Air France-KLM’s robust quarterly profit overshadowed by rising costs

Air France-KLM’s much higher-than-expected quarterly earnings on Friday were overshadowed by its upward revision of unit costs due to inflationary pressures.

Shares in the airline fell more than 4% in early trading.

Although fuel prices have fallen, the carrier said overall unit costs will increase by low single digits in 2023 compared to 2022, due to higher salaries, profit sharing, load factor impact and a previously downgraded capacity estimate.

Its previous guidance had been that costs would be flat this year.

“Higher inflation-driven costs continued to weigh on the results,” Bernstein said in a note.

Air France-KLM (LON:0LN7) saw 24.7 million passengers in the second quarter, up 8.2% from a year earlier, and said conditions at airports are much improved this summer after strikes and staff shortages last year, in the first holiday season without restrictions following the COVID-19 pandemic.

“I am very glad to see that (the) situation at airports is much better this summer, including at KLM’s hub at Amsterdam Schiphol Airport,” Chief Executive Benjamin Smith said in a statement.

This season will serve as a test run for 2024, when France will host the Olympic and Paralympic Games, he said.

Air-France KLM’s operating profit increased to 733 million euros in April-June from 386 million a year earlier, above the 663 million euros seen in a company-compiled consensus.

Lower jet fuel prices and a higher yield compensating for inflation pushed up the airline’s operating margin to 9.6%, from 6.3% a year earlier.

The carrier said its capacity during the second quarter stood at 92% of 2019 levels, the same as in the first quarter.

Revenue per available seat kilometre (ASK), a measure used to compare airlines’ financial performance, grew by more than 12%, driven by the carrier’s long-haul network and its performance across the network except Asia, the group said.

The group confirmed its capacity outlook for the rest of the year, narrowed in May to around 95% due to delays on new aircraft deliveries.

Shares in Air France-KLM are up 22% this year as business improved.