AIRFRANCE KLM Financial Year 2014: First Half results
- Revenues of 6.45 billion euros, up 1.7% like-for-like; passenger unit revenue up 1.3% at constant currency thanks to strict capacity discipline
- Operating result of 238 million euros, improvement of 154 million euros
- EBITDA1 of 641 million euros, improvement of 131 million euros
- Ongoing cost reduction: reported unit cost down 4.0%, and 1.7% like-for-like
- Further reduction of full-freighter exposure: 106 million-euro impairment charge recorded
 See definition in appendix
- Revenues of 12.01 billion euros, up 1.0% like-for-like
- Net result, group share of -614 million euros, improvement of 185 million euros
- Adjusted net result, group share1 of -342 million euros, improvement of 344 million euros
- Net debt of 5.4 billion euros; net debt/EBITDA ratio of 2.6, a 0.3 point improvement compared to 31 December 2013
FULL YEAR 2014 OUTLOOK
- Tough operating environment
- EBITDA expected between 2.2 to 2.3 billion euros
- On track to reach net debt target of 4.5 billion euros next year
In the Second Quarter of 2014, total revenues amounted to 6,451 million euros versus 6,541 million euros in 2013, down 1.4%, but up +1.7% on a constant currency and scope basis (like-for-like). Currencies had a negative 168 million euro impact on revenues.
Operating costs were reduced by 3.8% and by 1.5% on a constant currency basis. Ex-fuel, they decreased by 3.4% and by 2.6% on a constant currency basis. Unit cost per EASK1 (Equivalent Available Seat Kilometer) was reduced by 4.0%, and by 1.7% on a constant currency, fuel price and pension expense basis, against capacity measured in EASK up by 0.9%. The fuel bill amounted to 1,636 million euros, down 5.6%, but stable (+0.2%) on a constant currency basis. Total employee costs including temporary staff were down 3.4% to 1,934 million euros, and by 3.2% on a constant currency basis. At constant pension expense and scope, they declined by 47 million euros.
EBITDA amounted to 641 million euros, an improvement of 131 million euros. The EBITDA margin stood at 9.9%, a 2.1 point improvement on 2013. The operating result stood at 238 million euros versus 84 million euros in 2013, an 154 million euro improvement. Currencies had a 20 million euro net negative impact on the Second Quarter operating result.
The net result, group share stood at -6 million euros against -158 million euros a year ago. It was impacted by an 106 million euro impairment charge relating to assets of the Cargo business. On an adjusted basis2, the net result, group share stood at 143 million euros against -34 million euros in Second Quarter 2013, a 177 million euro improvement.
In the First Half 2014, total revenues stood at 12,005 million euros versus 12,222 million euros in 2013, down 1.8%, but up +1.0% on a like-for-like basis. Currencies had a negative 287 million euro impact on revenues.
Operating costs were reduced by 3.6% and by 1.7% on a constant currency basis. Ex-fuel, they decreased by 2.9%, and by 2.0% on a constant currency basis. The fuel bill amounted to 3,189 million euros, down 5.9%, and 1.5% on a constant currency basis. Total employee costs including temporary staff were down 3.6% to 3,780 million euros, and by 3.4% on a constant currency basis. At constant pension expense and scope, they declined by 106 million euros.
EBITDA improved by 197 million euros to 591 million euros, resulting in an EBITDA margin of 4.9%, a 1.7 point increase on 2013. The operating result stood at -207 million euros versus -448 million euros in 2013, an 241 million euro improvement. Currencies had a 45 million euro net negative impact on the operating result in the First Half.
The net result, group share stood at -614 million euros against -799 million euros a year ago. It was impacted by the adjustment in the value of the cash held by the Group in Venezuela recorded in the First Quarter and the impairment charge in the Cargo business in the Second Quarter. On an adjusted basis, the net result, group share stood at -342 million euros against -686 million in the First Half 2013, a 344 million euro improvement.
Earnings and diluted earnings per share both stood at -2.07 euros (-2.70 euros in 2013), and at -1.16 euros on an adjusted basis (-2.32 euros in 2013).
 See details in “Cargo business” section below
 See definition in appendix
In the Second Quarter 2014, passenger revenues amounted to 5,112 million euros, down 0.2%, but up 2.4% like-for-like. The operating result of the passenger business stood at 255 million euros, versus 96 million euros in Q2 2013, an improvement of 159 million euros (178 million euros on a constant currency basis).
The Group maintained its strict capacity discipline, increasing total passenger capacity by only 1.0%. Passenger traffic rose by 2.8%, leading to a 1.5 point improvement in load factor to 84.8%. Unit revenue per Available Seat Kilometer (RASK) fell by 1.1% but increased by 1.3% on a constant currency basis. Thanks to Transform 2015, and in spite of the low capacity growth, the passenger activity delivered a strong cost performance, with Cost per Available Seat Kilometer (CASK) down by 2.3% like-for-like.
Long-haul traffic rose 3.1% for a 1.5% rise in capacity, leading to a 1.4 point increase in load factor to 86.0%. Long-haul RASK was up 1.6% like-for-like.
As planned within the framework of Transform 2015, point-to-point (not linked to the Paris and Amsterdam hubs) short and medium-haul capacity was significantly adjusted (down 7.1%), leading short and medium-haul capacity to fall by 0.7%. Traffic rose by 1.6%, resulting in a 1.8 point improvement in load factor to 80.4%. Short and medium-haul RASK improved by 1.7% like-for-like.
All regions improved their profitability with the exception of Latin America, impacted by the situation in Venezuela.
