AIR FRANCE-KLM July 29, 2022
Second QUARTER 2022
Strong results driven by a spike in demand
Second quarter:
- Positive operating result at 386 million euros
- Net income at 324 million euros, showing a 1.8 billion euros improvement compared to the same quarter last year
- Positive adjusted operating free cash flow at 1.5 billion euros thanks to positive EBITDA and strong ticket sales. It improved by 1.3 billion euros compared to the same quarter in 2021
- The Group has already successfully achieved 2.8 billion euros of equity measures of the up to 4 billion announced last February
- Air France-KLM/Air France redeemed 1.6 billion euros of the French State perpetual bonds (including coupon). KLM fully repaid the State backed RCF and direct Dutch State loan amounting for 942 million euros
- Net debt at 6.0 billion euros, down by 2.2 billion euros compared to end of 2021 thanks to a positive adjusted operating free cash flow and the rights issue completed in June 2022
Mr. Benjamin Smith, Group CEO, said:
"The strong recovery we see this summer is putting the entire aviation industry to the test. While Air France-KLM had prepared for close to pre-pandemic demand levels, our airlines are not immune to the major operational challenges taking place around the world. Customer satisfaction is at the top of our priorities and we know we have not fully been able to deliver the quality of service that has come to be expected from us. I would like to thank our customers for their trust and patience. I would also like to express my gratitude towards our employees for their unwavering commitment, even in difficult situations. It is thanks to their dedication and sense of collective responsibility that we are able to post better-than-expected revenues and results this quarter. Going forward we will continue to implement our strategy in order to further transform our organization. We aim to increase our resilience to the changes of our environment while continuing to accelerate our efforts to make our Group and aviation as a whole more sustainable."
Outlook:
Context:
Air France and KLM are among the most active airlines to accommodate the travel recovery, with a second quarter capacity for Network passenger activity at an index of 82%. Despite the summer growth anticipation efforts since January, operational difficulties arose in Europe and the United States, mainly due to labour shortages at airports.
Air France and KLM are doing their utmost to mitigate these challenges and has prioritised safeguarding the trust of our customers. For this quarter, it resulted into 70 million euros additional compensation costs.
Capacity
In this recovery context, the Group expects the capacity in Available Seat Kilometers for Air France- KLM Network passenger activity at an index of:
- 80% to 85% in the Third quarter of 2022
- 85% to 90% in the Fourth quarter of 2022
- Circa 80% for the Full Year 2022
All indices compared to the respective period of 2019.
The capacity for Transavia in Available Seat Kilometers is expected at an index above 100 for the full year and in the third and fourth quarter 2022 compared to 2019.
Yield
The yield environment should remain high for the rest of 2022 with a strong summer demand resulting in yield levels above 2019.
Expected operating result
- Significantly positive in the third quarter
- Positive in 2022, for the first time since 2019
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Cash
As of June 30 2022, the Group has a strong 11.9 billion euros of liquidity and credit lines at disposal.
Full year 2022 Net Capex spending is estimated at circa 2.5 billion euros, which is 80% fleet & fleet related and 20% IT & Ground related.
Air France-KLM made major steps to pave the financial trajectory
- In February, Air France-KLM announced plans for a set of equity strengthening measures up to 4 billion euros.
- Later in June, the Group successfully completed a 2.3 billion euros rights issue, with CMA- CGM becoming a new strategic shareholder and a reference commercial partner in the cargo activity. Air France-KLM / Air France redeemed 1.6 billion euros of the French State perpetual bonds (including coupon), aiming to redeem at least 75% as soon as possible.
- In the meantime, KLM fully repaid the State backed RCF and direct Dutch State loan amounting for 942 million euros. 2.4 billion euros RCF and State Loan is still available, and KLM expects to strengthen its balance sheet with positive net results and further equity measures are being contemplated.
-
Air France-KLM and Apollo have closed on the 28th July an investment of 500 million euros by Apollo Funds to finance an ad hoc affiliate of Air France owning a pool of spare engines, as per the agreement signed on July 13th. In alignment with the requirement of article 77 bis of the European Commission's "Temporary Framework for State aid recapitalization measures", proceeds from the investment will be used to further redeem outstanding
French State perpetual bonds issued in late April 2021. - Later in 2022-2023, the Group will contemplate possible hybrid bond issuances up to 1.2 billion euros subject to market conditions.
