Air France/KLM in a unique consolidation position

The Air France KLM Group joins the series of strong airline results in the third quarter (Q3) and wants to play an important role in the consolidation of airlines outside of Europe.

Interest in TAP Air Portugal and Air Europa

“Yes, we are definitely in the evolution of TAP Portugal in some kind of partnership or ownership, it’s nothing new. Regarding TAP, (there is) nothing that prevents (us) from having a partnership commercial,” said Air France KLM CEO Ben Smith. said on October 28 during the presentation of the results of the third quarter, in which this correspondent participated live.

“We are number two in Brazil (from Europe). Whether it’s TAP or another airline, this (market) is very important to us,” the CEO said.

In December 2021, Portuguese Infrastructure and Housing Minister Pedro Nuno Santos said that TAP could be partially privatized during the restructuring process until 2025.

Smith said that in addition to not only having a stronger presence on the Iberian Peninsula, Air France KLM has also taken an interest in Madrid-based SkyTeam Alliance member Air Europe Barajas.

Air Europa is also at the center of the concerns of International Airlines Group (IAG), which wishes to further increase its presence in Madrid. IAG recently converted the loan granted to Air Europa into a 20% stake, in order to strengthen its leadership in Latin America mainly by Iberia.

Interest for ITA Airways and Outside Europe

Regarding Air France KLM’s interest in ITA, Smith said there is an exclusive spot (for the group) until the end of October. A consortium led by private equity firm Certares is made up of Certares, Air France-KLM and Delta Air Lines. “We do that with Delta,” he said.

“Italy has always been difficult. We are also looking at other (possibilities) of consolidation in Europe and elsewhere”.

Ben Smith, CEO of the Air France-KLM group

“Air France KLM also has many opportunities for organic growth. For example in the Indian Ocean, where we have very attractive growth activities. We are in a unique position in terms of consolidation”, added Smith.

Q3 Positive result

Smith said that thanks to solid preparation and an agile approach to capacity, Air France-KLM was able to make the most of the strong travel demand during the third quarter. The group recorded positive adjusted free operating cash flow of 290 million euros ($290.6 million), up 12% from the same period a year ago. The group’s net income for the quarter amounted to 460 million euros, up 653%. The company expects positive operating results for the full year above 900 million euros. “It’s quite an achievement,” said chief financial officer Steven Zaat.

One of the important markets has been the North Atlantic. Flights in North America showed load factors of 91%, efficiency increased by 25%. “There is a very strong desire to travel to the United States,” added Zaat.

Smith said an important fact about the North Atlantic was also that LCC Norwegian no longer had any Boeing 787s based at Paris Charles de Gaulle.

“It was eight or nine planes. It helped us and I don’t see them coming back. We (no longer) have this kind of competition at CDG”.

Ben Smith, CEO of the Air France-KLM group

Air France A350

The CEO specified that to compete with the two other major European airline groups, IAG and the Lufthansa group, its two biggest assets are the KLM hub at Amsterdam Schipol and the entire French market, the first receptive market. “That gives us a huge advantage,” Smith said. However, the situation at Amsterdam airport “is a threat beyond our control. We expect the stakeholder to improve the level of service and resolve this issue as soon as possible.” Smith said.

This also means that Air France-KLM’s overall capacity in 2022 is reduced by around 85% due to the capacity ban imposed on passengers departing from Schiphol. “It is absolutely not an acceptable problem in Amsterdam. But we have created stability with the reduced capacity,” added Smith.

On-time delivery of new aircraft

In terms of the fleet, CFO Zaat explained to Sam Chui his confidence in the on-time deliveries of new aircraft. “We expect this for the A320, A321 as well as the A350 fleet. Airbus and Boeing are delivering the aircraft as promised. We are not seeing any delivery delays,” the CFO said.

As of September 30, Air France, whose regional branch HOP had 259 aircraft in operation, KLM, including KLM CityHopper and Martinair, had 171 aircraft and its LCC Transavia company had 100 aircraft.

According to the Aviation Week Fleet Intelligence network, Air France KLM has on order 48 Airbus A220-300s, 19 A350-900s, four A350Fs, 13 Embraer 195.E2s and eight Boeing 787-10s.

Looking ahead, Smits said, the environment remains challenging.

“We must continue to transform and visibility on the impact of the potential macroeconomic downturn ahead is limited.”

Ben Smith, CEO of the Air France-KLM group

Flight demand remains high, which is why flight capacity is expected to reach 90% of pre-pandemic levels in the first quarter of next year. “We have already sold a third of the tickets for the first quarter,” said chief financial officer Zaat.

“For the fourth quarter, we have already sold 75% of our capacity. We still see a healthy yield environment for the winter season,” he added.

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