Steady recovery at Air France-KLM as passenger numbers pick up

Airline group Air France-KLM significantly reduced its net loss in the third quarter. Excluding interest and taxes, the group even recorded its first operating profit since the coronavirus outbreak. Thanks to more flexible travel restrictions, the French-Dutch combination transported many more passengers than a year earlier and benefited from previously initiated budget cuts.

Air France-KLM carried almost 17 million passengers in the vital summer months of July, August, and September. That is nearly double compared to the same period last year. At that time, many travel restrictions still applied within Europe, which were canceled due to vaccination campaigns and the EU-wide implementation of the coronavirus passport.

Thanks to the increased demand for tickets, turnover increased by 81 percent to 4.6 billion euros. The company posted an operating profit of 132 million euros. Planes were fuller than during the coronavirus months, and significant job cuts also resulted in lower costs.

Under the line, there is still a loss of 192 million euros. That is partly due to the interest payments that Air France-KLM has to make on emergency loans that kept the group afloat during the crisis. However, the net loss is much smaller than the -1.6 billion euros that went into the books in the third quarter of 2020.

For Air France-KLM, the imminent opening of the American borders for vaccinated European travelers is a big windfall. After the announcement that the United States would admit travelers from the EU members states from November 8, many bookings for the autumn and holiday season came in.

Air France-KLM is not yet entirely back at the level before the coronavirus pandemic. There are still many coronavirus outbreaks in Asia, among others. The group expects to be at 70 to 75 percent of the 2019 capacity in the last three months of this year. In the third quarter, that was 66 percent.

Air France-KLM is still looking for ways to strengthen its balance sheet. Talks about additional support from the Dutch government to strengthen KLM's equity capital are still ongoing. Paris already came to Air France's rescue earlier this year with 4 billion euros in extra aid, including 1 billion euros in new capital. As a result, the debt burden fell, but it still amounts to more than 8 billion euros. The company also struggles with negative equity.

For the time being, KLM can still "manage" with the emergency loans the airline obtained with the government's help last year. Of the 3.4 billion euros in loans, 1 billion euros has now been used, CEO Pieter Elbers said in an explanation of the quarterly figures.

"There has been a significant improvement. KLM was also operationally profitable for the first time in 19 months, but we are still far from the level before Covid-19," Elbers said. KLM posted a third-quarter operating result - profit before tax and interest payments - of 168 million euros. "The road to recovery is bumpy and long," Elbers said.

A problem that could soon arise is the airport charges that KLM will have to pay at its home base Schiphol. The airport wants to increase rates by about 40 percent in the next three years to overcome the disastrous coronavirus. Elbers can't comprehend that. "Forty percent more is a huge blow. In Paris, for example, it goes up by only 2 percent," he said. "Schiphol has, of course, also had a difficult time, but we won't increase our ticket price by 40 percent. The question is how you ensure recovery without breaking the button. This does not help at all."

Like the entire aviation sector, KLM wants to be CO2 neutral by 2050. Earlier this week, environmental organization Greenpeace argued for banning short-haul flights in the European Union if more environmentally friendly alternatives, such as the train, are available. Elbers is skeptical about trains as a replacement for the plane because they take far too long for, for example, people transferring intercontinental flights.

"For some travelers, that might be fine, but for a very large part, it is not an alternative," he said. "The past period has shown that there is no one solution. That can be trains, but also fleet replacement and sustainable fuels. And most pollution is on long distances, so you will have to look at fuels.