Mr. Benjamin Smith, Group CEO: “We have again delivered a strong set of results during the 2Q 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..."
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Air France - KLM Group-
Group capacity at 92% compared to 2019 with load factor at 88%
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Group revenues at €7.6bn, an improvement of €0.9bn compared to last year
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Operating result at €0.7bn with an operating margin at 9.6%
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Positive adjusted operating free cash flow at €0.6bn and cash at hand at €10bn
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Net debt down by €1.4bn euros, compared to end of 2022 leading to a Net debt/EBITDA ratio of 1.2x
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Net income at €0.6bn supporting equity restoration
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Post quarter, €0.5bn quasi-equity financing for Air France’s Engineering and Maintenance (MRO) components activity
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
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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
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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:
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Circa 95% for the third quarter of 2023
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Above 95% for the fourth quarter of 2023
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Circa 95% for the Full Year 2023
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%.
Source: Air France – KLM
