(News Bulletin 247) – The air transport group exceeded all expectations for its 2022 financial year, thanks to strong travel demand.

The market is a big child: you have to tell it a good story to make it dream, this is called the “equity story”. For years, the history of Air France-KLM was more of a nightmare than a dream, between persistent social conflicts, a violent health crisis, and a fractured financial balance sheet.

But the situation is in the process of being reversed, thanks to the operational efforts made by management. The annual results unveiled on Friday illustrate the impressive resurrection of the group. Turnover, up nearly 80% over one year, reached 26.4 billion euros, and is almost back to its 2019 level (96%). Operating profit has already exceeded its pre-crisis level (1.2 billion against 1.1 billion in 2019) and the group has returned to a net profit of 728 million euros, more than 2.5 times higher than in 2019.

“Despite the effects of the Omicron variant, the war in Ukraine, the inflationary situation and the operational difficulties in the main airports last summer, the group and its companies managed to take advantage of the strong travel demand”, s” is congratulated the general manager of the group, Ben Smith, quoted in a press release.

Lower debt

In the fourth quarter alone, the group exceeded analysts’ expectations, with revenues of 7.1 billion euros, against 6.9 billion expected by the consensus and an operating profit of 134 million euros, against consensus at 102 million euros.

The company benefited in particular from good momentum on routes to the North Atlantic, which are very profitable for the company, from the reopening of Japan and also from strong demand for short and medium-haul flights at Air France, with higher load factors than in 2019.

At balance sheet level, while equity remains negative and net debt high in absolute terms (6.34 billion euros at the end of December), the group breathes more easily, its debt ratio (measured by net debt in relation to the gross operating income) having improved to 1.8 at the end of December 2022 against a ratio of 11 a year earlier.

Capacity increase in 2023

On the Paris Stock Exchange, Air France-KLM is soaring, with a jump of 5.8% around 12:15 p.m. “The good results of this Friday (…) have something to be well received by the market”, judge Deutsche Bank.

“Several competitors of Air France-KLM had pre-announced good results with target increases, suddenly analysts had raised their estimates for the fourth quarter of the Franco-Dutch group. But some investors doubted that Air France- KLM’s end to the year was as good as other European airlines. The figures released on Friday show that these fears were unfounded,” said Yi Zhong, an analyst at independent research firm AlphaValue.

“Air France-KLM’s profitability is a little higher than expected. But above all if we apply this profitability rate (4.5%) for 2023, a year during which revenues will increase with the increase in capacity, operating profit will be logically higher than in 2022”, she continues.

On the strength of its excellent results, Air France-KLM has, in fact, indicated that it expects capacity (i.e. clearly the number of connections provided by its aircraft) in 2023 of between 95% and 100% of those of 2019 (compared to 85% of those of 2019 in 2022) with a ratio between 90% and 95% for Air France and KLM and a rate of around 135% for Transavia.

Towards a takeover of TAP?

Above all, Air France-KLM will put an end to the constraints imposed by Brussels. Rescued by the States, in particular by France which increased its capital during a call for the market in 2021, the company must respect several prohibitions imposed by the European Commission under State aid. In particular the impossibility of taking more than 10% of a competing company.

To get out of this corset, Air France-KLM must reimburse 75% of an amount of 3.6 billion euros which includes both 3 billion euros of super-subordinated debt securities held by the French State and about 600 million euros of shares acquired by the French state in the spring of 2021. It had so far repaid 2.4 billion euros of this total.

Air France-KLM announced on Friday that it would cross this 75% threshold as of March 2023 by transforming 300 million of super-subordinated debt into hybrid bonds held by the French State, an instrument which is not affected by European constraints. . It will do the same with 300 million euros of other additional debt securities in April.

“The group will fulfill all final obligations related to the exit of the remaining recapitalization aid without any modification of the capital structure being required”, assured the company. Air France-KLM will thus have a free hand to consolidate its position by potentially acquiring a competitor.

“At present, all legacy companies are seeking to strengthen themselves through external growth operations, and Air France-KLM must not let this train pass”, underlines Yi Zhong.

Ben Smith confirmed during a press conference on Friday the group’s interest in the Portuguese company TAP, adding that its “geographical network”, particularly in Brazil, “was “extremely powerful and interesting for [Air France-KLM]”.