Air France-KLM

Air France-KLM

10 June 2019Reading time: 3 minutes

Air France-KLM had a rough start of 2019. First of all there was a battle going on between the CEO of Air France-KLM Ben Smith and the CEO of KLM Pieter Elbers. Smith would have threatened to block the reappointment of Elbers, but by now it seems that both gentleman have made peace again with each other.

Furthermore, against all odds, the Dutch government took an interest of approximately 12,7 percent in Air France-KLM late February and even expanded this later to 14 percent. The French government already had an interest of 14 percent in the French-Dutch airline. With the shareholding the Dutch government wanted to guarantee their interests for the domestic Dutch economy.

Weak first quarter
Air France-KLM also has to recover from a challenging first quarter. Normally the first quarter is already the slowest quarter of the year for the airline industry but was now even more challenging due to increased competition and higher costs. The fuel costs for example, increased in the first quarter with 140 million euro to 1,2 billion euro for Air France-KLM.

The French-Dutch airline did achieved an increase of their passenger numbers with 3 percent to 22,7 million on an annual basis, but the occupancy rate decreased with 0,3 percent point. The first quarter revenue was 5,99 billion euro, which resulted in  a nett loss of 320 million euro. 

Expectations repeated
For the following period, Air France-KLM expects a recovery of their results and anticipates on a decrease of the costs per seat, per kilometre flown.

The airline wants to achieve this by gaining a higher yield on the intercontinental flights. Last year Air France-KLM was confronted with several strikes, which resulted in higher costs.  At the same time the airline wants to improve their yield on shorter flights and therefor Air France wants to cut down the capacity. This means that the capacity on short flights will be decreased with 15 percent in the next two years.

If the total costs for Air France-KLM will actually decrease also depends on the development of the fuel costs. In the past period the oil price plummeted to almost the lowest level in twelve weeks’ time, because the American oil supplies remained high and therefor analysts fear the demand will stay weak. It remains to be seen how the oil prices will develop in the following period.

Stock price fluctuations   
The first quarter results could not satisfy investors. This resulted in a stock price drop over the past weeks of more than 25 percent. Now (31 May 2019) the stock price is 7,64 euro.

CEO Smith seems to have full faith in the recovery of the airline. News website WanSquare claimed in May that Smith would have bought 50.000 Air France-KLM shares for a price of 8,61 euro per share. The buy wouldn’t be related to the variable bonuses of Smith. It remains to be seen if the stock price will increase in the coming period. 

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

Vontobel products on Air France-KLM are tradable at DEGIRO.

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16/09/2019 00:42:03