The restoration of negative equity will be done through net profit generation and quasi/equity projects.
Air France-KLM Group: Second quarter operating margin at 2019 level despite the steep increase of fuel cost
Second quarter | Half year | |||||
2022 | Change | Change | 2022 | Change | Change | |
constant | constant | |||||
currency | currency | |||||
Passengers (thousands) | 22,803 | +224.5% | 37,326 | +215.0% | ||
Capacity (ASK m) | 72,127 | +81.9% | 130,192 | +75.3% | ||
Traffic (RPK m) | 61,365 | +243.4% | 104,499 | +227.7% | ||
Passenger unit revenue per ASK | 7.41 | +93.6% | +89.1% | 6.51 | +91.8% | +87.9% |
(€ cts) | ||||||
Group unit revenue per ASK (€ | 8.52 | +46.1% | +42.1% | 7.73 | +41.4% | +38.0% |
cts) | ||||||
Group unit cost per ASK (€ cts) at | 7.98 | +3.2% | -12.7% | 7.71 | -4.6% | -15.6% |
constant fuel | ||||||
Revenues (€m) | 6,707 | +143.9% | +138.7% | 11,152 | +127.1% | +123.8% |
EBITDA (€m) | 931 | 1,180 | 1,186 | 1,152 | 2,029 | 2,050 |
Operating result (€m) | 386 | 1,139 | 1,145 | 36 | 1,970 | 1,989 |
Operating margin (%) | 5.8% | +33.1 pt | +32.8 pt | 0.3% | +39.7 pt | +39.5 pt |
Net income - Group part (€m) | 324 | +1,813 | -228 | +2,744 | ||
Adj. operating free cash flow (€m) | 1,532 | +1,322 | 2,163 | +3,297 | ||
Net debt at end of period (€m)1 | 6,036 | -2,180 |
1 Change versus 31 Dec 2021
2
In the Second quarter 2022, the Air France-KLM Group posted a positive operating result of 386 million euros, up by 1,145 million euros at a constant currency compared to last year, and was driven by an increase of capacity. In parallel, the increase of load factor and yield generated an increase of the unit revenue.
Net income amounted to 324 million euros in the Second quarter 2022, an increase of 1.8 billion euros compared to last year. The recognition of tax assets at KLM group for an amount of around 300 million euros supported the positive net income generation.
In a challenging cost environment, transformation programs contain the unit cost up 2.4% with 15% capacity below 2019.
The unit cost is up 2.4% at a constant fuel price and constant currency versus the Second quarter 2019, with a capacity down by 15%. The ongoing transformation programs enable Air France-KLM to limit the impact of increasing costs such as airport and ATC charges, and the KLM Collective Labour Agreement (CLA) delayed implementation.
Compared to June 2019, the number of Full Time Equivalents (FTE's) of Air France excluding Transavia reduced by 16% and by 13% for KLM.
Staff costs decreased in the Second quarter by 11% compared to the same quarter in 2019 thanks to FTE reduction and the French government support on wages. Corrected for government support on wages, staff costs decreased by 9%.
Business review
Network: Significant improvement in operating result
Second quarter | Half year | |||||
Network | 2022 | Change | Change | 2022 | Change | Change |
constant | constant | |||||
currency | currency | |||||
Total revenues (€m) | 5,753 | +143.5% | +137.4% | 9,647 | +128.6% | +123.6% |
Scheduled revenues (€m) | 5,532 | +153.0% | +145.7% | 9,207 | +136.1% | +130.2% |
Operating result (€m) | 352 | +1,006 | +1,013 | 43 | +1,758 | +1,773 |
Second quarter 2022 revenues increased by 137.4% at constant currency to 5,753 million euros. The operating result amounted to 352 million euros, a 1,013 million euros increase at constant currency compared to last year.
