Air France Full Year 2007 Results-Summary analysis by Chris Tarry
23-May-2008 |
Airline Code [AFR]
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Tags :Continental Europe, Air France
Although Air France has delivered its operating target of 7.1% of return on capital; this only corresponds with a sub 6% operating margin placing Air France in the middle rank of European airlines measured on this basis.
These results are now history and the issue is now the future and is one where all airlines face the immediate pressure from higher fuel prices and an inevitable broadening of the economic slowdown.
In this respect the rise of 3.3% in underlying unit costs excluding fuel in Q4 is clearly a concern. However Air France’s hedging strategy places it in a relatively good position vis a vis some of its competitors, with 75% hedged at $102/barrel in the current financial year.
Airlines that are dependent upon transfer traffic always have tended to outperform in an upswing and underperform in a downswing as the need increases to attract traffic through lower fares and although Air France/KLM has size this will not guarantee that this tendency is avoided.
Management’s own forecast is that operating income in the year ahead will fall to approximately €1 billion. At $120 a barrel management has said that the fuel bill will be €1 bn higher which suggests that on the basis of FY2007/08’s economics that it has to recover €600m of this higher fuel cost from efficiencies and fares and surcharges in the current year - we fear that the near term outlook is one where there is a real risk of a considerably lower outcome materialising - however as for most airlines the actual outcome will depend primarily on fuel.
(This summary was prepared by Chris Tarry: Aviation Industry Research and Advisory)
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Air France Full Year 2007 Results-Summary analysis by Chris Tarry 
