Air France-KLM saw its third-quarter earnings impacted by a higher-than-expected cost increase at its Dutch operation, as it gave further details on the “firm measures” it is taking to tackle what it describes as a “structural” challenge.
KLM has faced an “unbelievable number of challenges that were not expected” in the post-Covid period, group chief executive Ben Smith said during a 7 November earnings briefing.
They include the uncertainty created by Dutch government efforts to cap capacity at Schiphol airport, operational challenges – and the consequent passenger compensation claims – that KLM has faced at its hub, maintenance challenges relating to a lack of technicians and parts, and difficulties with boosting its capacity, partly given current labour agreements make it “complex” for the business to integrate new aircraft types into its fleet, Smith says.
“We have now put additional resource from the group to kick-start this,” Smith states of efforts to increase KLM’s long-haul capacity in particular.
KLM’s unit costs are also being hit by the implementation of a new collective labour agreement in October 2023.
Amid those challenges, the group in early October launched a programme named “Back on Track” at KLM, which aims to address productivity, revenue and operational shortfalls and deliver a €450 million ($484 million) in short-term EBIT improvement.
Air France-KLM achieved an operating profit of €1.18 billion for the third quarter, down €162 million year on year. That result would have been flat, it notes, without the negative impact of the Olympic Games being held in Paris, which reduced point-to-point flying to and from the city in favour of lower-yielding connecting passengers during July in particular, leading to a €160 million impact.
The group’s revenues were higher by 4% at €9 billion, while its net income of €824 million was down €122 million year on year.
The group says it is benefiting from strong travel demand, high load factors, improving cargo earnings and falling jet fuel prices, and that expanding low-cost unit Transavia is performing well.
Passenger yields are holding up, Air France-KLM says, but a 3% increase in unit costs was largely driven by KLM’s challenges, which pushed the Dutch operation’s unit costs 8.4% higher during the quarter.
Before the post-Covid period, KLM had long outperformed its French stablemate, Smith notes. But following long-term transformation efforts at Air France and a deterioration of operational performance at KLM, the ranking has reversed in recent quarters.
Air France-KLM is guiding to lift capacity 4% year on year in 2024.