In the First Half 2014, passenger revenues amounted to 9,477 million euros, down 1.0%, but up 1.4% like-for-like. The operating result of the passenger business stood at -123 million euros, versus -351 million euros in the First Half 2013, an improvement of 228 million euros (268 million euros like-for-like).
Total passenger traffic rose by 2.5% while capacity rose by 1.2% leading to a 1.0 point improvement in load factor to 83.8%. Unit revenue per Available Seat Kilometer (RASK) fell by 1.8% but increased by 0.5% like-for-like. Unit costs (CASK) were reduced by 4.2% and by 2.4% like-for-like.
Second Quarter 2014 cargo revenues amounted to 669 million euros, down 5.1% and by 1.9% on a constant currency basis. Faced with a slower than expected recovery, the group continued to reduce full-freighter capacity (down 8.6%). In consequence, total capacity decreased by 2.0%. Traffic decreased by 1.6%, leading to a 0.3 point increase in load factor to 63.2%. Unit revenue per Available Ton Kilometer (RATK) increased by 1.1% on a constant currency basis (-2.1% on a reported basis).
The operating result improved slightly to -45 million euro, up 5 million euros.
The recovery in demand being slower than expected, the group has initiated a strategic review of its full-freighter business, with different scenarios under consideration. Having already decided in October 2013 to reduce its full-freighter fleet to 2 aircraft in Paris and 8 aircraft in Amsterdam by 2015, the group is now looking to further reduce its Amsterdam-based full-freighter exposure either through a partnership with a third party or through internal restructuring. In consequence, the group has recorded an impairment of 106 million euros in its Second Quarter 2014 accounts.
First Half 2014 cargo revenues amounted to 1,344 million euros, down 4.3% and by 1.6% on a constant currency basis. Traffic was stable for a -1.5% decline in capacity, leading to a 1.0 point increase in load factor to 64.0%. Unit revenue per Available Ton Kilometer (RATK) was stable on a constant currency basis (down 2.7% on a reported basis).
On a constant currency basis, cargo unit cost was down 1.7% in the First Half (down 3.9% on a reported basis). The operating result improved by 21 million euros to -79 million euros.
Second Quarter 2014 third party maintenance revenues amounted to 286 million euros, down 10.3% and by 7.2% on a constant currency basis. Q2 2013 revenues had been boosted by high volumes from the engine contract with General Electric. The operating result stood at 30 million euros, down 7 million euros year-on-year.
First Half 2014 third party maintenance revenues amounted to 576 million euros, down 7.2% and by 3.4% on a constant currency basis. The operating result decreased by 5 million euros to 52 million euros. At constant currency, the operating result improved by 4 million euros in the First Half. The operating margin was stable (-0.3 point) at 3.2%.
In the First Half 2014, the group recorded a 16% increase in its order book to 5.1 billion euros, including a major contract with Air China covering the maintenance of GE90 engines. In addition, the group acquired Barfield, a US component support business.
OTHER BUSINESS: TRANSAVIA
In the Second Quarter of 2014, Transavia capacity was up 4.8%, reflecting the accelerated development of Transavia France (up 10%) and the repositioning of Transavia Netherlands (up 3% including a 6% reduction in charter capacity). Traffic rose 6.0%, leading to a record high load factor of 90.7% (up 0.9 point). Unit revenue was down 1.7%. Transavia’s total revenue stood at 296 million euros, up 5.0%. The operating result was -6 million euros, down 3 million euros year-on-year.
In the First Half of 2014, Transavia traffic increased by 6.9% for capacity up 5.8%, leading to a 0.9 point increase in load factor to 89.2%. Unit revenue was down 2.6%. Total revenue stood at 435 million euros, up 4.5%, while the unit cost per ASK decreased by 0.8%, but increased by 0.5% on a constant currency basis. The operating result decreased by 10 million euros to -64 million euros, mainly due to the ramp up of Transavia France.
OTHER BUSINESS: CATERING
Second Quarter 2014 third party catering revenues amounted to 77 million euros, down 25.2%. At constant scope (excluding the impact of the sale of Air Chef that occurred in Q2 2013), third party revenues increased by 6.9%, reflecting new contracts and international development, while the operating result improved by 3 million euros.
First Half 2014 third party catering revenues amounted to 150 million euros, up 8.7% at constant scope. The operating result increased by 5 million euros at constant scope.
In the First Half of 2014, the further improvement in EBITDA translated into an 232 million euro increase in cash flow before change in WCR and the cash out related to Voluntary Departure Plans.
The group disbursed 144 million euros for Voluntary Departure Plans representing 90% of the cash out expected in the Financial Year. Net investments before sale & lease-back transactions stood at 808 million euros.
Operating free cash flow amounted to 95 million euros, versus 566 million euros a year earlier. In the First Half 2013, operating free cash flow had benefited from the full effects of the reduction in investments and the structural improvements in WCR within the framework of Transform 2015.
Net debt amounted to 5.41 billion euros at 30st June 2014, versus 5.35 billion euros at 31st December 2013. At 2.6x, the net debt / EBITDA ratio continued to fall.
Delivery on the Transform 2015 plan is fully on track. However, as indicated at the beginning of the month, the operating environment remains tough, with industry overcapacity on certain long-haul routes, notably North America and Asia, impacting yields. This trend comes on top of the persistently weak cargo demand and the challenging situation in Venezuela already identified in the First Quarter.
Under these conditions, as indicated at the beginning of the month, 2014 EBITDA is expected to be between 2.2 and 2.3 billion euros. Strong capital discipline will enable the group to remain on track in terms of debt reduction and achieve its objective of 4.5 billion euros in net debt in 2015.