Air France pledges unit-revenue gain despite strike fallout

Shares surge but still down nearly 40% in 2018

Air France-KLM’s shares surged on Wednesday. Photograph: Philippe Wojazer/Reuters

Air France-KLM’s shares surged on Wednesday. Photograph: Philippe Wojazer/Reuters

 

Air France-KLM got a break from a strong second-quarter sales performance to beat profit expectations dampened by strikes that have so far cost the airline group €335 million and one chief executive.

Air France-KLM’s shares surged after it posted a €345 million operating profit on a 1.7 per cent unit revenue gain at constant exchange rates - a key measure of airline proceeds in relation to capacity that the company had predicted would be flat. It now expects an increase for the full year 2018. The company, still hunting for a new CEO three months after Jean-Marc Janaillac’s surprise resignation over a pay stand-off with unions, also announced an upgrade to cooperation with Air Europa as it forges ahead with new and deeper partnerships.

“The environment was better than we expected,” chief financial officer Frederic Gagey told reporters, citing strong medium-haul demand through the group’s Paris and Amsterdam airport hubs. Long-haul bookings for the next four months are ahead of their year-ago level, Air France-KLM said.

The recurring operating result, down 41 per cent largely because of the industrial action, nonetheless beat analyst expectations of €252 million, based on the company’s own consensus survey of 13 named financial institutions.

Air France-KLM shares, which remain down around 40 per cent since the start of the year, jumped 7.4 per cent to €8.39 in early session trading.

“Underlying revenue trends remain strong, and the group’s underlying cost performance is good,” Goodbody Aviation analyst Mark Simpson said in a note, adding that buoyant North American yields could bode well for British Airways and Iberia parent IAG Group, which reports earnings on August 3rd.

Lufthansa also raised its unit-revenue outlook on Tuesday as the German airline benefits from the demise of domestic rival Air Berlin.

Air France’s short-haul business got a similar competitive boost from strikes afflicting the country’s national railway operator, Gagey said. “I won’t hide the fact that we were helped by the problems our friends at the SNCF have been having.” But the airline’s own disruption crimped second-quarter capacity growth to just 0.4 percent for the group overall. It also unveiled plans on Wednesday to expand an existing partnership with Spain’s Air Europa into a full-blown joint venture focused on South American routes. The new venture, if it goes ahead, would complement Air France-KLM’s successful pairing with Delta Air Lines on North Atlantic routes, to be joined by Virgin Atlantic next April. Gagey said joint ventures had “proved their worth as a means of consolidation in aviation”, a sector where takeover options are often severely curtailed by national ownership rules. The CEO search is “in progress”, he added, declining to elaborate on what he described as a board matter.

Air France-KLM aims to name a new boss in September, it told staff last month. Resolving the pay dispute with unions, which have suspended strike action until a new CEO is installed, will be one of the first tasks facing the appointee. – Reuters