Air France-KLM reported a surge in third-quarter profit, though concerns about rising geopolitical tensions muted the benefits of strong summer demand.

Operating income advanced 31 per cent from a year earlier to a record 1.34 billion euros (S$1.93 billion), slightly below analysts’ estimates. Capacity reached 94 per cent of the comparable pre-pandemic quarter in 2019 – under the company’s target for a 95 per cent ratio. 

The results were “broadly in line” with expectations, analysts at Citi said in a note, adding that fourth-quarter bookings were lagging 2022 levels. 

The shares slid 2.7 per cent as at 9.07 am in Paris, after closing on Thursday (Oct 26) at their lowest level since July 2022 to a market value of 2.83 billion euros.

In a statement on Friday, the Franco-Dutch carrier reiterated its forecast for fourth-quarter and full-year passenger volumes, and it shored up its balance sheet with a 1.3 billion euro financing agreement with Apollo Global Management tied to the Air France-KLM rewards programme, Flying Blue. 

It was a busy quarter strategically for Air France-KLM, chief executive officer Benjamin Smith said, citing the Apollo transaction, a deal to order wide body aircraft from Airbus, and the airline’s plan to invest in Scandinavian carrier SAS, which will “enhance our offer and connectivity in the Nordics”. 

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Air France-KLM has also expressed interest in the coming sale of Portuguese flag carrier TAP. 

Third-quarter revenue rose 6.8 per cent to 8.66 billion euros, Air France-KLM said, citing strong summer demand on both long-haul routes over the North Atlantic and closer-in destinations, and at its low-cost Transavia unit. Analysts polled by Bloomberg had expected 8.72 billion euros in sales and 1.38 billion euros in operating income. 

Fuller planes and higher fares helped to offset a decrease in cargo revenue and inflation, boosting operating margins by 2.9 percentage points. However, the company recorded a free cash outflow of 434 million euros on an adjusted basis, citing seasonality in its ticket sales.

The Apollo deal, structured as quasi-equity, will allow Air France-KLM to retain management of the Flying Blue program and Air France and KLM each keeps ownership of their customer database. 

Air France-KLM and other airlines have been benefiting from robust demand for air travel, repairing balance sheets damaged by prolonged restrictions during the pandemic. Concerns are mounting about longer-term demand as consumers struggle with inflation and high mortgage costs that are crimping household spending power. 

The company expressed optimism in the fourth-quarter outlook, despite conflict in the Middle East, which led to cancelled connections with Israel, and a spate of regional airport and museum evacuations in France caused by terror alerts. The company said it hasn’t yet seen any material impact from the war.

Rival IAG, which also reported results on Friday, sounded a cautionary note, saying it’s mindful of geopolitical tensions. 

Air France-KLM stood by its earlier forecast for fourth quarter capacity, measured in seats offered multiplied by kilometres flown, above 95 per cent of 2019 levels, and around 95 per cent for the full year. Unit costs will rise in the low single-digits compared with 2022. BLOOMBERG