Air France-KLM Profit Hurt by Lower Last-Minute Bookings

(Bloomberg) -- Air France-KLM Group third-quarter earnings fell on lower demand for cargo transport and a reduction in lucrative last-minute passenger bookings at the height of the summer travel season. The shares fell the most in eight months.

• Operating profit dropped 16% to 900 million euros ($1 billion), the carrier said in a statement Thursday, missing an average forecast of 963 million euros compiled by Bloomberg. The carrier also blamed higher fuel costs.

Key Insights

• The numbers illustrate the fragility of a turnaround drive led by Chief Executive Officer Ben Smith, especially as economies slows in Europe. Air France-KLM trimmed its outlook for capacity growth at low-cost Transavia unit. “The environment isn’t as good as in 2018 or even 2017,” Chief Financial Officer Frederic Gagey told reporters, citing trade tensions weighing on the cargo business.
• Both Air France and KLM brands suffered a drop in profit, though KLM’s margin remained higher -- a difference that’s long been a source of tension within the company. The Dutch state stealthily acquire a 14% stake in the carrier in February, matching the French government’s holding.
• The figures preface a broader strategic pitch to investors on Nov. 5. While Smith has taken steps to lift salaries to placate unions, withdraw the costly Airbus SE A380 planes, shut the lower-cost Joon arm and improve service standards on Air France, he has yet to present an all-encompassing vision for the company.
• Citigroup analyst Mark Manduca said prior to the report that Air France-KLM has also been squeezed by weaker business bookings to Asia, while cost savings are likely to be focused on the fourth quarter and beyond as the CEO rolls out his plans.

Market Reaction

• Air France-KLM shares fell as much as 12%, the sharpest decline since Feb. 27. The stock traded 6.5% lower at 10.08 euros as of 9:05 am in Paris.

To contact the reporter on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Tara Patel

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