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4-Traders Homepage  >  Equities  >  Euronext Paris  >  Air France-KLM    AF   FR0000031122

AIR FRANCE-KLM (AF)
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Air France-KLM shares slump as costs take shine off profits

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11/03/2017 | 12:52pm CET
FILE PHOTO: An employee works on an Airbus A380 plane inside the Air France KLM maintenance hangar at the Charles de Gaulle International Airport in Roissy

Shares in Air France-KLM (>> Air France-KLM), Europe's second-biggest airline, retreated on Friday as concerns about its cost cutting targets overshadowed higher third quarter profits.

Shares in Air France-KLM (>> Air France-KLM), Europe's second-biggest airline, retreated on Friday as concerns about its cost cutting targets overshadowed higher third quarter profits.

The shares initially rose more than 5 percent on news that operating profit was up 38.7 percent, but the stock was nursing a 6.4 percent loss by mid-session trading after the company's conference call with analysts failed to reassure them on costs.

Airlines have benefited this year from a return of U.S. and Asian passengers travelling to Europe after terror attacks had deterred them last year. Lower oil prices have also helped, but pressure from low-cost rivals remains a challenge.

Air France-KLM has said it aims to cut unit costs by 1-1.5 percent this year, but on Friday gave some caveats.

A London-based trader said management refused to comment on the cost outlook for 2018 during the call.

"Management's new target on costs no longer includes load factor and profit sharing effect, and is a negative," commented a second trader.

Third quarter profit of 1.022 billion euros (£909.4 million), had beaten the average analyst expectation of 953 million in a Reuters poll.

"Overall, this is a good set of numbers from AF-KLM but we view the miss on costs as one negative," wrote analysts at brokerage Goodbody.

Air France KLM shares remain about 150 percent above where they started in 2017.

Meriem Mokdad, fund manager at Roche Brune Asset Management, said there was an element of profit-taking behind the slide in Air France KLM's shares, and said her firm would look to buy up the stock on the back of its fall on Friday.

"The company has done some good restructuring work, and has strengthened its growth in areas such as maintenance services," she said.

COSTS VS RIVALS

Unit revenues - a closely watched measure of how much income is generated - increased 4.1 percent in the quarter and Air France-KLM said it expected an increase in the fourth quarter as well, driven by long-haul bookings.

"Unit revenues in October were positive, forward bookings for November and December are ahead of last year," said Air France KLM finance chief Frederic Gagey said.

Lufthansa (>> Deutsche Lufthansa), Europe's biggest airline, last week said its unit revenues rose 4.5 percent in the third quarter, outpacing British Airways-parent IAG (>> International Consolidated Airlines Group), which saw a 2.2 percent rise as it added capacity from Aer Lingus and low cost unit Level to transatlantic routes.

Air France-KLM's French brand has lagged rivals on the cost-cutting front, leading to lower profitability. Air France reported a Q3 profit margin of 11 percent, with KLM at 18.5 percent. That compares with an operating profit margin of 18.1 for the Lufthansa brand and 21.5 percent for British Airways.

Air France has set up a new lower cost airline Joon, which it hopes will attract a younger generation of customers and make it more competitive against leaner Gulf-based rivals and low cost carriers.

The group also said on Friday it would be introducing an 11 euros one-way surcharge on bookings made via third-party GDS systems, such as Amadeus (>> Amadeus IT Group), Travelport (>> Travelport Worldwide Ltd) and Sabre (>> Sabre Corp) from April 1, 2018. It is following the example of Lufthansa and British Airways as airlines use new technology to gain more control over ticket sales.

Air France-KLM did not give a profit outlook for the year. Analysts forecast on average 1.519 billion euros, which would be a 45 percent jump on last year.

(Reporting by Cyril Altmeyer and Victoria Bryan; Additional reporting by Alan Charlish and Sudip Kar-Gupta; Editing by Elaine Hardcastle)

By Cyril Altmeyer and Victoria Bryan

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Financials (€)
Sales 2017 25 763 M
EBIT 2017 1 424 M
Net income 2017 790 M
Debt 2017 3 393 M
Yield 2017 0,19%
P/E ratio 2017 4,80
P/E ratio 2018 4,44
EV / Sales 2017 0,32x
EV / Sales 2018 0,29x
Capitalization 4 899 M
Chart AIR FRANCE-KLM
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Air France-KLM Technical Analysis Chart | AF | FR0000031122 | 4-Traders
Technical analysis trends AIR FRANCE-KLM
Short TermMid-TermLong Term
TrendsBearishNeutralBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 22
Average target price 13,1 €
Spread / Average Target 15%
EPS Revisions
Managers
NameTitle
Jean-Marc Janaillac Chairman & Chief Executive Officer
Frédéric Gagey Chief Financial Officer
Jean-Christophe Lalanne Executive Vice President-Information Technology
Maryse Aulagnon Independent Director
Jean-Dominique Comolli Director
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