Air France-KLM margin trails airline rivals - and Air France lags its successful KLM partner

Air France-KLM has slowly managed to improve its profitability since the worst years in the aftermath of the global financial crisis. Its 2017 operating profit margin, announced on 16-Feb-2018, was finally back to the 5.8% achieved in the last year before the global financial crisis.

More than profitability, Air France-KLM's biggest focus - and perhaps its greatest financial achievement in recent years - has been to reduce its net debt while maintaining comfortable levels of liquidity. With fairly weak margins from which to generate operating cash flow, the focus has been on ensuring that capital investment is limited to levels below cash flow generation.

This has allowed only cautious growth, focused mainly on the more profitable of Air France-KLM's two main subsidiary airline groups.

Both improved their operating result in 2017, but KLM continued to outperform Air France both in absolute profit levels and in profit margins. Air France is hoping that Joon, its new lower cost airline with millennial-focused branding, will improve its fortunes.

However, as CAPA has previously noted, Joon is relatively limited in its scope, constrained by union pressures, whereas KLM already has lower unit costs and better labour productivity than Air France.