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CEO Talk: Air France/KLM in a Unique Position for Consolidation

Air France KLM Group joins the series of strong airline third-quarter (Q3) results and wants to be an important part of airline consolidation outside of Europe.

Interest in TAP Air Portugal and Air Europa

"Yes we are definitely in the evolution in TAP Portugal in some sort of partnership or ownership, this is not new. Regarding TAP, (there is) nothing to prevent (us) to have a commercial partnership“, Air France KLM CEO Ben Smith said on Oct. 28 during the third-quarter results presentation, which this correspondent joined live.

"We are number two to Brazil (from Europe). Either it is TAP or another airline, this (market) is very important for us“, the CEO said.

In December 2021, Portuguese Infrastructure and Housing Minister Pedro Nuno Santos said that TAP could be partially privatised during the restructuring process until 2025.

Smith said, besides having not only a stronger presence on the Iberian peninsula, Air France KLM has also interested in SkyTeam Alliance member Air Europe, which is based at Madrid Barajas.

Air Europa is also the focus of the International Airlines Group (IAG), which wants to further increase its presence at Madrid. IAG has recently converted the loan provided to Air Europa into a 20% equity stake, in order to strengthen its leadership in Latin America mainly by Iberia.

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Interest in ITA Airways and Outside Europe

Regarding Air France KLM´s interest in ITA, Smith said, there is an exclusive place (for the Group) until the end of October. A consortium led by private equity firm Certares is made up of Certares, Air France-KLM and Delta Air Lines. "We do this together with Delta“, he said.

“Italy has always been difficult. We are also studying other consolidation (possibilities) in Europe and somewhere else“.

Ben Smith, Air France-KLM Group CEO

"Air France KLM have also many opportunities for organic growth. For example in the Indian Ocean, where we have very attractive growth activities. We are in a unique position when It comes to consolidation“, Smith added.

Q3 Positive Result

Smith said, thanks to solid preparation and to an agile approach to capacity, Air France-KLM was able to make the most of the strong travel demand during Q3. The group reported positive adjusted operating free cash flow of €290 million ($290.6 million), up 12% compared to the same period a year ago. The group's net income for the quarter was €460 million, up 653%. The company expects positive operating results for the Full Year above €900 million. "This is quite an achievement“, CFO Steven Zaat said.

One of the important markets has been the North Atlantic. North America flights showed 91% load factors, yield increased by 25%. “There is a very high willingness to travel to the US“, Zaat added.

Smith said, one important fact on the North Atlantic was also, that LCC Norwegian has no longer Boeing 787s based in Paris Charles de Gaulle.

“This has been eight or nine aircraft. That helped us and I don't see that they come back. We don't have that kind of competition at CDG (anymore)“.

Ben Smith, Air France-KLM Group CEO
Air France A350

The CEO made clear, to compete against the two other large European airline groups, IAG and the Lufthansa Group, its two biggest assets are the KLM hub Amsterdam Schipol and the French market as a whole, a number one inbound market. “This gives us a huge advantage“, Smith said. However, the airport situation in Amsterdam "is a threat outside of our control. We expect the stakeholder to improve the level of service and to solve this problem quickly as possible“. Smith said. 

a group of blue airplanes at an airport

That also means Air France-KLM´s overall 2022 capacity is reduced to circa 85% due to imposed capacity ban on departing passengers at Schiphol. “This is absolutely not an acceptable issue in Amsterdam. But we created stability with the capacity reduction“, Smith added.

On-time Delivery of New Aircraft

In terms of fleet, CFO Zaat explained to Sam Chui his confidence about on-time deliveries of new aircraft.  “We expect this for the A320, A321 as well the A350 fleet. Airbus and Boeing deliver aircraft as promised  We don't see any delivery delays“, the CFO said.

As of September 30, Air France including its regional arm HOP has 259 aircraft in operation, KLM including KLM CityHopper and Martinair 171 aircraft and its LCC company Transavia has 100 aircraft. 

According to the Aviation Week fleet Intelligence network, Air France KLM has on order 48 Airbus A220-300, 19 A350-900, four A350F, 13 Embraer 195.E2, and eight Boeing 787-10.

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Looking ahead, Smits said, the environment remains challenging.

“We need to continue transforming and there is limited visibility on the impact of the upcoming potential macroeconomic slowdown“.

Ben Smith, Air France-KLM Group CEO

Demand for flights remains high, which is why flight capacity is set to ramp up to 90% of pre-pandemic levels in the first quarter of next year. "We already sold one-third of the tickets for the first quarter“, CFO Zaat said.

“For Q4 we sold 75% of our capacity already. We still see a healthy yield environment for the winter season“, he added.