Air France-KLM: 1Q margin gain beats IAG & Lufthansa, but lack of 2016 target betrays low confidence

Air France-KLM narrowed its operating loss in 1Q2016 - mainly thanks to lower fuel prices, and also helped by lighter downward pressure on unit revenue than was felt by either IAG or Lufthansa. This probably reflects its tighter capacity management. Moreover, Air France-KLM's operating margin improvement from a year earlier was greater than both IAG's and Lufthansa's.

However, Air France-KLM's margin remained well below those of its rivals, both for the group as a whole and also for its LCC subsidiary Transavia in comparison with the LCC divisions of the other two. Emphasising the uncertain outlook for unit revenue (and echoing comments made by both IAG and Lufthansa in this respect), it does not expect its relative strength in 1Q to continue throughout the year.

Furthermore, Air France-KLM is still the only one of the three leading European legacy airline groups without a 2016 profit target. It rightly continues to prioritise capacity discipline, unit cost reduction and the lowering of net debt, while working to gain pilot union agreement to vital productivity improvements. However, as the global industry is enjoying cyclically high margins, Air France-KLM's reticence over profit guidance reveals its lack of confidence. The incoming CEO, Jean-Marc Janaillac, will need to rebuild this.