Clefs of Morningstar for the Air France-KLM group
What we have thought of the results of the Air France-KLM group
Air France-KLM AF made a good first quarter despite the opposite winds, thanks to a disciplined deployment of capacity, the successful monetization of the premium cabin and the fall in the price of fuel. Group’s turnover increased by 7.7 % compared to the previous year to reach 6.9 billion euros, thanks to 4 % growth in capacity and an improvement of 3 % of unit revenue, supported by a favorable fuel environment and a good performance of the premium cabin. Despite the seasonal weakness of the quarter and the absence of Easter, the loss of operating adjusted has expanded at 328 million euros, an improvement of 161 million euros in annual sliding. The free cash flow was solid to 800 million euros, reducing net debt to 6.9 billion euros and the debt lever to 1.6 times the Ebitda.
We maintain our estimation of fair value because the short-term risks linked to the rise in prices to schiphol and to the potential weakness of transatlantic traffic are partially offset by the resistance of high-end traffic, the solidity of free cash flow and limited exposure to the tariff risk linked to Boeing. While macroeconomic uncertainties, in particular concerning GDP and tariff climbing, could weigh on demand at the end of the summer, the diverse network of Air France-KLM and the continuous agility of the management of revenues place it in good position to deal with volatility. The slightest dependence of the group with regard to the North Atlantic roads (26 % of the capacity against 37 % -47 % for comparable companies) and the exposure to tourism entering France are all additional shock absorbers against the slowdown in the regional economy. The group’s premiumization strategy is clearly translated into a tangible increase in margins, control of structural costs remaining an essential point of vigilance for the rest of the year.
The group has recognized a certain uncertainty concerning maintenance costs, but it stressed that any risk linked to customs duties would likely come from possible European reprisals rather than direct American measures. Management also stressed that some suppliers were already trying to increase their prices, perhaps in anticipation of trade tensions or to exploit close supply chains, but it said that it would vigorously resist the unjustified cost increases.
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