01 August, 2021

Air France-KLM Second Quarter 2021 results

The Air France-KLM Group’s results improved compared to last year; although still impacted by travel restrictions:

  • Revenue at 2,750 million euros, up 1,568 million compared to last year
  • Operating result at -752 million euros, up 801 million euros compared to last year
  • EBITDA loss reduced to -248 million euros
  • Net income at -1,489 million euros, including negative impact of the derecognition of the KLM ground pension fund
  • Restructuring programs showing improved results and structural benefits increased to 2.1 billion euros
  • The group increased its capital by 1 billion euros, converted the direct French State loan of 3 billion euros into perpetual hybrid instruments and issued a Senior bond of 800 million euros of which the cash will be received in the Third quarter
  • Net debt at 8.3 billion euros, down by 2.7 billion euros compared to end of 2020 thanks to the first set of capital strengthening measures

OUTLOOK

Since June, first signs of recovery are visible in the booking trend thanks to waived or eased travel restrictions in Europe due to the rise of vaccination rate across all countries. The reopening of the North Atlantic for americans citizens to visit Europe also resulted in an improved booking trend.

In this context, the Group expects capacity in Available Seat Kilometers for Air France-KLM Network passenger activity at index in the range of 60% to 70% in the Third quarter 2021 compared to 2019.

Due to the uncertainty of the reopening of the North Atlantic for European citizens and uncertainty concerning travel restrictions waiving, no capacity guidance will be provided for the Fourth quarter 2021.

The Air France-KLM Group continues to focus on its transformation projects in order to reduce its costs and on cash and equity. During the Annual General Meeting in May 2021, extraordinary resolutions were approved by the shareholders, providing the Board of Directors large flexibility to restore equity. These resolutions could include instruments such as rights issuance, vanilla quasi-equity and equity-linked instruments in order to restore balance sheet and re-profile debt redemptions.

Early July, Air France-KLM signed and executed an EMTN Program for a total issuance size of 4.5 billion euros.

Air France-KLM Group

 
Second quarterHalf year
2021Change12021Change
Passengers (thousands)7,028+477.1%11,847-38.7%
Passenger Unit revenue per ASK2 (€ cts)3.83+0.8%3.39-37.6%
Operating result (€m)-752+801-1,931+437
Net income – Group part (€m)-1,489+1,123-2,970+1,443
Adj. operating free cash flow (€m)210+1,711-1,134+1,193
Net debt at end of period3 (€m)  8,344-2,705

The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on July 29, 2021 to approve the financial statements for the First Half 2021. Group CEO Mr. Benjamin Smith said:
Thanks to the easing of travel restrictions in several key regions, the Second quarter of 2021 saw the first signs of the long-awaited recovery. Travelers were able to take the skies again and Air France-KLM’s voluntarist approach in terms of capacities - combined with the Group’s balanced network and efficient hubs - proved conclusive. Reciprocity of borders reopening and the acceleration of the vaccination roll-out worldwide, especially in the context of the rise of the Delta variant, will play a key role in maintaining this momentum.” said Benjamin Smith, CEO of Air France-KLM. “To make the most of the recovery and prepare for the future, Air France-KLM continued its transformation across all businesses and notably reinforced its sustainability efforts to lead the way to sustainable aviation.

Business review  

Network: Recovery visible only in June while Cargo continued to perform strongly

Network

 
Second quarterHalf year
2021ChangeChange
constant currency
2021ChangeChange
constant currency
Total revenues (€m)2,363+151.8%+158.3%4,221-19.1%-17.1%
Scheduled revenues (€m)2,187+164.5%+171.6%3,899-20.4%-18.2%
Operating result (€m)-654+469+477-1,715+137+127

Second quarter 2021 revenues increased by 158.3% at constant currency to 2.363 million euros. The operating result amounted to -654 million euros, a 477 million euros increase at constant currency compared to last year.

