(News Bulletin 247) – The air transport group had a fabulous summer operationally, generating revenues up 8.9% at constant exchange rates and a record operating margin of 15.5%. But analysts expected even better.

This is one of the great paradoxes of business results: we can very well announce very high-level results and still fall short of expectations. Because the market always compares publications against the consensus, it is not content to look stupidly and simply at the figures.

Where applicable with Air France-KLM which, in absolute terms, had a very good summer, while the group was fighting for its survival three years ago. But in the meantime the company has straightened out its balance sheet and made numerous efforts (calming of social relations, restructuring of Air France’s short-haul network, rationalization of the aircraft fleet) to return to profit. Which recently led Bernstein to consider that the company was “transformed”, the research office anointing Ben Smith as “the best CEO (general director) among European airlines.

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A margin of more than 15%

Air France-KLM is reaping the benefits of these efforts by having a great summer. In the third quarter, the most important period for airlines because it corresponds to the summer season, Air France-KLM generated revenues of 8.66 billion euros, up 8.9% excluding currency effects.

Operating profit increased by 31% to 1.34 billion euros and the corresponding margin stood at 15.5%, up three points over one year, and an absolute record for the group. If for many years Air France had weak margins compared to KLM, the two companies are now very close (15% for the first, 15.7% for the second). Net profit, group share, stood at 931 million euros, more than double that in the third quarter of last year (460 million euros).

“Air France-KLM achieved a solid quarter, marked by very good results. This performance was driven by strong summer demand and I would like to thank all our teams for their unwavering commitment during this season,” said the CEO of Air France-KLM, Ben Smith.

The fact remains that the copy delivered by Air France-KLM misses the mark on all the major indicators. According to a consensus provided by the company, analysts expected, on average, a turnover of 8.707 billion euros, an operating profit of 1.376 billion euros and a profit of 991 million euros.

In other words, the group published results lower than the consensus of 0.5% on turnover, 2.5% on operating profit and 6% on net profit.

Certainly the differences are not great, but until then the group had the habit of regularly exceeding expectations. And the market tends, in this period of great nervousness, to be very harsh with disappointments.

Financing with Apollo

Regarding its outlook, Air France-KLM confirmed that it is targeting capacities (to simplify the flight offering) in available seat kilometers representing more than 95% of those in 2019 in the fourth quarter. For the whole of 2023, the group still anticipates capacities representing around 95% of that of 2019. The company also reiterated that it anticipates a single-digit increase in its unit costs compared to 2022.

But in detail, we see slight downward adjustments in the capacity outlook. The ratio compared to 2019 for 2023 is now expected at around 85% for short and medium haul at Air France and KLM and around 90% for long haul, while the company previously forecast ranges of 85% to 90 % for short and medium haul and from 90% to 95% for long haul.

The group also announced this Friday that it had finalized financing of 1.3 billion euros in the form of perpetual bonds from funds and companies managed by the investment company Apollo. This financing will be carried out at the level of an Air France-KLM subsidiary which will hold the brand and the majority of contracts with commercial partners linked to the common loyalty program of Air France and KLM (Flying Blue). These perpetual bonds will carry a coupon of 6.4% for the first four years.

On the Paris Stock Exchange, Air France-KLM shares plunged 7% to 10.25 euros around 9:30 a.m., in reaction to these announcements.