- Passenger numbers: 472,000, +13.6% year-on-year;
- Load factor: 88.8%, +7.9 ppts.
Air France-KLM reports 14% jump in pax on Asia Pacific services in Jun-2010
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Air France-KLM, Lufthansa & IAG: 3Q2016 results may signal a cyclical peak in Europe airline margins
Air France-KLM, Lufthansa Group and IAG collectively reported a fall in operating profit and operating margin in 3Q2016, after growth in 1H2016. Individually, only IAG avoided a decline in its operating margin. IAG also remained the most profitable, and Air France-KLM the least profitable, in the most important quarter of the year.
The margin contraction in 3Q resulted from a bigger fall in unit revenue relative to 1H, without a matching fall in unit cost (in spite of lower fuel prices). Passenger unit revenue fell by 6% to 7% for all three (adjusted for currency movements), with long haul markets especially weak. Unit revenue was particularly soft on routes to Asia Pacific and on the North Atlantic (and, for Lufthansa Group) on the South Atlantic.
The combined operating margin of the three has been a good indicator for European airlines overall in the past. The outlook for FY2016 for each still suggests that there will be margin improvement for the year as a whole. This could be in line with, or slightly above, the cyclical peak reached in 2007 – before the global financial crisis. Against this backdrop, the decline in margin in 3Q2016 suggests that further improvement may be difficult in 2017.
Lufthansa still Number 2 vs IAG & Air France-KLM. Soft RASK justifies more ASK trimming for all
Lufthansa Group's detailed 2Q2016 results confirmed the headline numbers that it pre-released with a profit warning on 20-Jul-2016. After increasing its operating profit in 1Q, the group suffered a decline in 2Q. Among Europe's big three legacy airline groups, Lufthansa was the only one to report lower 2Q profits. In 1H2016, IAG again has the best operating margin of the three, followed by Lufthansa and then Air France-KLM. However, LCCs Ryanair and Wizz Air are more profitable than any of them.
Lufthansa's full 2Q report provides an opportunity to compare the capacity growth and unit revenue performance of each of the Lufthansa Group, Air France-KLM and IAG for 2Q2016. Unit revenue has been soft for some time for all three, but seems to be weakening further. Lufthansa cautioned that advance bookings, especially on long-haul, have declined significantly, citing repeated terrorist attacks in Europe and greater political and economic uncertainty.
Against this backdrop, IAG and Lufthansa have reduced their capacity growth plans, while Air France-KLM has retained its 1% ASK growth outlook for its network airlines. CAPA's analysis highlights the inverse relationship between capacity growth and RASK growth. Further capacity haircuts may follow.