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Air France-KLM sees surging demand for travel driving a return to profitability this northern hemisphere summer as the carrier looks for ways to pay back government support received during the Covid-19 pandemic.

The Franco-Dutch carrier expects to report break-even operating income in the second quarter and will be “significantly positive” in the third, according to an earnings filing Thursday. The group reported earnings before interest, taxes, depreciation and amortisation (ebitda) of €221m for the first quarter, better than it had targeted. 

“This paves the way for a successful summer season in all our activities, which we continue to strengthen through our extensive transformation plan,” CEO Ben Smith said in the statement. 

Air France-KLM said it has been rapidly adding capacity and reinstating services as countries around the world unwind Covid-19 travel restrictions and reopen borders. The group said it has partly repaid Dutch state-backed revolving credit facilities of €311m at its KLM unit and is making progress on refinancing as much as €500m of Air France’s assets to repay French state aid. 

The group raised ticket prices through the first quarter on its long-haul services in response to rising fuel prices, and said it expects strong summer demand to result in yields higher than prepandemic levels. It also said that the first-quarter results were driven by a strong performance on routes to the Caribbean and Indian Ocean destinations, as well as Africa and South America.

The carrier’s KLM unit reported a €3m operating profit while its low-cost Transavia arm was operating capacity in the first quarter that was close to that offered in the same period in 2019. Transavia’s fleet will increase to almost 100 aircraft as it looks to tap European leisure traffic, the company said. 

Air France-KLM said it continues to mull a capital increase by way of a possible rights issue as well as the issue of instruments such as straight and perpetual bonds to repay as much as €4m of pandemic era state aid, though the timing and size of each transaction depend on market conditions and regulatory approvals. 

After a series of bailouts to get Air France-KLM through the worst of the Covid-19 crisis, the French state holds a stake of about 29% and the Dutch government 9.3%. Until three-quarters of the aid is paid back, Air France-KLM is under EU restrictions on executive compensation and banned from acquiring more than a 10% stake in a rival, conditions that tie its hands for any industry consolidation.

Bloomberg News. For more articles like this please visit Bloomberg.com


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