Passenger networkCaribbean & Indian Ocean, Africa & Middle East, Europe and French Domestic as the most resilient areas

 Second quarterHalf year
Passenger network2021ChangeChange
constant currency
2021ChangeChange
constant currency
Passengers (thousands)5,853+418.9% 10,321-38.9% 
Capacity (ASK m)36,417+315.5% 70,003-1.6% 
Traffic (RPK m)15,930+388.5% 29,363-44.7% 
Load factor43.7%+6.5 pt 41.9%-32.7 pt 
Total passenger revenues (€m)1,468+294.5%+301.7%2,487-40.5%-39.3%
Scheduled passenger revenues (€m)1,392+315.2%+324.3%2,356-41.2%-39.7%
Unit revenue per ASK (€ cts)3.82-0.1%+2.1%3.37-40.2%-38.7%

Last year Second quarter, the passenger network activity was heavily impacted by the Covid-19 crisis and came almost to a standstill. This year, the capacity in Available Seat Kilometers in the Second quarter was 315.5% higher than last year, however at 48% of 2019 Second quarter levels. Thanks to the Group’s balanced network and strong Cargo performance, the passenger network was in line with the Group’s guidance provided during First quarter 2021 results presentation.
Antilles, Greece and French domestic were amongst the best performing routes. Again, this quarter the Group operated more capacity than its main European competitors did.

During the Second quarter, Air France added three Airbus 350-900 to the fleet and KLM Cityhopper welcomed two Embraer 195 E2 into its fleet. With these investments, the Group continues to build an efficient fleet and shows its sustainable commitment.

Continuation of strong performance by Cargo

 Second quarterHalf year
Cargo business2021ChangeChange
constant currency
2021ChangeChange
constant currency
Tons (thousands)273+83.4% 541+38.2% 
Capacity (ATK m)2,623+66.0% 5,311+11.3% 
Traffic (RTK m)2,092+77.5% 4,166+38.4% 
Load factor79.8%+5.2 pt 78.4%+15.3 pt 
Total Cargo revenues (€m)894+58.1%+63.0%1,733+67.9%+74.0%
Scheduled cargo revenues (€m)795+62.0%+66.9%1,543+73.4%+79.5%
Unit revenue per ATK (€ cts )30.31-2.4%+0.5%29.06+55.8%+61.3%

Compared to the Second quarter in 2020, capacity increased by 66% in Available Ton Kilometers. Despite this increase in capacity, the Load factor gained 5.2 points and the unit revenue per ATK at constant currency improved by 0.5%. Compared to 2019, a still limited cargo capacity is available while the demand remains high resulting in high Revenue Ton Kilometers and Revenues.

At the moment, the Group transports more than 100 shipments of Covid-19 vaccines per month. The distribution of vaccines continues to gradually increase and the Group expects further growth in the Third quarter, notably to Africa and South America.

During the First half year of 2021, the Sustainable Aviation Fuel (SAF) Cargo program welcomed 22 partners, showing the sustainable commitment of Air France-KLM Cargo and its partners.

Transavia operating loss in the Second quarter 2021 at -98 million euros

 Second quarterHalf year
Transavia2021Change2021Change
Passengers (thousands)1,175+1,208.9%1,527-37.4%
Capacity (ASK m)3,240+1,069.2%4,251-17.8%
Traffic (RPK m)1,939+972.0%2,522-45.6%
Load factor59.9%-5.4 pt59.3%-30.4 pt
Total passenger revenues (€m)126+655.4%163-37.1%
Unit revenue per ASK (€ cts)3.88-29.0%3.83-19.1%
Unit cost per ASK (€ cts)6.90-84.8%8.96+5.9%
Operating result (€m)-98+13-218-25

The Second quarter operating result ended at an operational loss of -98 million euros, because of the ongoing travel restrictions in Europe and North Africa. As the production levels in the Second quarter of last year were close to zero due to an almost full production freeze, the activity level in the Second quarter 2021 was around ten times higher than last year. On this increased capacity, the load factor lost 5.4 point compared to last year at a level of 59.9%.

In the first half of 2021, the number of aircraft of Transavia increased by nine as part of the growth strategy for Transavia France. Transavia is well positioned to capture the leisure traffic recovery, seen since June, being a major opportunity for the Group’s competitiveness gain.


Maintenance business operating result for Second quarter 2021 around breakeven

 Second quarterHalf year
Maintenance2021ChangeChange
constant currency
2021ChangeChange
constant currency
Total revenues (€m)679+35.5% 1,302-20.6% 
Third-party revenues (€m)255+14.9%+31.0%514-28.3%-18.5%
Operating result (€m)-3315319-10311329
Operating margin (%)-0.4%+63.0 pt+68.0 pt-0.8%+18.8 pt+21.1 pt

The Second quarter operating result stood at -3 million euros, an increase of 319 million euros against a constant currency versus the Second quarter 2020.

