Air France-KLM said its operating profit rose 16% in the second quarter as new chief executive Ben Smith’s cost-cutting helped offset rising fuel prices, sending its shares higher.
The Franco-Dutch group has lagged European rivals on profitability in recent years but delivered a stronger quarter than rival Lufthansa, which reported a 25% earnings fall this week as increasing capacity intensified competition.
Operating income rose to €400m, ahead of the €316m expected by analysts. Better sales and “execution in unit-cost reduction enabled us to more than offset rising fuel costs”, said Mr Smith. An increase of over 6% increase in Air France-KLM traffic outpaced its 4.5% capacity expansion year-on-year.
Mr Smith, who joined Air France-KLM last September from Air Canada, wants to boost efficiency through better co-ordination of the Air France and KLM networks and fleets while expanding services under the Transavia low-cost brand. Revenue rose 6.4% to €7.05bn, while unit costs fell 2.3%, excluding currency and fuel costs — which rose by €220m year-on-year.
Further gains on efficiency will come from simplification of the business as well as recent labour deals that mean Air France-KLM has “enormous flexibility now to drive productivity gains”, Mr Smith told analysts.
The new CEO has pledged to give investors a detailed strategy presentation in November.
Long-haul bookings for August to December are ahead of their level a year earlier, sad the company. “Forward bookings suggest the long-haul outlook remains encouraging, although we would expect further short-haul challenges,” said Liberum analysts.
Air France-KLM shares rose 7% in Paris trade, reversing much of their 8% slide this year.
The operating margin improved to 5.7% from 5.2%, largely reflecting the impact of Air France strikes a year earlier that led to the abrupt departure of Mr Smith’s predecessor.
Air France pilots overwhelmingly approved plans to expand Transavia’s fleet beyond the 40-plane limit currently imposed by union agreements, said Mr Smith, hailing the SNPL union members’ 78% referendum vote as a “big positive”.
Unit revenue rose across all major long-haul regions except crisis-hit Latin America, with the lucrative North Atlantic market showing 2.6% growth before currency effects. North America will show a smaller improvement for the third quarter underway, it was predicted.