AFKL reports big quarterly Loss

Old Jul 31, 11, 6:44 am
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AFKL reports big quarterly Loss

AFKL reported a Q2 (1 april- 30 June) operating loss of EUR145 and a net loss of some EUR200. The operating loss is widening compare to same quarter on 2010. As usual they will blabla by pointing to some tweaked numbers and treat well their analysts/journalists, BUT cash must be bleeding.

We know that all airlines faced problems in that quarter (but dont they usually do). But IAG, the parent of BA+IB, reported an operating profit of EUR190 compared to a loss of EUR70 a year earlier. They explain the improvement by a rapid rise in premium traffic (which AF is poorly positioned to capture with it low-quality product). LH is middle of the road. It publishes a Q2 operating profit of EUR230 compared to 159 a year earlier, but their six-month operating profit just breakseven.

The significant figure for Q2 (1 Par- 30 June) is that AFKL is deeply in the red in its operating results, while BA+IB and LH show significant positive profit. AFKL has been bleeding for the past years. The recent series of strikes, the damning interpretation of the BEA interim report are not going to help. How long can AF continue without government support beyond the informal ones it already receives in the form of impeding competition in France? Will it become another JAl or old-AZ?
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Old Jul 31, 11, 7:24 am
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There are clearly some AF-specific factors that you mentioned but we have also to acknowledge that, among the 3 big Euro carriers, AF is the most exposed to the Japanese disasters and North African revolutions.
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Old Jul 31, 11, 9:46 am
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Originally Posted by Goldorak View Post
There are clearly some AF-specific factors that you mentioned but we have also to acknowledge that, among the 3 big Euro carriers, AF is the most exposed to the Japanese disasters and North African revolutions.
You are right that in a short time period, like a quarter, spefici cevents can have different impact on different airlines.
What is bothersome is that Q2 2010 was strongly affected by volcanic ashes, so a low comparison base. And AF operating results are even worse than then.

Regarding Japan, I am not sure why AF would be affected more than BA or LH.
Regarding Tunisia (and possibly other NA countries), AF is more impacted than BA & LH, but many flights are done by charter airlines, not AF which only has few daily flights.
Regarding Middle East, the historical links are quite strong with UK and BA is probably more affected.
Overall, I find it hard to use these events as justification for performance differentials among European airlines.
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Old Jul 31, 11, 10:08 am
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Originally Posted by brunos View Post
Regarding Japan, I am not sure why AF would be affected more than BA or LH.
Japan market represents a significant share of revenue (sorry can't give figures for AF on Asian market, way more than BA or LH.

Originally Posted by brunos View Post
Regarding Tunisia (and possibly other NA countries), AF is more impacted than BA & LH, but many flights are done by charter airlines, not AF which only has few daily flights.
Situation has been critical for AF in Africa since the beginning of the year. Not only the unrest in Northern Africa (Tunisia, Egypt, etc.) but also the general situation in countries such as Ivory Coast, which impacted very seriously AF operations (curfew changing every day, area not safe for night stops and crew rests, etc.). AF is still one of the major with the highest presence in Africa, even if A* is catching on very quickly.

Originally Posted by brunos View Post
Regarding Middle East, the historical links are quite strong with UK and BA is probably more affected.
A few incidents happened in the middle east that were quite costly : fuel contamination in TLV, curfews in BEY, etc. All the airlines were impacted howowever.
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Old Jul 31, 11, 11:23 am
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Originally Posted by Mokshu View Post
Japan market represents a significant share of revenue (sorry can't give figures for AF on Asian market, way more than BA or LH.

Situation has been critical for AF in Africa since the beginning of the year. Not only the unrest in Northern Africa (Tunisia, Egypt, etc.) but also the general situation in countries such as Ivory Coast, which impacted very seriously AF operations (curfew changing every day, area not safe for night stops and crew rests, etc.). AF is still one of the major with the highest presence in Africa, even if A* is catching on very quickly.

A few incidents happened in the middle east that were quite costly : fuel contamination in TLV, curfews in BEY, etc. All the airlines were impacted howowever.
All are valid points.
Regarding Asia, it appears that AF prioritized Japan and, to some extent, China. While SouthEastAsia has been a soft spot (as well as Australia which was booming). No flights to indonesia, malaysia, taiwan and a few other destinations with fast growth. Japan's bet has turned out bad, with Japan's economy a laggard, and now the tsunami hit. China is a complex situation, and it will not be easy now that major Chinese airlines are part of ST.

Let's hope for AF that the quarter is just a "unique" event, but the profitability over the past three years has not been good, to say the least.
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Old Jul 31, 11, 11:56 am
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Originally Posted by brunos View Post
Regarding Japan, I am not sure why AF would be affected more than BA or LH.
Regarding Tunisia (and possibly other NA countries), AF is more impacted than BA & LH, but many flights are done by charter airlines, not AF which only has few daily flights.
Regarding Middle East, the historical links are quite strong with UK and BA is probably more affected.
Overall, I find it hard to use these events as justification for performance differentials among European airlines.
Japan was (and is) a very important and sucessful/lucrative market for AF and with high yields. Among the "big 3", AF has the highest market shares and capacity between Japan & Europe. Consequently, AF is hit more by this disaster. And it seems that this market is revovering slowly as the return of the A380 to NRT has been again postponed (was originally scheduled for beginning of september - no new date announced officially). A parallel with BA and the US market after 9/11 : they were more badly hit than AF & LH because of the capacity they had to the US.

