Air France-KLM has reported a record operating profit for the third quarter of 2023 of €1.3bn with an operating margin of 15.5% driven by strong summer demand, according to the airline group.
“Air France-KLM delivered a solid quarter, marked by remarkable results,” said Benjamin Smith, Air France-KLM Group CEO. “This performance was driven by strong summer demand.”
In the third quarter, revenues were up by 8.9% (at constant currency) compared to Q3 2022 to €8.66bn, driven by a strong summer demand. The operating result rose by €318 million supported by a combination of an increase in capacity (up by 6%), a higher passenger load factor (up by 1.3 percentage points) and a continued high passenger yield (up by 1.8%).
The Group noted that this strong performance offset the decrease of cargo revenues and the impact of inflation. Net income stood at €931 million, up by €471 million, further supporting the equity restoration. The adjusted operating free cash flow decreased to -€434 million due to seasonality in the ticket sales. The net debt ended at €5.0 billion, an improvement of €1.3 billion compared to year end 2022.
In the third quarter 2023, Air France-KLM carried 26.9 million passengers which is 7.6% above previous year. As capacity increased by 6.0% and traffic grew by 7.6%, the load factor increased by 1.3 points compared to last year.
The Group reached a very strong group passenger unit revenue per ASK, up +3.3% compared to last year. Group unit cost per ASK at constant fuel and constant currency is up 3.6% versus last year (3.4% excluding furlough), driven by an increase in salaries, which was partly compensated by a higher productivity, profit sharing and flight related cost.
During the third quarter, Air France-KLM agreed to take up to a maximum 19.9% non-controlling stake in the share capital of the reorganized SAS, and signed a definitive agreement for a quasi-equity financing for €1.3 billion.
Smith said: “We have also continued our efforts to further restore our equity, while leveraging the value of the Group's assets, as illustrated by a non-dilutive financing agreement of our Flying Blue Loyalty program.”
On October 26 2023, Air France-KLM and Apollo Global Management signed a definitive agreement between Apollo-managed funds and entities and a dedicated operating affiliate of Air France-KLM regarding a €1.3bn financing, accounted as quasi-equity under IFRS, with the option for Apollo to increase the nominal amount up to €1.5 billion in total, prior to closing.
This dedicated operating affiliate of Air France-KLM will hold the trademark and most of the commercial partners contracts related to Air France and KLM’s joint loyalty program (Flying Blue). The affiliate will become the exclusive issuer of miles for the airlines of the Group and partners, enabling Flying Blue’s scalability and enhancing its growth prospects.
Under the agreement, Apollo-managed funds will subscribe to perpetual bonds issued by the dedicated operating affiliate. The structure is similar to two previous financings raised by Air France on its pool of spare engines in July 2022 and its maintenance activity components in July 2023.
Air France-KLM stated that this transaction will enable the company to make an additional step towards its commitment to restore its IFRS equity and strengthen its balance sheet, in addition to net profit generation. The perpetual bonds will bear a coupon of 6.4% for the first four years, with the ability to redeem with an overall financing cost of 6.75% on the first call date.
The agreement to take a non-controlling state in SAS, subject to approvals, Smith stated would enable the group to execute its intentions to “enhance our offer and connectivity in the Nordics”.
Should this transaction be approved, the Consortium, together with the Danish State, would invest US$1.175bn of which US$475 million in common shares and US$700 million in the form of secured convertible bonds.
Air France-KLM’s investment would represent a total of US$144.5 million, of which US$109.5 million would be invested in common shares and US$35 million would be provided in the form of secured convertible bonds. Definitive agreements between the members of the Consortium would include specific provisions whereby Air France-KLM’s stake may be increased such that Air France-KLM may become a controlling shareholder, after a minimum of two years.
In parallel to the transaction, Air France-KLM also plans to seek to establish a commercial cooperation between its airlines and SAS. In doing so Air France-KLM will strengthen its footprint in Scandinavian markets, where the SAS brand and loyalty program are well-established. Such commercial cooperation would benefit Scandinavian customers through extended connectivity and broader access to the worldwide network of Air France-KLM.
Air France-KLM’s outlook for the fourth quarter remains unchanged, with ASKs for the Group including Transavia at an index of: above 95% for the fourth quarter of 2023, and circa 95% for the Full Year 2023. On costs, the group expects a low single digit increase compared to 2022. Full year 2023 net capex is estimated at €3.0 billion.