In the Second quarter of 2020, the maintenance business recorded one offs linked to the Covid-19 crisis amounting to 203 million euros; excluding one offs effect, the operating result increase in the Second quarter this year is mainly explained by operational improvement and cost savings.

Total revenues increased by 35.5% in the Second quarter while third party revenues rose by 14.9% and internal revenues increased by 51.9%. This increase in internal revenues is mainly related to an increase in flight hours compared to the very low flight hours during the Second quarter 2020. The rise in external revenues is mainly driven by the components business.

Air France-KLM Group: EBITDA loss reduced to -0.2 billion euros

 Second quarterHalf year
 2021ChangeChange
constant currency
2021ChangeChange
constant currency
Capacity (ASK m)39,657+338.6% 74,254-2.7% 
Traffic (RPK m)17,869+419.2% 31,884-44.8% 
Passenger unit revenue per ASK (€ cts)3.83-1.2%+0.8%3.39-39.1%-37.6%
Group unit revenue per ASK (€ cts)5.83-37.4%-35.7%5.47-18.8%-16.7%
Group unit cost per ASK (€ cts) at constant fuel7.73-70.8%-70.8%8.07-17.9%-14.2%
Revenues (€m)2,750+132.7%+143.1%4,910-20.8%-18.0%
EBITDA (€m)-248+532+539-874-34-26
Operating result (€m)-752+801+808-1,931+437+442
Operating margin (%)-27.3%+104.0 pt+109.4 pt-39.3%-1.1 pt+0.1 pt
Net income - Group part (€m)-1,489+1,123 -2,970+1,443 

In the Second quarter 2021, the Air France-KLM Group posted an operating result of -752 million euros, up by 801 million euros compared to last year.

Net income amounted to -1,489 million euros in the Second quarter 2021, an increase of 1,123 million euros compared to last year. Last year Second quarter was heavily impacted by the recording of exceptional accounting items due to Covid-19 (impairment for acceleration phase-out Airbus 380s and Airbus 340s, fuel “over hedge” and a restructuring costs provision for the Air France and KLM voluntary departure plans).

Following the conversion of KLM defined benefit pension schemes into collective defined contribution schemes for Cockpit and Cabin staff in 2017, now also the KLM ground staff pension fund moved to a defined contribution scheme. This lead to more predictable annual contributions and less volatility on the Group’s Balance Sheet. Mainly due to the derecognition of the KLM ground staff pension fund the other non-current income and expenses showed in Q2 a negative amount of 849 million euros.

The Second quarter 2021 unit cost decreased by 71%, primarily caused by an increase of capacity

On a constant currency and fuel price basis, unit costs were down 71% in the Second quarter 2021.

All cost items, except other external expenses, increased in the Second quarter 2021 compared to last year due to an increase in capacity of 338.6%.
Group net employee cost were up 21.8% mainly due to less government support. The FTE reduction did not compensate fully this gap as indicated during the fourth quarter 2020 results presentation.

Second quarter: Adjusted Operating Free cash flow positive. Change in Working Capital Requirement driven by improved advanced ticket sales

 Second quarterHalf year
In € million2021Change2021Change
Cash flow before change in WCR and Voluntary Departure Plans, continuing operations (€m)-417+744-1,162+169
Cash out related to Voluntary Departure Plans (€m)-80-74-125-110
Change in Working Capital Requirement (WCR) (€m)1,211+1,1291,120+577
Net cash flow from operating activities (€m)714+1,799-167+636
Net investments* (€m)-287-33-534+578
Operating free cash flow (€m)427+1,766-701+1,214
Repayment of lease debt-217-55-433-21
Adjusted operating free cash flow**210+1,711-1,134+1,193

Sum of ‘Purchase of property, plant and equipment and intangible assets’ and ‘Proceeds on disposal of property, plant and equipment and intangible assets’ as presented in the consolidated cash flow statement.

** The “Adjusted operating free cash flow” is operating free cash flow after deducting the repayment of lease debt.

The Group generated adjusted operating free cash flow in the Second quarter 2021 of 210 million euros, an increase of 1,711 million euros compared to last year, mainly driven by improved advanced tickets sales.