Passenger network: Double-digit yield increase on most regions and on both economy and premium cabins
Second quarter | Half year | |||||
2022 | Change | Change | 2022 | Change | Change | |
Passenger network | constant | constant | ||||
currency | currency | |||||
Passengers (thousands) | 17,556 | +199.9% | 29,497 | +185.8% | ||
Capacity (ASK m) | 61,697 | +69.4% | 114,268 | +63.2% | ||
Traffic (RPK m) | 52,479 | +229.4% | 91,346 | +211.1% | ||
Load factor | 85.1% | +41.3 pt | 79.9% | +38.0 pt | ||
Total passenger revenues (€m) | 4,835 | +229.3% | +223.4% | 7,818 | +214.3% | +209.6% |
Scheduled passenger revenues (€m) | 4,732 | +239.9% | +231.3% | 7,610 | +223.0% | +216.0% |
Unit revenue per ASK (€ cts) | 7.67 | +100.7% | +95.6% | 6.66 | +97.9% | +93.6% |
Second quarter 2022, capacity in Available Seat Kilometers (ASK) was 69.4% higher than last year and at 82% of 2019 Second quarter level which was in the middle of the Group's guidance provided during the First quarter 2022 results presentation.
3
In response to the rise in fuel prices and other external costs, the Group proceeded to different fare increases during the first half of the year across all long-haul flights. The amount of the increase varies according to destination and class of travel, and applies to flights operated by Air France and KLM. Additionally, the spike in travel demand, the strong performance in Premium cabins, and the solid corporate traffic recovery have all led to a yield above the 2019 level in the second quarter.
The Second quarter result is driven by a strong performance of the entire network:
- North Atlantic: Strong improvement since mid-January driven by the strong traffic recovery, with strong yield due to fare increases and a positive cabin mix. The second quarter showed new bookings outpacing 2019 levels.
- Capacity discipline on South America routes combined with a very resilient demand led to a strong yield. Corporate traffic ramped up quickly in the same time.
- Asia: The strong yield performance is due to limited capacity and the group continues to observe important differences between the regions. South East Asia and India showed positive dynamic in yield and traffic.
- Caribbean & Indian Ocean: The yields improved thanks to successive fare increases and a positive cabin mix effect.
- Africa: A strong corporate recovery was observed in all areas. For KLM, the performance was driven by East and South Africa with strong yield increase linked to positive cabin mix and a positive economy yield evolution. For Air France, performance was driven by West and Central African countries with a good steering strategy.
- Middle-East:The second quarter performance stayed strong thanks to Dubai, especially on premium cabins and an increased traffic on some routes.
- Medium-haul:Strong booking dynamic since March. KLM is impacted by operational challenges and restrictions on flight departures from Amsterdam which led to traffic restriction. The yield is above 2019, especially on leisure routes with network capacity constraints and a positive competition environment.
- Short-haul:The network was able to absorb capacity recovery month over month thanks to business motive dynamism. Yield is above 2019 helped by steering yield initiatives.
During the Second quarter, Air France added three Airbus 350-900 and two Airbus A220-300. One B777-200, one Airbus 320, three Airbus 319, two Embraer 170 and five Canadair Jet 1000 were phased out. KLM phased in three Embraer 195 E2. The Group will continue to introduce new generation aircraft to its fleet in order to improve its economic and environmental performance.
Cargo: Strong yield increase mitigates traffic impact on Asia trade lanes
Second quarter | Half year | |||||
Cargo business | 2022 | Change | Change | 2022 | Change | Change |
constant | constant | |||||
currency | currency | |||||
Tons (thousands) | 236 | -13.4% | 472 | -12.7% | ||
Capacity (ATK m) | 3,341 | +27.4% | 6,315 | +18.9% | ||
Traffic (RTK m) | 1,732 | -17.2% | 3,497 | -16.1% | ||
Load factor | 51.8% | -27.9 pt | 55.4% | -23.1 pt | ||
Total Cargo revenues (€m) | 918 | +2.6% | -1.1% | 1,828 | +5.5% | +2.2% |
Scheduled cargo revenues (€m) | 801 | +0.7% | -2.8% | 1,597 | +3.5% | +0.4% |
Unit revenue per ATK (€ cts ) | 23.96 | -20.9% | -23.7% | 25.29 | -13.0% | -15.5% |
Compared to the Second quarter 2021, cargo capacity strongly increased by 27.4% in Available Ton Kilometers, mainly due to the increase in worldwide belly capacity, except for Asia. This limited belly capacity to Asia affected the overall traffic which resulted in a traffic decrease of 17.2% and contributed to an overall decrease in load factor by 27.9 points. Yields, however, remain at a consistently high level (+17.4% vs. 2021), leading to a total Second quarter revenue performance at last year's level.