For North Africa, it's not only Tunisia who was affected in AF network but also Algeria and Morocco, albeit the greatest impacts were in Tunisia.
For Egypt and gulf countries, yes I think we can reasonnably say that the 3 carriers were impacted similarly.
For AF, Damascus flights are also impacted severely for the last 2 months. It is not even served non-stop at the moment (flights make a stop in BEY). I don't know if LH and BA fly to DAM.
Originally Posted by brunos View Post
Let's hope for AF that the quarter is just a "unique" event, but the profitability over the past three years has not been good, to say the least.
yes, let's hope
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Old Aug 1, 11, 8:17 am
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Is all the data public yet? Can we tell if the KLM business unit was profitable?
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Old Aug 1, 11, 8:48 am
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Originally Posted by stimpy View Post
Is all the data public yet? Can we tell if the KLM business unit was profitable?
Yes, all data are available on AF corporate web site. But they never publish separate results for AF unit and KL unit.
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Old Aug 1, 11, 9:01 am
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Originally Posted by Goldorak View Post
Yes, all data are available on AF corporate web site. But they never publish separate results for AF unit and KL unit.
OK, can Mokshu tell us? I'm just curious if in general KL is more profitable currently than AF. I think their situation is quite different than AF (not only in exposure to Japan and North Africa) and I think they are better positioned to capture business class traffic.
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Old Aug 1, 11, 9:31 am
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Don't have the info and not sure if it exists as most of the financial tracking is now joint (routes, etc.).

However, I'm sure KL is a bit more profitable than AF.
However, AFI is doing a great job as the revenue from E&M is pretty impressive (and unexpected).

Last edited by Mokshu; Aug 1, 11 at 10:27 am
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Old Aug 1, 11, 9:42 am
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Originally Posted by stimpy View Post
OK, can Mokshu tell us? I'm just curious if in general KL is more profitable currently than AF. I think their situation is quite different than AF (not only in exposure to Japan and North Africa) and I think they are better positioned to capture business class traffic.
This is indeed a very interesting question but hard to get info on AF/KL breakdown. Would be fun to have.

Why do you say that KL is better positioned than AF for business class traffic?
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Old Aug 1, 11, 9:48 am
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Originally Posted by brunos View Post
Why do you say that KL is better positioned than AF for business class traffic?
Lots of small reasons. I think KL has a better grip on Dutch corporate traffic than AF has in France. KL has improved their Euro and long haul biz class offerings while AF has declined theirs. KL, it seems, will have flat biz seats before AF does. And my own observations show KL biz cabins more full than AF.

All these are my own relatively uninformed opinions.

To show how uninformed I am, I have to ask Mokshu what E&M means?
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Old Aug 1, 11, 9:51 am
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Originally Posted by Mokshu View Post
Don't have the info and not sure if it exists as most of the financial tracking is now joint (routes, etc.).

However, I'm sure KL is a bit more profitable than KL.
However, AFI is doing a great job as the revenue from E&M is pretty impressive (and unexpected).
KL is more profitable than KL?

I'm sure that the financial experts involved have a very deep understanding of the revenue per mile/per seat/per plane for AF versus KL. But if they choose to keep this private, then we have to just guess.
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Old Aug 1, 11, 10:07 am
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Originally Posted by Goldorak View Post
Yes, all data are available on AF corporate web site. But they never publish separate results for AF unit and KL unit.
They do have to publish the yearly financial statements for all legal entities, at least in France. Last year, for example, I downloaded some financial documents for Société Air France (420 495 178 R.C.S. BOBIGNY), as the parent company for most of the AF business units. There are additional levels of consolidation, such as Servair (group), under Société Air France, and the same is true for KLM. The charge from Infogreffe was around EUR 11 for the bylaws and EUR 11 for the 2009-2010 financial statements.

It was interesting (and logical) to see that the investment in Amadeus is carried by Société Air France.

A good understanding of accounting issues regarding consolidated statements can be useful. Furthermore, reconciling information can be tricky as the presentation at the corporate level of the performance, for instance of cargo, can cover the results from business units in both AF & KL subgroups.
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Old Aug 1, 11, 10:39 am
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My view s quite smilar to brunos here: yes sure another set of 'exceptional' circumstances without which things might have been marginally less bad, but ultimately, individual accidents should not distract from a clear central tendency, and as far as that is concerned, for the past couple of years at least, AF-KL has been consistently less profitable than the BA and LH groups. It is structural innovation and improvement which gives airlines the capacity to compensate the unexpected problems that they can face.
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