Sunday, 1 November 2020

Air France - KLM third quarter results show operational loss of 1,046 million euros

The Air France - KLM group has released its latest figures for the third quarter of the year, showing massive losses as the group struggles with the ongoing coronavirus COVID-19 pandemic.  The group said revenue was down 67% when compared to the same period last year, to 2,524 million euros.  
 

The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 29 October 2020 to approve the financial statements for the nine months 2020. Group CEO Mr. Benjamin Smith said:  “After a promising recovery during the summer, the gradual closure of international borders in the second half of August and the resurgence of the pandemic strongly impacted our results in the Third Quarter, with the Group reporting an operating loss of 1.0 billion euros. We have accelerated the implementation of cost reduction and cash preservation measures. We are also working closely with our partners on various means, such as rapid detection tests, that would allow traffic within the best sanitary conditions for our customers and employees.

Beyond these immediate necessary measures, we are engaged in a more profound transformation of our Group, with the objective of exiting this crisis in a stronger position, ready to address the future challenges of our industry. Air transport will continue to connect people and cultures, but we foresee changes in customers’ expectations that we anticipate too.

We expect a challenging Fourth quarter 2020, with current forward booking sharply down compared to last year.”

Revenue at 2,524 million euros, down 67% compared to last year
EBITDA loss at -442 million euros, limited thanks to cost control and state aid
Operating result at –1,046 million euros, down 1,955 million euros compared to last year
Net income at -1,665 million euros, including restructuring provision at -565 million euros, Covid-19 related over-hedging at -39 million euros and fleet impairment at -31 million euros
Net debt at 9,308 million euros, up 3,161 million compared to end of 2019
At 30 September 2020, the Group has 12.4 billion euros of liquidity or credit lines at disposal
Air France and KLM have agreed with labour representatives on substantial restructuring plans and submitted them for final validation to the French and Dutch states. 

OUTLOOK
Air France-KLM Group continues to implement the highest safety standards for its customers and employees to counter virus transmission risks.

After the lockdown, the Group observed a positive demand recovery trend until mid-August. Then, the negative trend reversal for the Passenger activity led the airlines of the Group to adjust downwards the capacity planned for the fall and winter period.

There is limited visibility on the demand recovery curve as customer booking behaviour is much more short-term oriented and also highly dependent on the imposed travel restrictions, especially on the Long Haul network. The period of lockdown starting today in France is a new difficulty that will weigh on the Group's activities.
In this context the Group expects:

Capacity in Available Seat kilometres circa index 45 for KLM and inferior to index 35 for Air France in the Fourth quarter 2020 compared to 2019 for the Network passenger activity
Negative load factor developments for the Fourth quarter of 2020, particularly on the long-haul network, and negative yield mix effects due to a delayed recovery in business traffic




The Group anticipates a challenging fourth quarter 2020, with a substantial lower EBITDA compared to Q3 2020.

Air France-KLM GroupThird quarterNine months
2020Change2020       Change
Passengers (thousands)8,796-69.8%28,124-64.7%
Passenger Unit revenue per ASK1 (€ cts)4.01-42.7%5.05-24.5%
Operating result (€m)-1,046-1,955-3,414-4,460
Net income – Group part (€m)-1,665-2,026-6,078-6,213
Adj. operating free cash flow (€m)-1,220-985-3,547-3,663
Net debt at end of period (€m)  9,3083,161


Business review 

Network:  With active management of capacity to meet the increasing demand, the Group was able to ramp up capacity with incremental cash positive flights

NetworkThird quarterNine months
2020ChangeChange
constant currency
2020ChangeChange
constant currency
Total revenues (€m)2,004-68.6%-68.3%7,220-58.8%-58.8%
Scheduled revenues (€m)1,856-69.8%-69.4%6,753-59.7%-59.7%
Operating result (€m)-990-1,649-1,631-2,842-3,555-3,564

Third quarter 2020 revenues decreased by 68.3% at constant currency to 2,004 million euros. The operating result amounted to -990 million euros, a -1,631 million euros decrease at constant currency compared to last year. Measures were strengthened to preserve cash, including reduction of investments, cost savings measures, deferral of supplier payments and partial activity for employees.

