Air France-KLM became the latest carrier to report lower profits for the second quarter, citing the impact of higher costs as well as an adverse hit on demand from Paris hosting the Olympic Games this month.
The SkyTeam carrier’s operating profits dropped 30% to €513 million ($556 million). It took a €40 million hit from the Paris Olympics in the second quarter, which has had a major impact on demand for its French operations, and estimates a further negative impact on its unit revenues in the third quarter of €150 million to €170 million.
Group revenues climbed 4.3% to €7.9 billion on capacity lifted 4.1%. Passenger load factor at 87.7% and unit revenues were broadly stable against the second quarter of 2023.
However higher costs, including a 9% rise in fuel and salaries – the group’s two biggest costs – offset improved revenues, resulting in a fall in profits.
Air France-KLM chief executive Ben Smith says: “The second quarter of 2024 confirmed an increasingly challenging environment for aviation, with rising fuel prices and a continued pressure on costs. In this context, KLM and Transavia delivered a stable yet sluggish performance, while Air France was in addition impacted by exceptional events, including the negative effect of the Olympic Games in June.
“The group has already taken strong measures to adapt to this situation, including a hiring freeze and additional cost cuts. The group is preserving its major investments to renew its fleet, which is a strategic lever to improve our financial and environmental performance.”
The carrier has trimmed its full-year capacity growth this year to 4% from 5%.
The bulk of the hit to profit was taken by Air France. Operating profits more than halved to €195 million. While that includes some impact from the Olympics, it says the lower profit was ”mainly due to a collective labour agreement salary increase, an increase in fuel price, an airport tariff increase in Paris and Flying Blue results included last year”.
The group says measures to stabilise KLM operations “are bearing fruit” and its revenues grew 5%, largely in line with costs. As a result the Dutch carrier’s operating profit was fractionally higher at €260 million.
Transavia turned a profit of €26 million, compared to breakeven last year, on revenues up 18% to €843 million. Notably its unit revenues climbed 4.5%, even with it lifting capacity 12%. ”The implementation of the paid hand luggage initiative bore fruits and already brought more than €20 million revenues in the quarter and a further stabilisation of the operations,” it says.
Smith says: ”Going forward, we will continue to execute our strategy and deploy our transformation plan. Our business model is robust and resilient, and we remain confident in our ability to achieve our mid and long-term objectives, notably by leveraging our strong assets and unique competitive position.”
