Air France-KLM sinks to loss in fourth quarter as British Airways owner IAG posts record profits

By Louis Goss

Shares in two of Europe's top flag carriers took opposite trajectories on Thursday after British Airways owner IAG posted record profits for 2023, while its rival Air France-KLM reported it had swung into loss in the final three months of the year due to Middle East disruptions.

IAG, which owns airlines including British Airways, Aer Lingus and Iberia, saw its pre-tax profits hit record highs of EUR3.06 billion ($3.32 billion) as it profited on "strong and sustained demand" for flights that was largely driven by those traveling for leisure.

Air France-KLM in contrast saw its profits slump in 2023, as disruption in the Middle East and higher costs, partly resulting from a collective pay deal with KLM staff, saw the Paris headquartered airline swing into a loss in the fourth quarter.

IAG's (UK:IAG) London listed shares increased 1% on Thursday after increasing by 1% over the past 12 months. Air France-KLM's (FR:AF) Paris listed shares plunged 8% on Thursday after losing 41% of their value over the previous year.

IAG's bumper profits came as the airline owner doubled its operating margins year-on-year, as it successfully cut its costs per passenger by boosting its capacity to 97.5% of pre-COVID levels.

The British Airways owner posted a 32.6% uptick in revenues from transporting passengers, as high tourist demand offset a slow recovery in sales to business passengers. This helped offset a 28.4% drop in revenues from its cargo transportation business.

Air France-KLM in contrast posted a EUR56 million loss in the fourth quarter of 2023, as the outbreak of fighting between Israel and Gaza in October led to the cancellation of flights that increased the airline's costs and offset a 6.7% uptick in its final quarter revenues.

Across the full-year 2023, Air France-KLM saw its revenues increase 13.7% to EUR30 billion, in an uptick that lifted its full-year earnings before interest, tax, depreciation and amortization by 14% to EUR4.2 billion.

Barclays' analysts said they expect both Air France-KLM and IAG will benefit from falling fuel costs that will partially offset higher costs across the rest of the business caused by "volatile industrial relations."

"In the last three months, market sentiment has strongly favoured Europe's low-cost carriers over flag carriers: with easyJet, Ryanair and Wizz rising 19.6% on average, against Air France-KLM, IAG and Lufthansa falling 6.6% on average," Barclays analysts noted.

"Whilst we see strong trading prospects for the low-cost airlines... we think the gloomy outlook for flag carriers is significantly overdone."

-Louis Goss

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02-29-24 0602ET

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