Upturn for Air France-KLM

image_pdfimage_print

Air France-KLM’s passenger activity in the Third Quarter was strongly impacted by strike action in France in October, notably by air traffic control, followed by severe weather disruption in December. In total, the group was forced to cancel 6,900 flights, according to a press release issued by the group today.

The negative impact of these events on revenues is estimated at 100 million euros of which 70 million for December alone. On the other hand, cargo continued its recovery of the past year while maintenance also enjoyed a good level of activity.

In total the Air France-KLM group generated a rise in revenues of some 14% after a positive currency effect of 3.7%, and recorded an operating profit of 81 million euros, versus a loss of 245 million euros a year earlier. The impact of the disruptions on the operating result is estimated at 80 million euros. The net result remained in loss at -46 million euros, but this represented a significant recovery from the previous year.

Activity strongly impacted by external disruptions

The passenger business saw a 3.1% rise in traffic for capacity up by 1.6%. The load factor gained 1.2 points to 81.4%. Unit revenue per available seat kilometer (RASK) gained 11.0%. The cancellation of 6,800 medium-haul flights, which enjoy higher unit revenues than long-haul, shaved around half a point off this rise. Passenger revenues amounted to 4.54 billion euros, up 12.6%. The operating result stood at 12 million euros, an improvement of 196 million on the previous year.

Cargo continued to recover. Flight cancellations had little effect on this business which saw a rise in traffic of 4.9% for capacity up by 3.8%. The load factor gained almost a point to 70.4% (+0.7 points). Unit revenue per available tonne kilometer (RATK) rose 22%. Revenues rose by 27.7% after a positive currency impact of 6.7% to 830 million euros. The operating result stood at 60 million euros after a loss of 29 million euros at 31st December 2009.

Maintenance also achieved a good performance during the Third Quarter with revenues up by 11.4%, partly thanks to the rise in the dollar, to 264 million euros. Operating income amounted to 36 million euros against 12 million euros the previous year. Engines and components performed strongly during this quarter.

Good unit cost control

Operating costs rose 7.3% and by 2.2% excluding fuel. Unit cost per equivalent available seat kilometers (EASK), rose by 4.6% but declined by 1.7% on a constant fuel price and currency basis, while the rise in production measured in EASK was limited to 2.1%, impacted by the weather disruptions.

The main feature of the change in operating costs was the fuel bill which rose by 297 million euros to 1.35 billion euros (+28.2%) under the effect of a 3% rise in volumes, a negative currency effect of 10% and a rise in fuel prices after hedging of 14%. Employee costs fell 1.3% to 1.84 billion euros.

EBITDAR amounted to 708 million euros and the EBITDAR margin of 12.0% represented a five point gain on the previous year. Operating income stood at 81 million euros, an improvement of 326 million euros. Adjusted operating income stood at 152 million euros, giving an adjusted operating margin of 2.6%.

Net interest costs were virtually stable (91 million euros at 31st December 2010 against 87 million a year earlier). Financial income and costs amounted to -73 million euros (-48 million euros at 31st December 2009) including a 49 million euro negative currency result.

The pre-tax result stood at -99 million euros (-391 million euros at 31st December 2009). Net result, group share stood at -46 million euros (versus -295 million euros at 31st December 2009). The net result restated for non-recurrent items was -32 million euros versus -241 million euros at 31st December 2009. The net result per share, both undiluted and diluted stood at 0.16 euros against -1.0 euro a year earlier.

Nine months to December 2010: Operating result of 525 million euros

Results for the first nine months were impacted by the European air space closure in April and by the disruptions in Q3, which generated an operating loss of 238 million euros.

The passenger business saw a slight rise in traffic (+0.4%) with a reduction in capacity of 1.3%. The load factor gained 1.4 points to 82.6%. Cargo traffic progressed by 3.4% with capacity down 1.2%, leading to a 3 point rise in load factor to 68.6%. In both businesses, unit revenues progressed strongly (+15.1% per ASK and +37.0% per ATK).

Total revenues amounted to 18.29 billion euros (+14.5%). Operating costs increased by 6% to 17.76 billion euros, but by just 1.5% excluding fuel. Production measured in EASK declined by 1.0%, while unit cost per EASK rose 6.7% but was stable on a constant fuel price and currency basis.

The operating result improved by 1.31 billion euros on the previous year to 525 million euros against a loss of 788 million euros at 31st December 2009. Adjusted operating income amounted to 737 million euros and the adjusted operating margin stood at 4.0%.

Net income, group share, stood at 980 million euros after a 1.03 billion euro capital gain on Amadeus (-868 million euros at 31st December 2009). Net income restated for non-recurrent items, of which the Amadeus capital gain, stood at 72 million euros against a loss of 755 million euros a year earlier. Net income per share stood at 3.32 euros and net diluted income per share at 2.71 euros (-2.95 euros at 31st December
2009 both diluted and undiluted).

Operating cash flow close to 1 billion euros

Investments net of disposals amounted to 890 million euros at 31st December 2010 (961 million at 31st December 2009). Operating cash flow was positive at 974 million euros and free cash flow stood at 277 millions euros of which 193 million euros in cash from the Amadeus operation. The group has cash of 4 billion euros as well as credit lines of 1.3 billion euros.

Shareholders’ funds amounted to 7.03 billion euros, up 1.61 billion euros on 31st March 2010 under the effect of the net result at 31st December 2010 and the revaluation of the group’s stake in Amadeus. Net debt stood at 6.06 billion euros (6.22 billion euros at 31st March 2010). The gearing ratio1 stood at 0.86 (1.15 at 31st March 2010).

Outlook for the Full Year

The Third Quarter was strongly disrupted by numerous air traffic control strikes in France as well as heavy snowfall. Since Christmas, the adverse weather conditions in North America have led to the closure of several airports on the East coast. Finally we are seeing the emergence of security issues in a number of Air France-KLM destinations, notably the Sahel Region (Niger, Mauritania, Mali) for a number of months, Ivory Coast since mid-November, and more recently, Tunisia and Egypt. As in the Third Quarter, the combination of these circumstances will have negative repercussions on the quality of unit revenues in the Fourth. Moreover, January and February unit revenues have been affected by the overcapacity situation created by the increase in offer by our competitors during the Winter season.

In this context, we maintain an objective of a positive operating result for Full Year 2010-11, but it will be below our previous target of over 300 million euros.

The numerous one-off events which have affected the current year (volcano, weather disruptions, air traffic control stoppages and geopolitical events) do not call into question the structural recovery achieved by the group in 2010; the improvement in ex-fuel cost is in line with our forecasts, our ability to adapt the network to geopolitical constraints remains, and current forward bookings from mid-March and subsequent months are of good quality.

Photo: An Air France A320 landing at Paris-Charles de Gaulle. Photographer: Philippe Delafosse