Air France-KLM expects a return to profitability for the full year

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 airline recorded positive free cash flow in the third quarter and is offering 70 to 75 per cent of its 2019 network capacity during the final three months of the year, according to a statement Friday. That will exceed the 66 per cent achieved in the July to September period.

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 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 massive 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.

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Positive earnings

Third-quarter earnings before interest, taxes, depreciation and amortisation of €796 million was 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.

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, according to chief financial officer Steven Zaat.

“We’re building up capacity to the US and plan to be at around 90 per cent 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.”

Discussions

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 €10.4 billion of available liquidity and credit lines “can be considered sufficient, given the continuation of recovery throughout the summer,” the airline said. – Bloomberg