Despite the slowdown in global growth and the increase in fares designed to absorb a part of the rise in oil prices, Air France-KLM achieved a 3.7% rise in traffic and a high load factor of 80.3% in the first quarter of the year.
Premium traffic remained “dynamic”, underpinning unit revenues. The recovery in profitability at the cargo division was confirmed, with a significant increase in unit revenues. Maintenance and the other activities also made a positive contribution to group results.
Total revenues rose 5.8% to 6.29 bln euros after a negative currency impact of 3.9%, for production measured in equivalent available seat kilometers (EASK) up 6.2%. Operating costs increased by 9.5% to 6.05 bln euros. Excluding fuel costs, the rise would have been 5.8%.
In the context of the ‘Challenge 10’ cost-savings programme, the group realised savings of 114 mln euros against its initial annual target of 430 mln.
The main changes in operating costs included fuel bill of 1.36 bln euros against 1.09 bln euros at June 30, 2007, a rise of 24.3% under the combined effect of a 3% rise in volume, an increase in jet fuel costs after hedging of 40% and a favourable currency impact of 14%.
Employee costs amounted to 1.87 bln euros, up 8.0% including a 1 point increase (4.5 to 5.5%) in the retirement benefit discount rate, following the sub-prime crisis.
Catering expenses were up 12.7% to 124 mln euros, in line with the significant increase in activity at Servair (+52.6%). Commercial and distribution costs fell 7.8% to 282 mln euros, mainly reflecting the decline in commissions.
Operating income amounted to 234 mln euros against 415 mln at June 30, 2007 (-43.6%). The adjusted operating margin declined 3.3 points to 4.5%. Income from operating activities amounted to 251 mln euros versus 537 mln for the quarter, including 122 mln euros in non-recurrent financial operations.
Operating cash flow stood at 1.01 bln euros at June 30, 2008 against 769 mln after non-recurrent payments of 308 mln euros (linked to the 2005 shares-for-salary scheme and the contribution to the fund managing the retirement of Air France employees) a year earlier. Proceeds from disposals amounted to 119 mln euros and investments amounted to 597 mln. Available cash flow therefore stood at 532 mln euros.
The balance sheet was further strengthened with net debt down by 518 mln euros to 2.17 bln (2.69 bln euros at March 31, 2008) and shareholders’ funds of 13.36 bln euros (10.61 bln) of which 4.37 bln euros relating to the fair value of derivative instruments. The group has cash of 4.7 bln euros and credit facilities of an additional 2 bln at its disposal.
OUTLOOK FOR 2008-09
In response to the new economic environment, Air France-KLM will reinforce the ‘Challenge 10’ plan with an additional 190 mln euros in cost-savings, bringing the total for financial year 2008-09 to 620 mln euros. Moreover, it will adjust its capacity plans, with a rise of 2% for the Winter 2008 and Summer 2009 seasons. On the basis of a forward price of oil of $126.82/bl at 25/7/2008 and a euro/dollar exchange rate of 1.56, the fuel bill for the full year is estimated at 5.86 bln euros.
Air France-KLM confirmed that its first quarter 2008-09 results are in line with its objective of operating income of the order of 1 bln euros for the full year.
PASSENGER BUSINESS
Traffic rose 3.7% with a 5.1% rise in capacity. The load factor stood at 80.3% (-1.1 point). The group carried 19.7 mln passengers (+2.2%). Long-haul activity remained dynamic with traffic up 4.1%, underpinned by premium traffic and robust unit revenues. Total passenger revenues rose 4.0% despite a negative currency impact of 3.7% to 4.95 bln euros. Operating income was comfortably in the black at 179 mln euros despite a rise of 230 mln euros in the fuel bill which weighed on unit costs.
CARGO BUSINESS
Cargo traffic increased by 1.5% with capacity up 3.0% leading to a load factor of 66.2%, down 1.0 point on the previous year. The group transported 372,000 tons. The strong rise in unit revenues and the containment of unit costs, notably thanks to the rejuvenation of the Air France fleet, led to a significant improvement in the profitability of this business. Total cargo revenues rose 10.5% to 762 mln euros, after a negative currency impact of 6.1%. Operating income was 17 mln euros after a loss of 17 mln euros at June 30, 2007.
OTHER ACTIVITIES
Revenues from other activities amounted to 337 mln euros against 251 mln euros at June 30, 2007 (+34%) of which 233 mln euros from transavia.com and 87 mln euros from catering. The operating income of other activities was stable at 23 mln euros. Third party maintenance revenues declined 2.1% to 238 mln euros (243 million euros a year earlier) under the impact of the weaker dollar. Operating income was up 15.4% to 15 mln euros.
