Summary
- Air France-KLM’s profit forecast fell short due to increased operating costs, such as rising salaries and fuel prices.
- The group has implemented a hiring freeze and cost-cutting measures to offset rising expenses, while continuing fleet renewal.
- Challenges from the Olympics and a recent IT shutdown are expected to impact the airline’s revenues and profits in the third quarter.
Air France-KLM’s profit forecast for the second-quarter was $32.54 million higher than its results, the airline revealed earlier today. Rising operating costs were cited as the reason for a less-than-expected profit.
Reduced profits
Earlier today, the Air France-KLM Group reported its second-quarter financial results. Though the group reported a profit, the number was significantly lower than forecast earlier this year. Air France-KLM had expected to record a profit of 547 million ($593.43 million USD), but the profit was 513 million ($557 million USD).
Photo: Transavia
The reason for the lower-than-predicted profit was increased operating costs. According to today’s announcement, salaries increased 7.6%, fuel increased 8.2%, and other operating expenses rose by 3.2%. To deal with rising costs, the group has started a hiring freeze and found other ways to cut costs. Fleet renewal will not be affected, and all three airlines will continue to add new aircraft. Since December 2023, 17 aircraft have been added to the fleets of Air France, KLM, and Transavia. The breakdown is as follows:
- Airbus A350 – 5
- Airbus A320neo – 3
- Airbus A321neo – 5
- Airbus A200 – 4
During this same timeframe, four older aircraft were retired, one Boeing 737-800, two Airbus A319s, and one Bombardier CRJ-1000.
“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.” – Benjamin Smith, Chief Executive Officer, Air France-KLM Group
Despite having increased costs, the Air France-KLM Group transported more passengers in Q2 2024 than in Q2 2023. During Q2, 25.7 million passengers flew across all three airlines, increasing 4.4% over the previous year. Load factors held steady at 88%.
How the Olympics and the IT shutdown will affect the third quarter
Earlier this month, Air France announced it expected a significant reduction in revenues and profits as a result of the Olympic Games. It expects a negative impact of 160 million to 180 million euros ($172 million to $194 million) on unit revenues.
“The Olympics is just once in a lifetime in your home country. I know it is a disappointment in terms of revenues, but I would like to invite everybody to see the beauty of Paris.” Steven Zaad, Chief Financial Officer, Air France
The airline saw a decline in demand around the time of the Olympic Games, with many choosing to avoid Paris during the event. Zaad expects that following the Olympics, demand will rise again.
Last week’s global outage, which grounded thousands of flights, is expected to cost Air France $11 million. During a call earlier today, Zaad said that Air France had been the least impacted, and that KLM and Transavia suffered the most. The airline group was one of the first globally to reveal the severity of the impact. In the United States, Delta Air Lines took the biggest hit, and is still struggling to resume normal operations.
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