Davy Research |
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Air France KLM
(AF FP)
Q1 operating results below consensus and our estimates; company reiterates full-year guidance
04 May 2012
Joshua Goldman
| Closing Price: | 351c | Rating: | Underperform | 19/01/12 | Previous: | Neutral | 09/09/11 |
FACTS: Air France KLM has reported (May 4th) Q1 results which were worse than our expectations.
ANALYSIS: The company reported an operating loss of €597m (Davy -€499m; consensus -€519m) on slightly higher-than-expected revenue which was up 4% compared to our forecasts (actual €5,645m; Davy €5,452m; Consensus €5,544m). This points to the company's ongoing inability to fully recoup the increased fuel cost.
The net debt level decreases to €6.43bn (end-December 2011 €6.52bn) but this was helped by the partial sale of the Amadeus stake (c.€474m raised). The company continues to reiterate its full-year guidance that the maximum net debt level will be €6.5bn. The company also maintains its expectations for FY 2012 of "a reduction in unit cost at constant fuel price and currency … The operating result for the first half is expected below the level of last year (-548 million euros at 30 June 2011), while the second half will see the benefits of the first 'Transform 2015' measures feeding through".
Operationally, increased load factor (up 3.1pp) in the passenger division helped to push unit revenue per available seat kilometre (RASK) up by 5.6% (+4.7% excluding currency). Passenger traffic rose 5.5% on limited capacity increases of 1.6%. The load factor was 81.6%. The operating result was -€504 m (-€367m the same period last year) with fuel up €224m.
The company states that "The cargo business continues to be affected by the slowdown in economic activity which started to weigh on transportation of cargo as of May 2011". Traffic was down 6.1%, outpacing the decrease in capacity which was down only 2.0%, leading to a 2.9pp decline in load factor to 64.9%. Unit revenue per available ton kilometre (RATK) declined 2.6% (-4.1% excluding currency). Cargo revenues were €744m, down 3.3%, and the operating result was -€68m compared to -€9m at March 31st 2011.
Third-party maintenance revenues increase 10.7% to €258m with operating profits of €16m (+€26m at March 31st 2011). Other activities generated revenues of €213m, of which €117m for leisure. The operating result was -€41m (-€53m at March 31st 2011).
DAVY VIEW: Overall, the company continues to struggle to pay for the increased cost of fuel. These results highlight the strong need for the implementation of 'Transform 2015' which we still believe is an ambitious programme. We note the strong performance on the transatlantic with RASK up 13.4%. This is consistent with our view — expressed in our recent Davy on Airlines (issued April 24th) — that capacity take-out on the northern transatlantic will be beneficial to pricing. We look for further details on the call at 10.00 CET at +44 207 162 0125; password AKH.