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Increased profits and improved margin: Air France-KLM posts record profit in 2023 but falls on the stock market

Air France KLM has definitively turned the page on the pandemic.

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Increased profits and improved margin: Air France-KLM posts record profit in 2023 but falls on the stock market

Air France KLM has definitively turned the page on the pandemic. For the second consecutive financial year, the Franco-Dutch air carrier made profits. According to the results it communicated this Thursday morning, the group generated a net profit of 934 million euros last year. A nice progression compared to 2022 when it had recorded a net profit of 728 million. Moreover, all indicators for the 2023 financial year are trending well: its record turnover (30 billion euros) is up 14% compared to the previous year. Its operating margin reached 5.7% compared to 4.5% in 2022. And its load factor (87.3%) increased by 3.3 points. It is true that the 2022 financial year was disrupted at the start of the year by the Omicron variant. Group CEO Ben Smith made no mistake: “In 2023, we delivered on our commitments by delivering strong operational and financial performance,” he said in the press release announcing the results. financial advisers of Air France KLM.

Despite these good annual results, they are lower than market forecasts. Thus, the airline group's action fell by more than 10% in the first trading on the Paris Stock Exchange this Thursday, to 10.25 euros. Analysts were expecting a figure above a billion euros, according to estimates compiled by Factset and Bloomberg. Air France KLM is also sanctioned for its net loss of 256 million euros in the fourth quarter, a drop of no less than 752 million compared to the same period of 2022.

In detail, Air France, which has long been the black sheep of the group, is now doing better than KLM. Thanks to its long-haul performance, the French company generated a margin of 5.9%, up 2.9 points. And its sales at 18.5 billion euros increased by 13.7%. KLM posted a lower margin (5.4%), down 1.2 points compared to 2022 due to capacity constraints. Nevertheless, its sales jumped 12.8%, to 12.1 billion. A sign that activity is dynamic, Air France KLM plans to offer this year a 5% higher seat/km capacity compared to 2019. A first since the pandemic.

But Air France KLM will not be able to rest on its laurels for long. Because its general director set a very demanding roadmap for it in December. The objective over the period 2026-2028 is to generate profitability greater than 8%. With, over the next five years, an increase of 2 billion euros in its operating profit. This will require improved productivity. Despite increasing traffic, Air France-KLM plans to employ fewer employees in 2028 than in 2019. At the time, there were 86,000. Consequently, productivity is expected to increase by 17% in 2026 and 20% in 2028. The group will also continue to simplify its fleet to reduce its maintenance costs. By 2030, it will only operate five or six families of aircraft, compared to twelve before the pandemic.

A particular effort will be required of the group's low-cost company, Transavia, which will have to contribute 400 million of the two billion in additional operating profit. Larger than Transavia Netherlands (44 aircraft), it is Transavia France (71 aircraft) which will have to make the majority of the effort. Ben Smith has had a free hand to develop this French company since he obtained from Air France pilots in 2019 that Transavia France can operate more than forty planes. It will therefore further expand its fleet, with 81 aircraft by the end of the year and more than 90 in 2026. This will allow it to continue to expand its network and add frequencies on the routes it operates.

Work already in progress: in the spring, Transavia France will open thirteen lines (Orly-Milan, Marseille-Palermo, Lyon-Yerevan, etc.). Last summer, the company was already operating 178 routes, compared to 95 lines before the pandemic in 2019. To improve their financial results, Transavia France and Transavia Holland have also not ruled out opening bases abroad. Transavia Holland led the way by launching at Brussels airport where it operated a dozen flights last summer. The subject can also be considered for Transavia France even if it is socially more delicate: in 2014, the Transavia Europe project triggered a major strike at Air France.

The other major objective of Air France KLM is to participate in the consolidation of the airline sector in Europe. A necessity because it allows you to have a larger network and amortize your investments on a broader basis. Air France KLM has already started work by taking over 19% of the Scandinavian company SAS. But the group does not intend to stop there because its competitors have also made their purchases. Lufthansa is in the process of getting its hands on ITA (formerly Alitalia), IAG (British Airways, Iberia...) and Air Europa. The next target will be the Portuguese company, TAP, which should be privatized soon. Air France KLM, which has expressed an interest, like Lufthansa, would be well advised to become its owner because this would allow it to strengthen its network to Brazil, a country with a booming air market.

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