Air France-KLM upbeat on outlook as travel restrictions ease
Third-quarter earnings are positive for the first time since the pandemic began and beat estimates
Air France-KLM expects a return to profitability for the full year and is adding transatlantic seats as an easing of travel rules revives prospects for the struggling carrier.
The shares jumped after the airline group reported positive free cash flow in the third quarter and said it is offering 70%-75% of 2019 network capacity during the final three months of the year. That will exceed the 66% achieved in the July-to-September period.
“The bookings are coming in much better than we expected,” CFO Steven Zaat said in an analyst briefing. “We are prepared to ramp up more if needed.”
While the carrier declined to provide an outlook for 2022 because of uncertainty about the reopening of most Asian countries, it said demand during the summer high season was above expectations. Europe eased border curbs during that time and vaccinations emboldened governments to relax restrictions. The US is set to reciprocate starting on November 8.
Air France-KLM shares surged as much as 6.1% and were up 5.8% at 9.09am in Paris. That narrowed their loss this year to 19%.
The update is the latest sign the aviation industry may be finally through the worst of the crisis brought on by the coronavirus pandemic, which grounded much of air travel for the best part of 18 months. Air France-KLM only survived thanks to huge state aid from shareholders France and the Netherlands, though the full opening of crucial routes between Europe and the US starting next month could provide the basis for a sustainable recovery.
Third-quarter earnings before interest, taxes, depreciation and amortisation (ebitda) of €796m were positive for the first time since the pandemic began and beat estimates compiled by Bloomberg. The airline expects the figure to be positive in the fourth quarter and slightly positive for the year.
‘Success story’
Air France-KLM saw a surge in ticket purchases for short and medium-haul flights over the summer as well as for long-haul destinations, which account for about three quarters of profit margins, Zaat said.
“We’re building up capacity to the US and plan to be at around 90% of the 2019 offer at the end of winter season,” he said on a call. Demand to the US is strong and the long-haul business in the third-quarter “was quite a success story.”
Nevertheless, talks are ongoing between the Dutch government and the European Commission for a further recapitalisation package, Zaat said. The carrier is also readying more capital-strengthening measures that could include a rights issue and quasi equity instruments, according to the statement.
“We are prepared for it, but we are looking for the right conditions,” he said. “We have no liquidity crisis at this company.”
Air France-KLM is in “deep discussions” with manufacturers for a narrow-body jet order, Zaat said, declining to provide any details about when a decision will be reached. Both Airbus and US rival Boeing are going head to head to win the deal.
The carrier’s €10.4bn of available liquidity and credit lines “can be considered sufficient, given the continuation of recovery throughout the summer,” the airline said.
Earnings highlights
- Third-quarter ebitda of €796m vs €-442m
- Net debt was €8.1bn at September 30, down €2.9bn from end of 2020
- Net quarterly loss narrowed to €192m from €1.7bn
- Adjusted operating free cash flow reached €278m
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