Passenger network: Long-haul suffering from travel restrictions, ability to capture traffic when border controls are less restrictive

 Third quarterNine months
Passenger network2020ChangeChange
constant currency
2020ChangeChange
constant currency
Passengers (thousands)6,782-71.3% 23,671-64.3% 
Capacity (ASK m)32,100-59.6% 103,268-54.1% 
Traffic (RPK m)13,752-80.7% 66,861-66.3% 
Load factor 42.8%-46.9 pt 64.7%-23.5 pt 
Total passenger revenues (€m)1,329-77.4%-77.1%5,512-65.4%-65.4%
Scheduled passenger revenues (€m)1,265-77.9%-77.6%5,271-65.7%-65.7%
Unit revenue per ASK (€ cts)3.94-45.2%-44.5%5.10-25.4%-25.3%

Cargo: Continued strong performance of cargo due to the gap between industry capacity and demand

 Third quarterNine months
Cargo business2020ChangeChange
constant currency
2020ChangeChange
constant currency
Tons (thousands)220-20.0% 611-25.7% 
Capacity (ATK m)2,537-33.3% 7,309-32.9% 
Traffic (RTK m)1,735-17.0% 4,747-24.2% 
Load factor 68.4%+13.4 pt 65.0%+7.5 pt 
Total Cargo revenues (€m)676+31.7%+34.1%1,708+7.1%+6.9%
Scheduled cargo revenues (€m)592+35.7%+38.0%1,482+8.7%+8.4%
Unit revenue per ATK (€ cts )23.35+104.0%+107.6%20.28+62.0%+61.6%


Transavia operating loss in the Third quarter at -13 million euros, impacted by border restrictions reinstatement

 Third quarterNine months
Transavia2020Change2020Change
Passengers (thousands)2,014-63.3%4,453-66.6%
Capacity (ASK m)6,009-44.7%11,178-57.4%
Traffic (RPK m)3,869-61.8%8,505-64.9%
Load factor 64.4%-28.7 pt76.1%-16.4 pt
Total passenger revenues (€m)262-60.6%521-62.9%
Unit revenue per ASK (€ cts)4.38-30.2%4.55-16.3%
Unit cost per ASK (€ cts)4.61-1.3%6.39+32.5%
Operating result (€m)-13-189-206-364


Air France-KLM Group: Decline of 5 billion euros in revenues and 2 billion euros in EBITDA during the third quarter

 Third quarterNine months
 2020ChangeChange
constant currency
2020ChangeChange
constant currency
Capacity (ASK m)38,109-57.8% 114,446-54.4% 
Traffic (RPK m)17,621-78.4% 75,367-66.2% 
Passenger unit revenue per ASK (€ cts)4.01-43.4%-42.7%5.05-24.6%-24.5%
Group unit revenue per ASK (€ cts)5.56-26.5%-25.6%6.34-12.3%-12.3%
Group unit cost per ASK (€ cts) at constant fuel8.31+26.7%+38.2%9.33+36.7%+40.4%
Revenues (€m)2,524-66.8%-66.4%8,725-57.6%-57.7%
EBITDA (€m)-442-2,095-2,071-1,282-4,545-4,554
Operating result (€m)-1,046-1,955-1,931-3,414-4,460-4,470
Operating margin (%)-41.4%-53.4 pt-53.2 pt-39.1%-44.2 pt-44.2 pt
Net income - Group part (€m)-1,665-2,027 -6,078-6,213 



Net debt up 3.2 billion euros

 Third quarterNine months
In € million2020Change2020Change
Cash flow before change in WCR and Voluntary Departure Plans, continuing operations (€m)-594-2,115-1,926-4,950
Cash out related to Voluntary Departure Plans (€m)-137-115-152-119
Change in Working Capital Requirement (WCR) (€m)124+831666+582
Net cash flow from operating activities (€m)-609-1,399-1,412-4,487
Net investments* (€m)-362+418-1,473+738
Operating free cash flow (€m)-970-981-2,885-3,749
Repayment of lease debt-251-5-662+86
Adjusted operating free cash flow**-1,220-985-3,547-3,663


Both airlines results negatively impacted in the Third quarter 2020

 Third quarterNine months
 2020Change2020Change
Air France Group Operating result (€m)-807-1,200-2,401-2,699
Operating margin (%)-54.1%-62.6 pt-47.4%-49.8 pt
KLM Group Operating result (€m)-234-745-1,002-1,736
Operating margin (%)-20.5%-36.8 pt-25.2%-33.9 pt





