Air France-KLM Share Price Dips, Earnings Weighed Down by Higher Costs

Air France-KLM shares (EPA: AF) tumbled 10.71% so far today following a report that revealed the airline's operating profit in the third quarter significantly missed market expectations. The dip in profit is attributed to escalated costs and a disappointing performance from KLM, amidst other challenges.

Despite the competitive environment, Air France-KLM's operating profit reached €1,180 million, a figure that came in 4.5% lower than the consensus of analysts' predictions. The result was influenced by a myriad of factors, not least of which were the ramifications of the Tokyo Olympics, which alone had an operating impact of €160 million.

The Olympics period, coupled with a one-time bonus payment to staff of around €50 million, exerted extra financial pressure on the airline. Year-on-year, the operating profits saw a significant decline, with Air France’s operating profits tumbling by €74 million and KLM’s by €143 million.

In terms of revenue per available seat kilometer, a key performance metric for airlines, there was a noticeable weakness, showing a decline of 1.9% from the year prior. In contrast, the cargo division showed signs of positive performance, with revenue tonne kilometers witnessing an increase of 5.9%.

Transavia, Air France-KLM's low-cost wing, was a bright spot in the earnings report, indicating a €70 million surge in operating profit, spurred by robust demand; plus, added revenue avenues such as a new fee for wheelie bags.

Looking ahead, analysts are forecasting that the group is set to generate an operating profit in the ballpark of €1.48 billion for the rest of 2024, despite Air France-KLM's cautious stance on providing specific guidance. The company’s full-year capacity plans are set to remain on track, nevertheless, expectations for unit costs have been adjusted with a predicted rise of 3% once factors like fuel and foreign exchange are stripped out.

What's more, fuel costs, often a volatile expense for airlines, are envisaged to be lower than what was initially anticipated for the year. The company is financially safeguarded against fluctuations in crude oil prices with 70% of its fuel needs hedged at a rate of $881 per metric tonne.

Air France-KLM maintains a cautiously optimistic outlook on segments such as maintenance, repair, and overhaul (MRO) services, as well as the potent growth from loyalty programs. The airline acknowledges potential headwinds that may arise in 2025 and beyond, but for the foreseeable future, it continues to navigate the challenges, aiming to optimize its operations and financial health.