In € million30 Jun 202131 Dec 2020
Net debt8,34411,049
EBITDA trailing 12 months-1,723-1,689
Net debt/EBITDA trailing 12 monthsnana

Q2: Performance improved versus last year although still negatively impacted by travel restrictions

 Second quarterHalf year
 2021Change2021Change
Air France Group Operating result (€m)-566+492-1,406+188
Operating margin (%)-34.4%+155.1 pt-47.1%-2.5 pt
KLM Group Operating result (€m)-185+308-522+246
Operating margin (%)-15.3%+55.0 pt-24.4%+2.6 pt

OUTLOOK

Since June, first signs of recovery are visible in the booking trend thanks to waived or eased travel restrictions in Europe due to the rise of vaccination rate across all countries. The reopening of the North Atlantic for American citizens to visit Europe also resulted in an improved booking trend.

In this context, the Group expects capacity in Available Seat kilometers for Air France-KLM Network passenger activity at index in the range of 60% to 70% in the Third quarter 2021 compared to 2019.

Due to the uncertainty of the reopening of the North Atlantic for European citizens and uncertainty concerning travel restrictions waiving, no capacity guidance will be provided for the Fourth quarter 2021.

As of June 30, 2021, the Group has 9.4 billion euros of liquidity and credit lines at disposal, the Senior bond of 800 million euros issued by the end of June is not included in this amount yet. This level can be considered comfortable, given the first signs of recovery and the cash requirements for 2021, which include:

  • Third quarter 2021 EBITDA expected to be positive
  • Net Capex spending expected below 2.0 billion euros in 2021, and largely funded for fleet investments
  • Restructuring cash out below 500 million euros in 2021, part of which is compensated by the associated reduction in the salary cost

The Air France-KLM Group continues to focus on its transformation projects in order to reduce its costs and on cash and equity. During the Annual General Meeting in May 2021, extraordinary resolutions were approved by the shareholders, providing the Board of Directors large flexibility to restore equity. These resolutions could include instruments such as rights issuance, vanilla quasi-equity and equity-linked instruments in order to restore balance sheet and re-profile debt redemptions.

Guidance: Air France-KLM Group medium term operating margin objective unchanged

The Group accelerates its transformation initiatives and confirms its medium-term financial ambition. Air France-KLM continues to balance its medium-term focus on managing liquidity with the long-term focus on achieving increased competitiveness. To do this, the Group continues to optimize fleet, workforce, network, costs and reinforce his sustainability efforts.

Air France-KLM estimates the number of aircraft in 2022 to be 7% below the number of aircraft in 2019. The Group expects capacity in Available Seat Kilometers back to the 2019 levels in 2024.

By the end of June 2021, KLM managed to decrease the number of FTE by 5,700 compared to December 2019. In Air France (excluding Transavia France subsidiary), the number of FTE decreased by 5,300 end of June 2021 compared to December 2019. The voluntary departure plan continues at Air France (excluding Transavia France), and an additional 3,200 FTE will leave the company by end 2022.
Operating costs will being reduced in 2021 and beyond, with 800 million euros structural benefits for KLM end 2021 and 1.3 billion euros end 2022 for Air France versus 2019.

The reduction in FTE, amongst other key transformation initiatives, will drive the unit cost down 8% to 10% (Unit cost including fuel and currency change assumptions) once capacity is back to 2019 level.

The Group’s medium-term financial ambition is maintained with an Adjusted Operating Free Cash Flow expected to be positive in 2023. The Operating Margin mid-cycle objective is still estimated at 7% to 8%.

The Net debt/EBITDA target ratio of circa 3x in 2023 will be lowered to circa 2x after the expected second step of recapitalization.

Early July, Air France-KLM signed and executed an EMTN Program for a total issuance size of 4.5 billion euros, to fully support and optimize its overall financing strategy, and opportunistically make use of debt capital market windows through private and public bond issuances. Sociรฉtรฉ Gรฉnรฉrale is acting as Arranger to the Programme alongside five dealers: CACIB, Deutsche Bank, HSBC, Natixis and Santander. Gide Loyrette Nouel acted as Legal Advisor to Air France-KLM and Allen & Overy as Legal Advisor to the group of dealers.






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