Income Statement

 Third quarterNine months
€m20202019Change20202019Change
Sales2,5247,609-66.8%8,72520,572-57.6%
Other revenues00nm00nm
Revenues2,5247,609-66.8%8,72520,572-57.6%
Aircraft fuel-489-1,513-67.7%-1,886-4,118-54.2%
Chartering costs-68-138-50.7%-181-407-55.5%
Landing fees and en route charges-266-531-49.9%-743-1,471-49.5%
Catering-58-221-73.8%-236-617-61.8%
Handling charges and other operating costs-204-453-55.0%-646-1,294-50.1%
Aircraft maintenance costs-331-624-47.0%-1,243-1,920-35.3%
Commercial and distribution costs-61-266-77.1%-291-783-62.8%
Other external expenses-263-419-37.2%-937-1,292-27.5%
Salaries and related costs-1,293-2,011-35.7%-4,224-6,031-30.0%
Taxes other than income taxes-28-27+3.7%-108-119-10.0%
Other income and expenses95247-61.5%488742-34.3%
EBITDA-4421,653nm-1,2823,263nm
Amortization, depreciation and provisions-604-744-18.8%-2,132-2,217-3.8%
Income from current operations-1,046909nm-3,4141,046nm
Sales of aircraft equipment81+700.0%3124+29.2%
Other non-current income and expenses-597-103+479.9%-1,452-133+992%
Income from operating activities-1,635807nm-4,835937nm
Cost of financial debt-136-111+22.5%-350-332+5.4%
Income from cash and cash equivalent514-64.3%1840-55.0%
Net cost of financial debt-131-97+35.1%-332-292+13.7%
Other financial income and expenses111-259nm-621-391+58.8%
Income before tax-1,655451nm-5,788254nm
Income taxes12-94nm-242-131+84.7%
Net income of consolidated companies-1,643356nm-6,030123nm
Share of profits (losses) of associates-226nm-5214nm
Net income for the period-1,665363nm-6,082137nm
Minority interest01nm-42nm
Net income for the period – Group part-1,665362nm-6,078135nm

2019 results restated (with a similar impact in both years) for limited life parts componentization accounting change.

Consolidated Balance Sheet

Assets30 Sep 202031 Dec 2019
€m
Goodwill216217
Intangible assets1,2531,305
Flight equipment11,00911,334
Other property, plant and equipment1,5351,580
Right-of-use assets4,7895,173
Investments in equity associates224307
Pension assets96420
Other financial assets1,0041,096
Deferred tax assets271523
Other non-current assets176241
Total non-current assets20,57322,196
Other short-term financial assets443800
Inventories561737
Trade receivables1,2082,164
Other current assets8831,123
Cash and cash equivalents5,9173,715
Total current assets9,0128,539
Total assets29,58530,735


Liabilities and equity30 Sep 202031 Dec 2019
In million euros
Issued capital429429
Additional paid-in capital4,1394,139
Treasury shares-67-67
Perpetual0403
Reserves and retained earnings-9,183-2,620
Equity attributable to equity holders of Air France-KLM-4,6822,284
Non-controlling interests915
Total Equity-4,6732,299
Pension provisions2,1232,253
Return obligation liability and other provisions3,7123,750
Financial debt10,8146,271
Lease debt2,6343,149
Deferred tax liabilities5142
Other non-current liabilities532222
Total non-current liabilities19,82015,787
Return obligation liability and other provisions1,573714
Current portion of financial debt2,179842
Current portion of lease debt961971
Trade payables1,5552,379
Deferred revenue on ticket sales2,7943,289
Frequent flyer program913848
Other current liabilities4,4623,602
Bank overdrafts14
Total current liabilities14,43812,649
Total equity and liabilities29,58530,735


