(News Bulletin 247) – The Franco-Dutch air transport group has indicated that it is targeting an operating margin of more than 8% for the period 2026-2028. Its stock price is rising sharply on the Paris Stock Exchange.

Holding a day dedicated to investors is always a delicate exercise. Listed companies almost always take advantage of this to reveal their medium-term objectives (or confirm them). Targets that are too low disappoint the market, while prospects that are too ambitious may be considered less credible. Air France-KLM knows something about this: in the fall of 2019, during the first investor day held under the leadership of Ben Smith, the stock of the Franco-Dutch company lost 5.7%, despite satisfactory targets on the paper.

But this time, the group resulting from the merger between Air France and KLM seems to be on the right track. Air France-KLM shares rose 8% around 12:10 p.m., marking one of the biggest increases in the SBF 120.

Certainly, the entire market is driven by announcements deemed accommodating by the American Federal Reserve (Fed). The SBF 120 thus increased by 1.6%. However, Air France-KLM rose much more than the other groups in its sector since the German Lufthansa gained 3% and IAG, the parent company of British Airways and Iberia, advanced 3.8%.

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Analysts taken by surprise

Which shows that the group has delivered perspectives appreciated by investors, ahead of its meeting with the market (which will begin at 2 p.m.).

The airline group has confirmed its targets for the period 2024-2026, counting on an operating margin of between 7% and 8% of its revenues, compared to 7.8% for the first nine months of 2023 and 4.5% for the overall of 2019. The group remains for the moment outpaced by its rivals Lufthansa and IAG, which show profitability of 8.5% and 13.5% respectively over the first nine months of 2023 (and we’re not even talking about Ryanair whose operating margin exceeds 20% for the last published financial year).

But above all, Air France-KLM has revealed its ambitions for the future, the period going from 2026 to 2028.

In terms of operating income, the group plans to add more than 2 billion euros in profit by 2028, knowing that this result reached 1.79 billion euros over the first nine months of 2023. The corresponding margin, it will be greater than 8% over the entire period.

“The margin greater than 8% expected over the period 2026-2028 is generally in line with consensus expectations. However, it is the absolute value which is positively surprising: the group intends to improve its profit by 2 billion euros. operating over the next five years, this is more than expected. This means that well-margined revenues will increase more than anticipated by analysts,” explains Yan Derocles, analyst at Oddo BHF.

Agencies now rate Air France-KLM

The company also intends to generate a “significantly” positive operating cash flow, reduce its unit cost, but also benefit from an “investment grade” credit rating, i.e. in a non-speculative category, with rating agencies. However, the airline group, which until today was not rated by any agency, announced this Thursday that S&P and Fitch were now giving it a rating.

S&P Global ratings assigns the grade “BB+” with a stable outlook, the very last notch before “investment grade”. Better, Fitch is at “BBB-” with a stable outlook, the first rating in this “investment grade” category.

“Thanks to the encouraging targets for 2026-28, but also” to the ratings received by Fitch and S&P, “we expect a positive reaction from the action, but no major changes in our estimates, largely in line”, a explained the analyst from the independent research firm AlphaValue, Yi Zhong, in a note published this morning.

To achieve these objectives, Air France-KLM will activate quite a few levers. The group will, for example, continue to rationalize its aircraft fleets, going from eleven families at Air France to five or six in 2030 and from 6 to 5 at KLM. The group is counting on the economic model of its low-cost Transavia to capture maximum demand from Orly, where the majority of flights are concentrated on point-to-point (as opposed to transit flights). The group will remain on the lookout for acquisitions to generate synergies and optimize its costs. If the company has not explicitly cited a target, Benjamin Smith has already mentioned his group’s interest in the Portuguese TAP, whose network in Latin America would blend well with that of Air France-KLM.

The transport group also intends to strengthen its alliances, maximize customer satisfaction and loyalty, position its cargo division as a “leader in sustainable air freight” and “consolidate the position of the engineering and maintenance activity”.

The company also intends to increase the contribution of its Flying Blue loyalty program via partner revenues paid as part of this program. In 2022, these revenues amounted to 371 million euros and the company intends to increase them to around 600 million euros in 2028.