Air France-KLM downgrades capacity outlook amid higher costs

Air France-KLM has downgraded its full-year capacity outlook amid higher operating costs and the “negative” impact of the Olympic Games in Paris, as international markets avoid the French capital this summer.

Group capacity is now expected to rise 4 per cent year on year, down from the previous estimate of 5 per cent, according to a Q2 earnings report released on Thursday (25 July).

Total Q2 revenue for the European airline group was up 4.3 per cent year over year to €7.9 billion, however unit costs increased 1.7 per cent compared to 2023, which, combined with higher fuel prices, impacted profit margins.

The airlines reported combined Q2 profits of €513 million, down from €733 million in Q2 2023. However, the result is a marked improvement on the previous quarter, which saw a net loss of €480 million.

In a statement, Air France-KLM CEO Benjamin Smith, said: “The second quarter of 2024 confirmed an increasingly challenging environment for aviation, with rising fuel prices and a continued pressure on costs.”

Between April and June, Air France-KLM served nearly 25.7 million passengers, up 4.4 per cent year over year. Capacity for the quarter was up 4.1 per cent versus Q2 2023, largely driven by demand in Asia and Middle East, which saw a 13.6 per cent year-on-year increase in capacity. The overall load factor for Q2 was “stable” compared to last year, at 88 per cent.

Group passenger unit revenue per ASK (Available Seat Kilometres) was 0.2 per cent higher than Q2 2023, but this was not high enough to combat rising costs, which included increased salary costs due to collective labour agreements at both airlines and higher airport tariff at Amsterdam Schiphol.

Q2 revenue for Air France increased 2.9 per cent year on year, with an operating profit of €195 million – €286 million less than last year. This included a €40 million hit in June due to the Olympic Games.

Meanwhile, KLM’s second quarter revenues increased 5 per cent year on year, but, according to the carrier, so did costs. This resulted in an operating profit of €260 million for the quarter.

Despite quarterly profits at both carriers, half year results remain negative, with Air France reporting an operating loss of €54 million and KLM posting losses of €31 million.

Smith described KLM’s performance as “stable yet sluggish”, and acknowledged that Air France has suffered from the additional “negative effect” of the Olympic Games. The group, which previously warned that sales were “experiencing pressure” due to the Paris Olympics, expects the fallout to continue into Q3, with anticipated losses of between €150 million and €170 million.

As a result, the Smith said the group has enacted a hiring freeze and plans additional cost cuts. However, investments to renew its fleet will go ahead unchanged.

The group also lowered its 2024 capital expenditure target to below €3 billion, which was previously set at €3 billion.