(BFM Bourse) – The air transport group delivered results below expectations for the fourth quarter of 2023, particularly due to tensions in the Middle East.
Air France-KLM has developed a good habit in recent years of delivering results that often exceed expectations.
This is much less true on the most recent publications. The Franco-Dutch air transport group had already disappointed when it published its third quarter results. Rebelote this Thursday, while the company resulting from the merger between Air France and KLM lifted the veil on its accounts for the fourth quarter of 2023.
Over the last three months of last year, Air France-KLM generated a turnover of 7.407 billion euros, up 3.9% year-on-year and up 6.7% excluding the effects of changes. These revenues are very slightly lower than the amount of 7.419 billion on which analysts expected on average, according to a consensus posted online by the company.
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Israel-Hamas conflict and bad weather in Amsterdam
Air France-KLM was notably buoyed by the increase in its flight capacities (in short, the number of air connections set up) which increased by 6.5% in the fourth quarter on its networks excluding Transavia, as well as by the good performance in the “North Atlantic” region.
But the profitability disappoints more clearly. Air France-KLM recorded an operating loss of 56 million euros in the fourth quarter, compared with a profit of 134 million euros over the same period of 2022. However, analysts were expecting a slight operating profit, of 45 million euros. Ditto for the net loss which stood at 256 million euros, twice as much as expected by the consensus (-102 million euros).
Air France-KLM explains that it was penalized by “the geopolitical situation in Africa and the Middle East” as well as by an increase in its unit cost (the cost per available seat-kilometer). Geopolitics, that is to say the conflict between Israel and Hamas, but also those in Niger, Mali and Burkina Faso, resulted in exceptional costs of 65 million euros for the company.
Air France-KLM was also weighed down by “disruption costs” totaling 70 million euros. These costs bring together two exceptional elements, namely particularly bad weather at the end of the year at Schiphol airport (Amsterdam), a KLM hub, which led to more flight cancellations, as well as tensions in the supply of spare parts which penalized the group’s maintenance activities.
Cash shortage
Furthermore, Air France-KLM burned cash over the last three months of 2023, with negative adjusted free cash flow of 1.2 billion euros.
Deutsche Bank expected a disbursement of only 121 million euros. “Profits and cash are not there, which risks disappointing,” underlines the German bank. Oddo BHF, for its part, describes results that are “a little lower than expectations”.
Around 10 a.m., Air France-KLM shares took a hit, falling 8.6% to 10.47 euros on the Paris Stock Exchange.
Regarding its outlook, Air France-KLM indicated that it expects capacity in available seat kilometers to increase by 5% in 2024 compared to 2023, including Transavia.
The group is also counting on an increase in its unit cost of between 1% and 2% compared to last year, with an increase of 4% in the first quarter alone. Oddo BHF notes that the group’s outlook on its costs turns out to be “a little more cautious than consensus expectations”.
Several analysts have recently revised their downward opinion on the evolution of Air France-KLM shares in recent months. In December, JPMorgan moved to underweight value, fearing pressure on prices and its profitability this year.
Oddo BHF is also “underperforming” on the stock.”Air France-KLM is the only stock in our coverage which will not generate free cash flow in 2024 and 2025, in a buoyant context. This is notably due to the fact that they will have to repay Covid aid over the next four years for a significant amount which we estimate at 2.5 billion euros,” its analyst, Yan Derocles, explained to BFM Bourse at the beginning of the month.
Julien Marion – ©2024 BFM Bourse
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