Air France-KLM has cut its capacity growth forecast for the
year as rising fuel costs continue to pressure profit margins.
The Franco-Dutch aviation group on Thursday said a higher
fuel bill weighed on second-quarter earnings, with adjusted operating profit
falling to €484 million, down from €736 million in the same period last year.
Air France-KLM CEO Benjamin Smith during an earnings call
said that the company's Q2 fuel bill rose by approximately €900 million year
over year following the escalation of conflict in the Middle East. However,
that was below the US$1.1 billion increase the company had projected at the
start of the quarter.
Smith added that the group "successfully recaptured
approximately 86 percent of that additional fuel bill" through "disciplined
pricing and cost management," including a higher fuel surcharge per ticket
that the company said was in line with similar moves by competitors.
For the third quarter, the group expects fuel costs to be
€600 million above the prior year, an improvement on earlier estimates of an
€800 million year-on-year increase. Fourth-quarter fuel costs are projected to
be €500 million above the prior year.
"While the outlook has improved relative to the
assumptions we shared in April, we still expect our full-year fuel bill to be
roughly US$1.9 billion higher than in 2025," Smith said.
Air France-KLM has therefore trimmed its full-year capacity
growth outlook to between 2 percent and 3 percent, down from its previous
forecast of 2 percent to 4 percent.
Long-haul capacity is now expected to rise by about 2 percent,
down from the previous forecast of between 2 percent and 4 percent, while
short- and medium-haul capacity is expected to decline by 1 percent.
Smith said that "premiumization" continues to
drive the company's revenue growth, noting "robust" demand across the
group's core markets.
"Premium cabins now represent 38.5 percent of our total
passenger revenues," he said. "During the first half of the year,
revenues in business and La Première grew by 11 percent, while Premium Comfort
revenues increased by 13 percent, in both cases, significantly outpacing our
capacity growth."
He cited the "sustained contribution of high-yield
leisure travelers" as a driver of this growth but did not mention
corporate bookings.
Air France-KLM Q2 Metrics
Air France-KLM reported second-quarter revenue of €9.28
billion, up 12.3 percent year over year in constant currency. Profit margins,
however, were hit by the steep rise in fuel costs.
Group revenue per available seat kilometer in the second
quarter rose 6.6 percent year over year. Group capacity and traffic increased
by 2.6 percent and 2.5 percent, respectively.
Load factor was broadly stable, slipping 0.1 percentage
points to 87.7 percent, while premium and long-haul demand continued to support
"strong" yields.
Revenue was up across the North Atlantic, supported by "strong"
demand in premium and business cabins despite "significant" capacity
growth. Capacity to the Middle East fell by 80 percent year over year due to
the continuing conflict, although Smith said the group does not expect a
structural impact over the medium to long term.
Across its short- and medium-haul markets in Europe, the
airline group noted "strong corporate demand" while "geopolitical
dynamics continued to drive high-yielding long-haul connecting traffic."
TAP Air Portugal
Air France-KLM and Lufthansa this week both
submitted binding offers for a minority stake in TAP Air Portugal.
Smith on Thursday said the transaction "would unlock
substantial synergies for both TAP and Air France-KLM." He added that the
group has "invested a lot of money" in stabilizing the KLM brand and
maintaining "a good balance of talent throughout our network." He
also noted that TAP Air Portugal unions were "nervous about what they're
seeing with the other bidder." Lufthansa has this year been hit by several
strikes amid ongoing disputes with labor unions in Germany.
"We've had good alignment with our staff on our
strategies over the last eight years," Smith said. "We put a lot of
effort into that, and we see a very different result to the east of us…
hopefully it's going to help our bid."
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