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Air France-KLM profit jumps as price trends improve

Key Points
  • Third-quarter operating profit up 38.7 percent to 1.022 billion euros
  • Airline sees improving price trends
  • November/December forward bookings up versus year ago
Consolidation is key for our industry: Air France-KLM CFO

Air France-KLM said improving price trends helped it report better than expected third quarter profits, joining major European peers in benefiting from strong summer demand.

The Franco-Dutch company reported third quarter operating profit up 38.7 percent to 1.022 billion euros ($1.2 billion), against the average analyst expectation of 953 million in a Reuters poll.

Unit revenues - a closely watched measure of how much income is generates per unit of capacity - increased 4.1 percent in the quarter and Air France-KLM said it expected an increase in the fourth quarter as well, driven by long-haul bookings.

"Unit revenues in October were positive, forward bookings for November and December are ahead of last year," finance chief Frederic Gagey said.

Lufthansa last week said unit revenues rose 4.5 percent in the third quarter, outpacing British Airways-parent , which saw a 2.2 percent rise as it added capacity from Aer Lingus and low cost unit Level to transatlantic routes.

An Airbus A320 aircraft (L) and an Airbus A321 (R) stand on the tarmac at Roissy Charles de Gaulle airport in Paris, France.
Antoine Antoniol | Bloomberg | Getty Images

Air France-KLM has also been benefiting from a return of U.S. and Asian passengers to Europe this year after attacks deterred travellers last year.

The group also said on Friday it would be introducing an 11 euros one-way surcharge on bookings made via third-party GDS systems, such as Amadeus, Travelport and Sabre from April 1, 2018. It is following the example of Lufthansa and British Airways as airlines use new technology to gain more control over ticket sales.

Air France-KLM said it still wanted to cut unit costs by 1-1.5 percent this year, although it now said that target was excluding effects caused by higher load factors and profit sharing.

The group's French brand has lagged rivals on the cost-cutting front, leading to lower profitability. Air France reported a Q3 profit margin of 11 percent, with KLM at 18.5 percent. That compares with an operating profit margin of 18.1 for the Lufthansa brand and 21.5 percent for British Airways.

Its Air France business has set up a new lower cost airline Joon, which it hopes will attract a younger generation of customers and make it more competitive against leaner Gulf-based rivals and low cost carriers.

Air France-KLM did not give a profit outlook for the year. Analysts forecast on average 1.519 billion euros, which would be a 45 percent jump on last year.