Formerly a rather troubled business, Air France KLM has recovered a degree of profitability. However, in keeping with much of the rest of the airline sector, it is the passenger operation that is delivering with cargo still problematic.
For the whole company revenues fell by 2.9%, to €24,844m, but profits jumped by a third, with operating profits up by €269m to €1,049m, whilst EBITDA increased by €327m to €2,714. Margins climbed from 3% in 2015 to 4.2% in 2016.
Much of this profit increase was accounted for by reductions in unit costs, above all driven by lower fuel costs at the beginning of 2016. Staff costs also fell slightly with the Air France brand improving output per head by 2.3% and KLM by 4.2%, something which is important at Air France KLM with its recent history of troublesome labour relations.
Cost control also delivered on the passenger business. Demand here was soft and there is clearly price pressure on the business, but Air France KLM delivered strict capacity discipline which pushed up yield.
Things were not so happy at the cargo business. Capacity was cut aggressively but demand fell even faster, with tonne-kilometres falling by 6.3% leading to an edging down of the load factor from 60.4% to 59.3%. The result was a 10.2% fall in revenue and an operating loss of €244m, just €1m less than 2015. Air France KLM’s one large freight fleet has been reduced to just 6 aeroplanes. Indeed, the business will now no longer report as an independent profit centre, rather it will be included as part of the passenger operation, presumably because of the dominance of belly-freight in Air France KLM’s cargo offering.
As Air France KLM point out the air cargo sector suffers from structural oversupply of capacity and the Franco-Dutch response has been to restructure strategically away from independent freight operations. At one time the company had an impressive dedicated air freight fleet, but such things are no longer viable. This contrasts with the passenger business which, despite very heavy investment in new aircraft, is strong enough to deliver continuing profits. At Air France KLM, like the sector as a whole, cargo is increasingly an adjunct of passenger operations.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)