TRANSPORTATION: Air France-KLM; FY24 Results
(NR/BB+/BBB-) (equities +17.5%)
4Q is firmer on unit revenue (market wide trend). The bigger positive is FY25 guidance which is for a +19% lift in EBIT and includes one-off headwinds like the solidarity tax. We said earnings will determine if it can trade through FOY29s and despite both ending on similar fundamentals, AFFP is facing more positive catalyst here. Spreads look deceivingly wide as IG peers have been well bid in (justified for IAG, Lufty on a retail bid, easyJet on low levered BS). We do see some value on AFFP29s but still do see it high-beta to industry wide headwinds. It paid down the €500m (outstanding) Jan 25's. unclear if it will come for refi now, no other bonds due this year.
- 4Q (3m to Dec) passengers +5% while capacity was only +2% boosting load factors by +2ppt to 87.4%
- Unit revenues increased +4.4% and adding to the capacity increase left revenue +6.4% at €7.9b.
- It is flagging yield strength in North Atlantic - a tail wind IAG has rode all of last year and is continuing to report strength in (+14% in 4Q for IAG).
- Unit costs ex. fuel +4% on airport and air traffic control charges, salary costs and capacity mix.
- Net left EBIT at €400m on a 5.0% margin - a reversal from last years operating loss
- FY revenues +5% at €31.5b, capacity +3.6%, unit revenues a flat +0.5%.
- Unit costs ex. fuel +3% left FY EBIT €1.6b on a 5.1% margin (-60bps)
- There is balance in unit revenue increases and costs yoy but the real tailwind for EBIT improvement has been fuel prices and ETS (emissions allowances) costs (+€433m)
- Network airlines (Air-France & KLM) ran a 5.4% margin (-120bps), budget arm Transavia barely breakeven (vs. -€100m operating loss last year) and maintenance 3.3% margin (-20bps) - costs on supply chain disruptions kept up with revenue growth (+20%) for latter.
- Adj. FOCF net of lease and interest payments was +€271m up €317m
- Net debt ex. the hybrid stack was €7.3b levered 1.7x.
- another €3.5b in perp hybrids (unch)
- 51% of fleet leased (unch)
Guidance for this year
- EBIT to improve by at least €300m (eqv. +19%)
- It is baking in +€600m from 2024 headwinds that won't repeat, and -€300m in new headwinds including €90-170m from solidarity tax (unch guidance) and €65-110m from Schiphol (Amsterdam) tariff increases.
- Capacity +4-5% (Air-France/KLM +3-5%, Transavia +10%)
- Unit costs ex. fuel increase in LSD
- Fuel is expected to be -4% lower yoy - it is a lower 62% hedged at $810 (spot $692)
- SAF/Sustainable fuel requirements (EU requires min. 2% use this year) will add €330m/5% onto that
- Net capex of €3.2-3.4b (vs. €3b this year)
- net leverage 1.5x-2.0x target unch
On current trading conditions load factors for Q1 are 100-200bps lower yoy, which it is blaming on Easter timing (March to April shift this year).