Air France-KLM has cut its capacity growth forecast for the year as rising fuel costs continue to pressure profit margins.
The Franco-Dutch aviation group on Thursday (30 July) said a higher fuel bill weighed on second-quarter earnings, with adjusted operating profit falling to €484 million, down from €736 million in the same period last year.
Air France-KLM CEO Benjamin Smith said during an earnings call that the company’s Q2 fuel bill rose by approximately €900 million year on year following the escalation of conflict in the Middle East. However, that was below the US$1.1 billion increase the company had projected at the start of the quarter.
Smith added that the group “successfully recaptured approximately 86 per cent of that additional fuel bill” through “disciplined pricing and cost management”, including a higher fuel surcharge per ticket that the company said was in line with similar moves by competitors.
For the third quarter, the group expects fuel costs to be €600 million above the prior year, an improvement on earlier estimates of an €800 million year-on-year increase. Fourth-quarter fuel costs are projected to be €500 million above the prior year.
“While the outlook has improved relative to the assumptions we shared in April, we still expect our full-year fuel bill to be roughly US$1.9 billion higher than in 2025,” Smith said.
Air France-KLM has therefore trimmed its full-year capacity growth outlook to between 2 per cent and 3 per cent, down from its previous forecast of 2 per cent to 4 per cent.
Long-haul capacity is now expected to rise by about 2 per cent, down from the previous forecast of between 2 per cent and 4 per cent, while short- and medium-haul capacity is expected to decline by 1 per cent.
Smith said that "premiumisation" continues to drive the company’s revenue growth, noting “robust” demand across the group’s core markets.
“Premium cabins now represent 38.5 per cent of our total passenger revenues,” he said. “During the first half of the year, revenues in business and La Première grew by 11 per cent, while Premium Comfort revenues increased by 13 per cent, in both cases, significantly outpacing our capacity growth.”
He cited the “sustained contribution of high-yield leisure travellers” as a driver of this growth but did not mention corporate bookings.
Q2 metrics
Air France-KLM reported second-quarter revenue of €9.28 billion, up 12.3 per cent year on year in constant currency. Profit margins, however, were hit by the steep rise in fuel costs.
Group revenue per available seat kilometre (ASK) in the second quarter rose 6.6 per cent year on year. Group capacity and traffic increased by 2.6 per cent and 2.5 per cent, respectively.
Load factor was broadly stable, slipping 0.1 percentage points to 87.7 per cent, while premium and long-haul demand continued to support “strong” yields.
Revenue was up across the North Atlantic, supported by “strong” demand in premium and business cabins despite “significant” capacity growth. Capacity to the Middle East fell by 80 per cent year on year due to the continuing conflict, although Smith said the group does not expect a structural impact over the medium to long term.
Across its short- and medium-haul markets in Europe, the airline group noted “strong corporate demand” while “geopolitical dynamics continued to drive high-yielding long-haul connecting traffic”.
TAP Air Portugal
Air France-KLM and Lufthansa this week both submitted binding offers for a minority stake in TAP Air Portugal.
Smith on Thursday said the transaction “would unlock substantial synergies for both TAP and Air France-KLM”. He added that the group has “invested a lot of money” in stabilising the KLM brand and maintaining “a good balance of talent throughout our network”. He also noted that TAP Air Portugal unions were “nervous about what they’re seeing with the other bidder”. Lufthansa has this year been hit by several strikes amid ongoing disputes with labour unions in Germany.
“We’ve had good alignment with our staff on our strategies over the last eight years,” Smith said. “We put a lot of effort into that, and we see a very different result to the east of us… hopefully it’s going to help our bid.”