Turismo
AIR FRANCE - KLM : RESULTS THIRD QUARTER 2018
Air France-KLM commercial teams delivered a strong performance across all business segments:
The Group posted a solid operating result thanks to unit cost reduction and revenue growth that helped to absorb fuel and currency headwinds:
The Group net debt has been reduced by 222 million euros compared to 31 December 20171 at 6.3 billion euros, and the net debt/EBITDA ratio remained stable at 1.4x.
The Group repurchased €197m of hybrid bonds, resulting in a reduction of its future coupons.
On 19 October 2018, Air France and its representative unions signed a pay agreement. Pilots' categorical negotiations will open next week.
The Group will continue to work on yield improvement within the context of an increased fuel price:
The unit cost target is confirmed at between 0% and +1.0% at constant currency, fuel and pension charges.
The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 29 October 2018 to approve the financial statements for the first nine months of 2018.
In the third quarter 2018, capacity increased by 1.9%. Thanks to the strong performance of the commercial teams, network revenues rose by 5.1% at constant currency compared to last year. The key driver for this growth was a positive unit revenue performance from both the Passenger and Cargo activities.
The combined Passenger and Cargo operating result amounted to 810 million euros for the third quarter 2018, an increase of 14 million euros at constant currency compared to last year.
Third quarter 2018 capacity increased by 2.0%, resulting in traffic growth of 2.4%.
Thanks to vigorous sales efforts and revenue management steering, the Group managed to improve the overall passenger unit revenue which increased by 1.8%, despite a strong comparable third quarter 2017.
The long-haul network delivered a solid performance with a 0.4 pt increase in load factor to 89.5% and a unit revenue increase of 1.9% for the quarter. The North America, Asia and Africa & Middle East networks were positively oriented with unit revenue increases of respectively 3.8%, 2.5% and 2.8%. In Latin America, the Group's capacity was expanded by 7.7%, this growth was mainly coming from the route openings to Forteleza by Joon and KLM. However, demand out of Brasil and Argentina was weaker than expected having been impacted by the depreciations of their currencies, resulting in a -2.4% decline in unit revenue for the Latin America network. The Caribbean and Indian Ocean network's unit revenue was flat.
The Medium-haul network's performance was positive, with a unit revenue increase of 2.1%. On the medium-haul hub network, the unit revenue was up 3.3%, with both hubs contributing positively. On the point-to-point network in France, the unit revenue was down 3.0% with the ongoing competitive pressure from rail.
Cargo capacity rose by 1.6% compared to last year within a buoyant demand environment particularly in Asia and North America. Despite some difficult local market circumstances, Latin America also performed well.
Revenue management steering generated higher yields in both full freighters and bellies, resulting in an unit revenue increase by 6.7% in the quarter.
The new digital customer platform is proving succesful and contributing to sales growth, with an increase in the direct sales channel. Electronic Air Way Bill (E-AWB) usage by our customers rose to a level of 73% in the third quarter 2018.
Transavia carried 5.1 million passengers in the third quarter 2018, an increase of 4.1% compared to last year. Despite the tough comparable base (Q3 2017 unit revenue up 9.3%), this quarter's unit revenue increased by 4.5% compared to last year.
The third quarter 2018 operating result stood at 178 million euros, an improvement of 5 million euros compared to last year.
In particular, Transavia France delivered a very strong quarter with capacity growth of 17% combined with higher unit revenues boosting its operating margin to above 30%.
Maintenance revenues increased in the third quarter 2018 compared to last year, with third-party revenues up by 9.7% at constant currency, driven by a strong performance from the Engine activity. The operating margin expressed as a percentage of total revenues stood at 7.2%, a decrease of 0.6 points at constant currency.
The Maintenance order book stood at 10.7 billion dollars at the end of the third quarter 2018, an increase of 0.3 billion dollars compared to the end of 2017, mainly driven by new Component and Engine contracts.
In the third quarter 2018, the Air France-KLM Group operating result proved resilient, standing at 1,065 million euros, down -77 million euros compared to last year but up 11 million euros at constant currency.
The strong sales performance and efforts to reduce unit cost helped to offset the major portion of the fuel and currency headwinds. Unit revenue and unit cost contributed positively with a respective 155 million euros and 55 million euros.
The fuel bill including fuel hedging amounted to 1,377 million euros, up 229 million euros, and up 223 million euros at constant currency, due to the increase in the jet fuel price. The positive fuel hedge result realized in third quarter 2018 stood at 240 million euros.
Currencies had a negative 128 million euro impact on revenues and a positive impact on costs of 40 million euros including currency hedging. The net impact of currencies thus amounted to a negative 88 million euros for the third quarter 2018.
On a constant currency, fuel price and pension-related expense basis, unit costs were down -1.0% in the third quarter 2018.
For the first nine months of 2018, the pay agreement signed in Air France on 19 October 2018 will have an impact of around 40 millions euros that will be booked in the fourth quarter 2018.
Productivity, measured in EASK per FTE, increased by 0.6% while capacity increased by 2.3%.
The number of staff increased by 1,400 FTEs including +250 Pilots and +300 Cabin Crew in response to the capacity growth. Ground staff increased by 850 FTEs, mainly driven by IT Innovation department, third party activities in E&M and the Customer Centers.
Net employee costs in the third quarter 2018 were down 0.6% compared to last year. They would have been stable including the costs for the quarter of the new Air France pay agreement.
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The Group generated adjusted operating free cash flow of 127 million euros in the first nine months of 2018, a reduction of 652 million euros compared to last year. The decline resulted from the strike impact and a net 221 million euro increase in investments.
In the third quarter 2018 the group repurchased 197 million euros of hybrid perpetual notes , resulting in a net reduction of coupons by 11 million euros up to October 2020. Since these hybrid bonds had not been recognised as debt, their repurchase had a negative impact on net debt.
Despite this impact, the Group reduced net debt to 6,349 million euros ar 30 September 2018 versus 6,571 million euros at 31 December 2017. This 222 million euros reduction was driven by operating free cash flow generation and the repayment of lease debt.
The net debt/EBITDA ratio remained stable at 1.4x at 30 September 2018 compared to 31 December 2017.
The global context remains uncertain given the current geopolitical environment and rising fuel price trends.
As a consequence, the following guidance components have been adjusted for full year 2018:
Based on the current outlook and a demand environment that remains positively oriented, we expect Passenger network revenues to increase in the fourth quarter 2018, with long haul forward booking load factors ahead of last year and Passenger unit revenues stable at constant currency.
The Group maintains unchanged the following guidance components for full year 2018:
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The Third Quarter 2018 financial statements have not been audited by the Statutory Auditors.
The results presentation will be available at www.airfranceklm.com from 7:15 am CET on 31 October 2018.
A conference call will be hosted by Benjamin Smith and Frédéric Gagey on 31 October 2018 at 8:00am CET.
To connect to the conference call, please dial:
Confirmation code: 2089016
To listen to the audio-replay of the conference call, please dial:
Confirmation code: 2089016
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