October 03, 2024 08:41 GMT
TRANSPORTATION: Air France-KLM (NR/BB+/BBB-) KLM announces cost-cutting
TRANSPORTATION
- KLM arm is announcing measures to boost profitability with the normal filler words. More important a numeric target to improve EBIT by €450m in the "short term" - which it says will lead to a EBIT margin above 8% by 2026-28. This year has proven margin targets for airlines should be taken with pinch of salt - IAG the only network carrier on track to hit it.
- For RV/credit this is not short-term (2-4yrs away); earnings up ahead is our focus as are reported hefty tax hikes for French airfares (our political analyst is skewed to see budget passing despite gov. minority). Above progress also looks contingent in part on rotating older aircraft for newer fuel efficient fleet (says "a billion dollar investment"). All other investments will be reconsidered and postponed. At 2Q it took down FY capex guidance from €3b to <€3b - this looks like a continuation and likely forced by operating performance.
- It also notes "due to the shortage of technicians and ongoing supply problems of parts, KLM can operate fewer flights. Measures are being taken at Engineering & Maintenance to reduce the number of cancellations". It reiterates what we said when Middle-East tensions fired up this week - supply shortage is a issue and means for most European airlines with no hub in impacted regions, small route cancellations is not a mover. Airspace closures 'can' be more of a mover - see European airlines slowly scrapping China routes on Russia as example.
- KLM arm is about 40% of Air-France group revenues and EBIT. It was running a mid 5% margin last year but has turned to a operating loss this year (-€31m over 1H). Expenses - Including wages that are +12% - are dragging on it. We continue to encourage caution heading into 3Q results on the 7th of Nov.
Presser here
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