Statement of Consolidated Cash Flows from 1st Jan until 30 Sept 2020

€m30 Sep 202030 Sep 2019
Net income from continuing operations-6,082137
Amortization, depreciation and operating provisions2,1322,217
Financial provisions135162
Loss (gain) on disposals of tangible and intangible assets-43-34
Loss (gain)on disposals of subsidiaries and associates10
Derivatives – non monetary result7015
Unrealized foreign exchange gains and losses, net-83223
Impairment6700
Other non-monetary items761218
Share of (profits) losses of associates52-14
Deferred taxes30967
Financial Capacity-2,0782,991
(Increase) / decrease in inventories134-83
(Increase) / decrease in trade receivables823-147
Increase / (decrease) in trade payables-79241
Increase / (decrease) in advanced ticket sales-435327
Change in other receivables and payables936-54
Change in working capital requirements66684
Net cash flow from operating activities-1,4123,075
Purchase of property, plant and equipment and intangible assets-1,654-2,295
Proceeds on disposal of property, plant and equipment and intangible assets18184
Proceeds on disposal of subsidiaries, of shares in non-controlled entities3578
Acquisition of subsidiaries, of shares in non-controlled entities-1-1
Dividends received010
Decrease (increase) in net investments, more than 3 months-9-9
Net cash flow used in investing activities-1,126-2,203
Increase of equity due to new convertible bond054
Perpetual (including premium)00
Issuance of debt7,598904
Repayment on financial debt-2,202-560
Payments on lease debt-662-748
Decrease (increase ) in loans, net48-17
Dividends and coupons on perpetual paid0-1
Net cash flow from financing activities4,782-368
Effect of exchange rate on cash and cash equivalents and bank overdrafts-399
Change in cash and cash equivalents and bank overdrafts2,205513
Cash and cash equivalents and bank overdrafts at beginning of period3,7113,580
Cash and cash equivalents and bank overdrafts at end of period5,9164,093
Change in treasury of discontinued operations00

Key Performance Indicators

Restated net result, group share        

 Third quarterNine months
In million euros2020201920202019
Net income/(loss), Group share-1,665361-6,078135
Unrealized foreign exchange gains and losses, net-152167-78223
Change in fair value of financial assets and liabilities (derivatives)-1541170-9
Non-current income and expenses5911021,421109
Tax impact on gross adjustments net result-840-401-13
Restated net income/(loss), group part-1,464642-5,066445
Coupons on perpetual0-40-12
Restated net income/(loss), group share including coupons on perpetual (used to calculate earnings per share)-1,464638-5,066433
Restated net income/(loss) per share (in €)-3.421.49-11.851.01

Return on capital employed (ROCE)1

In million euros30 Sep 202030 June  202031 Mar 202031
Dec 2019
30 Sep 201930
June  2019
31
Mar 2019
31
Dec 2018
Goodwill and intangible assets1,4701,5001,5641,5221,4811,4651,4851,411
Flight equipment11,00910,91911,46511,33410,82910,74710,45610,308
Other property, plant and equipment1,5351,5511,5791,5801,5541,5301,5041,503
Right of use assets4,7894,9385,1195,1735,3005,4705,4535,664
Investments in equity associates224267299307310305306311
Financial assets excluding marketable securities and financial deposits135133142140131125127125
Provisions, excluding pension, cargo litigation and restructuring-4,001-4,130-4,190-4,058-4,101-3,888-3,907-3,760
WCR, excluding market value of derivatives-6,894-6,779-6,650-6,310-6,285-6,957-6,938-6,133
Capital employed8,2678,3999,3289,6889,2198,7978,4869,429
Average capital employed (A)8,9218,983
Adjusted results from current operations-3,3201,099
- Dividends received-1-2
- Share of profits (losses) of associates-4423
- Normative income tax1,045-305
Adjusted result from current operations after tax (B)-2,320815
ROCE, trailing 12 months (B/A)-26.0%9.1%


Net debt

 Balance sheet at
€m30 Sep 202031 Dec 2019
Financial debt12,7686,886
Lease debt3,5114,029
Currency hedge on financial debt94
Accrued interest-108-62
Gross financial debt (A)16,18010,857
Cash and cash equivalents5,9173,715
Marketable securities109111
Cash securities309300
Deposits (bonds)535585
Bank overdrafts-1-4
Others33
Net cash (B)6,8724,710
Net debt (A) – (B)9,3086,147

Adjusted operating free cash flow

 Third quarterNine months
€m2020201920202019
Net cash flow from operating activities, continued operations-609792-1,4123,075
Investment in property, plant, equipment and intangible assets-370-788-1,654-2,295
Proceeds on disposal of property, plant, equipment and intangible assets9818184
Operating free cash flow-97012-2,885864
Payments on lease debt-251-246-662-748
Adjusted operating free cash flow-1,220-234-3,547116

Operating cash burn

 

