Air France-KLM sees return to profitability as travel picks up

Air France-KLM is offering more seats for sale and predicting a return to profitability this quarter as vaccination and an easing of travel restrictions improves bookings.

The carrier has stopped bleeding cash and plans to offer 60% to 70% of 2019 network capacity this quarter, according to an earnings statement Friday. That’s higher than the 48% achieved in the previous three-month period and more than it predicted in May.

While the airline declined to provide an outlook for the fourth quarter, citing uncertainty about further transatlantic reopening that would allow Europeans to travel to the U.S., it said the first signs of recovery have been visible since June.

As a result, Air France-KLM is forecasting third quarter earnings before interest, taxes, depreciation and amortization will be positive for the first time since the pandemic began.

Free cash generation at both the French and Dutch arms stemmed from “fantastic ticket sales in the second quarter,” Chief Financial Officer Steven Zaat said on a call. “Where people can travel, they will travel.”

The relative optimism comes after a rough year for the carrier that has survived the coronavirus health crisis only through massive state aid from France and the Netherlands, which together now own about 38% of the company. Air France-KLM is party to talks between the Dutch state and the European Commission for a further financial package to help ease its debt load.

The ongoing discussions are “very positive,” Zaat said, declining to provide details on when a deal could be reached.

Adding Seats

Air France-KLM said it operated more seat capacity than its main European competitors in the second quarter and pointed to the Antilles, Greece and French domestic routes as the best performing. Its prior forecast for third-quarter capacity ranged from 55% to 65% of 2019 levels.

Load factors are high on medium-haul European links and rainy weather in northern countries is encouraging people “to go on holiday,” Zaat said.

The carrier’s 9.4 billion euros ($11.2 billion) of available liquidity and credit lines “can be considered comfortable,” the company said in the statement.

British Airways owner IAG SA is set to report results Friday while Deutsche Lufthansa AG’s earnings are scheduled to come next week.

Earnings Highlights

• Second-quarter revenue rose 133% to 2.75 billion euros
• Loss before interest, taxes, depreciation and amortization narrowed to 248 million euros
• Net debt was 8.3 billion euros at June 30 vs 11 billion euros at end of 2020
• Net quarterly loss narrowed to 1.5 billion euros, including impact of KLM pension changes
• Adj. operating free cash flow reached 210 million euros