America
Capacity was down -4.7% on the back of a high comparison basis while industry capacity is increasing. Load factor slightly increased and reached 90% while yield reduced by 2% compared to significant high yields last year.
Asia & Middle East
Capacity in the second quarter has substantially increased (+13.9%) versus 2023, driven by Asia while Middle East capacity reduced by a single digit percentage. Despite strong capacity growth, load factor expanded by almost 2 points compared to last year while yield reduced by 3%. Overall the area significantly contributed to the revenue growth of the Group.
Caribbean & Indian Ocean
The second quarter continued to show capacity reductions compared to 2023 (-6.5%) due to redeployment of the fleet to other long-haul areas. This lower capacity pushed the load factor 1.5 point up to 90% and yield improved by 5.7%.
Africa
Resilient performance despite the political situation in Sahel still impacting Air France. The Group's capacity decreased 6% while unit revenues improved thanks to a yield increase of 4.6% above 2023 while the load factor was stable at 85%.
Short and Medium-haul
Industry capacity recovered mainly driven by low cost carriers competitors and put pressure on yields and volumes. The Group's capacity increased by 2.4%, with different dynamics between Air France and KLM. The latter increased capacity year over year by 12% due to a lower base in 2023. Load factor and yield are almost stable compared to last year.
Cargo: Q2 Unit revenue down but June unit revenues above last year
As indicated during the Q1 results presentation, the significant year-over-year unit revenue reductions are behind us in the Cargo activity. The Group experienced a limited unit revenue reduction of -4.4% compared to the second quarter last year. The beginning of the second quarter was still slightly impacted by the challenging implementation of a Cargo IT system including book away in April and May (Q2 impact: €15m), while June showed an unit revenue improvement of 3%. In particular Asia is performing well driven by e-commerce and the red sea disruption. In response to market dynamics, a part of the group's full freighter capacity is being redeployed to Asia. Additionally, a block agreement was signed with China Cargo Airlines, marking a new step in cooperation and enhancing our presence in this major cargo market.
Transavia: Q2 Positive operating margin thanks to healthy unit revenue development
Despite Transavia's capacity increase in available seat kilometers of 12.1%, unit revenue increased by 4.5% while the load factor remained broadly stable. The implementation of the paid hand luggage initiative bore fruits and already brought more than €20 million revenues in the quarter and a further stabilization of the operations.
The operating result amounted to €26 million compared to break-even last year driven by higher revenues. Transavia France was impacted in June from the Olympic Games while Transavia Netherlands improved the operations compared to last year.
Maintenance business: Third party revenues continue to grow
The maintenance segment continued its growth in the second quarter 2024. Total revenues increased by 14.0% compared with the same quarter last year while third party revenues increased by +22.6%, showing a strong recovery especially on the engine side.
During the second quarter, the supply chain disruptions were still strongly impacting the operations. AFI KLM E&M needed to loan parts and spare engines to be able to perform its customers' maintenance support and to support the outsourced airframe maintenance activities.
The operating margin stood at 3.1%, which is 1.3 point lower than in 2023.
Post-quarter Air France and Airbus have signed the agreements to establish a joint venture for the provision on a worldwide basis of Airbus A350 component maintenance services (supply chain management, repairs, and creation of a worldwide pool of aircraft components).
The cooperation would take the form of a 50-50 joint venture between Air France and Airbus and involve the transfer of their A350 component support including aircraft components assets belonging to both partners into the joint venture's pool. The implementation of this JV is in line with all compliance requirements and subject to the approval by all relevant authorities. The closing is therefore expected end 2024, or early 2025.
Q2 Revenue growth offset by cost increase
Air France Group
*Airlines 2023 results were still including Flying Blue figures, resulting in a negative impact in the change columns
Air France's revenue increased by +2.9% driven by passenger revenues, although impacted in June (€40m) by the Olympic Games. The operating result stood at €195 million which was €286 million below last year, mainly due to a CLA salary increase, an increase in fuel price, an airport tariff increase in Paris and Flying Blue results included last year (presented separately since Q1 2024).
Impact of Olympic Games
The Group estimates a negative impact on its unit revenues in the third quarter from the Paris 2024 Olympic Games of €150m to €170m.
Steady Q2 Operating result thanks to stabilized operations
KLM Group
*Airlines 2023 results were still including Flying Blue figures, resulting in a negative impact in the change columns
KLM's measures to stabilize the operations are bearing fruit. Second quarter revenues grew by +5.0% while the cost grew largely in line with the revenues. Customer compensation cost ended below last year. The operating margin stood broadly at the same level as last year at 8.0%.
Continued momentum for Flying Blue Miles
Flying Blue Miles
At the end of last year, Air France-KLM created a subsidiary, which holds the commercial partner contracts related to the joint Air France-KLM loyalty programme ("Flying Blue"), as well as the exclusive right to issue "Miles" for the airlines and their partners.
In the second quarter Flying Blue miles generated €208 millions of total revenue, including third party airline and non airline partners. The operating margin margin stood at 26.0%.
Flying Blue steadily attracts increasing numbers of Active Members, who engage with the program by Earning & Burning Miles
Air France-KLM and Uber recently signed a new partnership which allows Flying Blue members to gain miles on all Uber rides in France and the Netherlands and also expanded its partnership with Revolut.
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 25, 2024 from 8:15 am CET.
A conference call hosted by Mr. Smith (CEO) and Mr. Zaat (CFO) will be held on July 25, 2024 at 09.30 am CET.
To connect to the webcast, please use below link:
https://channel.royalcast.com/landingpage/airfranceklm/20240725_1/
Income statement
Consolidated balance sheet
Statement of Consolidated Cash Flows from January 1 until June 30
*Restated figures include the change in presentation for the reclassification of interest received and paid from cash flow from operating activities to respectively cash flow from investing activities and cash flow from financing activities
Net debt
Recurring adjusted operating free cash flow
*Restated figures include the change in presentation for the reclassification of interest received and paid from cash flow from operating activities to respectively cash flow from investing activities and cash flow from financing activities
Return on capital employed (ROCE)
Unit cost: net cost per ASK
Unit cost per ASK excluding fuel and ETS vs Q2 2023: +2.1% and vs H1 2023: +3.5%
Definition: Unit cost = (total operating expenses - fuel - carbon emission - total other revenues) / Group Capacity in ASK
Group fleet at 30 June 2024
2024 TRAFFIC
Passenger network activity
Transavia activity
Total Group passenger activity
Cargo activity
Air France activity
KLM activity
1 at constant fuel, constant currency and excluding ETS
2 New generation fleet / Fleet in operation
3 against a constant fuel price, constant currency and excluding Emission Trading Scheme cost (ETS)
4 Excluding Transavia
Attachment
2321 Rosecrans Avenue. Suite 2200
90245 El Segundo Stati Uniti