 
Third quarterNine months
 2020201920202019
EBITDA-4421,653-1,2823,263
Provisions (CO2 and other)714-268
Correction of spare parts inventory2-220
Addition to pension provisions7868232201
Reversal to pension provisions (cash-out)-47-49-142-145
Payment linked with shares01-21
Sales of tangible and intangible assets (excluding aeronauticals)-164048
Income from operation activities - cash impact-4021,690-1,1773,376
Restructuring costs-137-4-152-15
Other non-current income and expenses02-12
Cost of financial debt-118-107-318-319
Financial income07221
Realized foreign exchanges gain/loss29-2428-9
Termination of trading hedges - cash-1770-4990
Current income tax77-6267-64
Other financial charges & expenses - cash1-2-25-6
Other elements-3-2-25
     
Financial capacity-7321,499-2,0782,991

Unit cost: net cost per ASK

 Third quarterNine months
 2020201920202019
Revenues (in €m)2,5247,6098,72520,572
Income/(loss) from current operations (in €m) -/-1,046-9093,414-1,046
Total operating expense (in €m)3,5706,70012,13919,526
Passenger network business – other revenues (in €m)-64-163-241-534
Cargo network business – other revenues (in €m)-84-77-226-231
Third-party revenues in the maintenance business (in €m)-247-543-963-1,623
Transavia - other revenues (in €m)117-1316
Third-party revenues of other businesses (in €m)-10-10-21-26
Net cost  (in €m)3,1665,92410,67517,128
Capacity produced, reported in ASK*38,10990,317114,446251,110
Net cost per ASK (in € cents per ASK)8.316.569.336.82
Gross change 26.7% 36.7%
Currency effect on net costs (in €m) 60 19
Change at constant currency 25.4% 36.6%
Capacity effect on net cost -3,393 -9,345
Fuel price effect (in €m) -179 -162
Net cost per ASK on a constant currency and fuel price basis (in € cents per ASK)8.316.019.336.64
Change at constant currency and fuel price basis +38.2% +40.4%

* The capacity produced by the transportation activities is combined by adding the capacity of the Passenger network (in ASK) to that of Transavia (in ASK).

Group results
Air France Group

 Third quarterNine months
 2020Change2020Change
Revenue (in €m)1,492-67.5%5,066-59.6%
EBITDA (in €m)-461-1,321-1,095-2,801
Operating result (en m€)-807-1,200-2,401-2,699
Operating margin (%)-54.1%-62.6 pt-47.4%-49.8 pt
Operating cash flow before WCR and restructuring cash out (in €m)-608-1,421-1,519-3,129
Operating cash flow (before WCR and restructuring) margin-40.7%-58.5 pt-30.0%-42.8 pt


KLM Group

 
Third quarterNine months
 2020Change2020Change
Revenue (in €m)1,144-63.5%3,984-52.5%
EBITDA (in €m)25-763-176-1,713
Operating result (en m€)-234-745-1,002-1,736
Operating margin (%)-20.5%-36.8 pt-25.2%-33.9 pt
Operating cash flow before WCR and restructuring cash out (in €m)13-671-355-1,736
Operating cash flow (before WCR and restructuring) margin1.1%-20.7 pt-8.9%-25.4 pt

NB: Sum of individual airline results does not add up to Air France-KLM total due to intercompany eliminations at Group level

Group fleet at 30 Sept 2020

Aircraft typeAF
(incl. HOP)
KL
(incl. KLC & MP)
TransaviaOwnedFinance  leaseOperating leaseTotalIn operationChange /  31/12/19
B747-400 4 4  43-5
B777-3004314 1817225757 
B777-2002515 26 144040 
B787-91013 741223231
B787-10 5 32 551
A380-8009  2349 -10
A350-9006  15 663
A340-3003  3  3 -4
A330-300 5   555 
A330-200158 11 122322-1
Total Long-Haul111640753169175161-15
B737-900 5 3 255 
B737-800 31752910671061062
B737-700 16735152323 
A32120  11 92020 
A32044  35364443 
A31933  14 193333 
A31818  8 101818 
Total Medium-Haul115528271201582492482
ATR72-600        -2
ATR72-500         
ATR42-500         
Canadair Jet 100014  14  1414 
Canadair Jet 70011  11  1110 
Embraer 1901732 11102849481
Embraer 175 17 314 1717 
Embraer 17015  10 51515 
Embraer 14515  15  15 -13
Total Regional72490642433121104-14
B747-400ERF 3 3  33 
B747-400BCF 1 1  11 
B777-F2  2  22 
Total Cargo240600660
          
Total3001698221675260551519-27


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