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Air France-KLM: margin grows, but performance and profit below IAG & Lufthansa airline groups.

The first of Europe's big three legacy airline groups to report results for 2Q2016, Air France-KLM improved its operating margin and still expects higher operating free cash flow for FY2016. However, it remains less profitable than the other two big legacy groups, IAG and Lufthansa, and is still reluctant to give a profit target for FY2016.

Air France-KLM's commentary on the outlook implies that it now expects to make a lower profit this year than previously anticipated, even if this is likely to be higher than in 2015. In effect, this completes a full set of profit warnings from the big three legacy groups, since IAG and Lufthansa have already signalled a lowering of their profit outlook for 2016.

By contrast, LCCs have generally been more positive in their 2Q reporting and outlook (with the notable exception of easyJet). All European airlines have highlighted a weakening outlook for unit revenue, due to industry capacity growth plus geopolitical and macroeconomic risks, but low cost airlines such as Ryanair and Wizz Air appear better placed to cope with this outlook, given their lower unit costs. At this point in the cycle, new Air France-KLM CEO Jean-Marc Janaillac will need to balance growth against productivity.

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