4
When compared to the pre-COVID year 2019, cargo capacity in the Second quarter was still 8% below 2019. However, due to exceptional yield performance - driven by high demand - total revenues in the Second quarter of 2022 were 76% higher than 2019.
In May, Air France-KLM announced its entry into a strategic partnership with CMA-CGM Air Cargo (CCAC). The partnership agreement is currently being worked out and expected to be finalized before the end of 2022.
In June, Air France-KLM Cargo won the Air Cargo Industry Achievement Award for their pioneering work in the development and distribution of sustainable aviation fuel and the fast expansion of its leading SAF program.
Transavia: Capacity above pre-crisis level with a load factor of 85%
Second quarter | Half year | |||
Transavia | 2022 | Change | 2022 | Change |
Passengers (thousands) | 5,247 | +346.8% | 7,828 | +412.8% |
Capacity (ASK m) | 10,430 | +221.9% | 15,924 | +274.6% |
Traffic (RPK m) | 8,886 | +358.2% | 13,154 | +421.6% |
Load factor | 85.2% | +25.3 pt | 82.6% | +23.3 pt |
Total passenger revenues (€m) | 601 | +378.0% | 850 | +422.2% |
Unit revenue per ASK (€ cts) | 5.86 | +51.0% | 5.41 | +41.2% |
Unit cost per ASK (€ cts) | 6.04 | -12.5% | 6.11 | -31.9% |
Operating result (€m) | -18 | +80 | -110 | +108 |
In the Second quarter of 2022, the demand recovery in leisure traffic in Europe and North Africa continued. Compared to last year, the capacity in the Second quarter increased by 221.9%, traffic increased by 358.2%, and the number of passengers increased by 346.8%. Last year, Second quarter was heavily impacted by travel restrictions in Europe and North Africa.
The Operating result was slightly negative at -18 million euros, although improved by 80 million euros compared to the Second quarter of 2021.
Capacity in the Second quarter was above the level of the Second quarter of 2019 and unit revenue even above the Second quarter 2019 mainly driven by a strong yield improvement.
The fleet of Transavia is approaching 100 aircraft, to further capture the strong demand of leisure traffic in Europe.
Maintenance business: Operating margin above 2019 level
Second quarter | Half year | |||||
Maintenance | 2022 | Change | Change | 2022 | Change | Change |
constant | constant | |||||
currency | currency | |||||
Total revenues (€m) | 911 | +34.1% | 1,742 | +33.9% | ||
Third-party revenues (€m) | 345 | +35.1% | +35.3% | 642 | +25.0% | +30.0% |
Operating result (€m) | 57 | 60 | 61 | 101 | 111 | 117 |
Operating margin (%) | 6.3% | +6.7 pt | +6.8 pt | 5.8% | +6.6 pt | +7.1 pt |
The Second quarter operating result stood at 57 million euros, an increase of 61 million euros at constant currency versus the Second quarter 2021 thanks to a higher activity and an operational improvement.
Total revenues increased by 34.1% in the Second quarter while third party revenues increased by 35.1%, showing a strong recovery. The increase in internal revenues is consistent with the activity increase of the Air France-KLM airlines compared to the Second quarter 2021.
The operating margin stood at 6.3%, which is 6.7 points higher than the operating results in the Second quarter 2021. The half year margin amounts to 5.8%, which is at the level of the pre-covid period when excluding the states support.
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Air France-KLM SA published this content on 27 October 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 October 2022 17:09:01 UTC.
