Air France KLM full year profits up 29%

Air France KLM has reported a 29 percent rise in net profits buoyed by faster growth in long-haul traffic than rivals.

The airline has also cushioned itself against soaring oil prices by hedging its fuel.

The airline posted 2005/06 annual net profit of 913 million million euros, just beating consensus estimates.

—Revenues up by 10% to 21.4 billion euros

—Operating income up by 69% to 936 million euros, with a strong rise in the operating margin to 4.4%

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—Free cash flow of over 1 billion euros

—Dividend per share of 30 euro cents

—Recognition of the KLM pension fund surplus (928 million euros in respect of the 2004-05 accounts).

OPERATING INCOME FOR 2006-07 SHOULD BE AT LEAST THE SAME LEVEL AS LAST YEAR

“The year 2005-06 was marked by two features: strong world economic growth leading to extremely dynamic levels of activity in our sector, and a significant rise in oil prices. In this environment, we have confirmed the success of the Air France-KLM merger” said Chairman Jean-Cyril Spinetta during the board meeting of May 17, 2006, to approve the statements for the 2005-06 Financial Year.

“We have affirmed our leadership in our sector, with the strongest growth in traffic and load factors in Europe. The synergies generated by the merger, combined with our ongoing cost-control measures have not only enabled us to attenuate the impact of the rise in fuel prices, but also to improve our margins significantly. At the same time, we have considerably reinforced our financial structure, while continuing to invest in improving the efficiency of our fleet.

The current year has begun with a further sharp rise in oil prices. Nevertheless, our aim is to generate operating income of at least the same level as last year, leveraging off our competitive advantages, our ongoing cost reduction measures and our hedging policy.

This capacity to maintain solid results in an environment characterized by rocketing oil prices gives me great confidence in our ability to improve our profitability over the medium term. In this context, the Board will submit a dividend proposal of 30 euro cents per share to the Annual Shareholders’ Meeting.“Téléchargez


Fourth quarter to March 31 2006: operating breakeven, despite the sharp rise in fuel costs.

Activity levels remained robust in the Fourth Quarter at all the Group’s businesses, with a strong progression in unit revenues. Measured in equivalent available seat kilometres (EASK), Group unit revenues rose by 5.0%, or 2.5% at constant exchange rates. Total revenues rose by 12.7% to 5.20 billion euros. Operating charges amounted to 5.20 billion euros, up 12.1%, mainly due to fuel costs. Excluding fuel costs the rise was limited to 7.7%. Unit costs measured in equivalent available seat kilometers (EASK) rose by 4.5%, but were down by 2.3% on a constant currency and fuel price basis.

The main variations in charges during the quarter, as for previous quarters, were the fuel bill and commercial and distribution charges. The fuel bill amounted to 871 million euros, a rise limited to 41% (with a volume effect of 4% and an unfavorable currency effect of 10%) thanks to the efficiency of the hedging measures. Despite a strong rise in advertising spend, commercial and distribution costs were down by 4%, to 305 million euros under the effect of the transition to the zero commission system.

Operating income was at breakeven (-4 million euros), compared with a loss of 30 million euros at March 31, 2005. Income from operating activities was a negative 13 million euros, against a negative 37 million euros a year earlier.

Pre-tax income from fully integrated companies was -71 million euros (-102 million euros at March 31, 2005). After a tax credit of 72 million euros (compared with 81 million euros at March 31, 2005) and a zero contribution from Associates (compared with a positive contribution of 20 million euros at March 31, 2005), Net income, Group share, amounted to 7 million euros (10 million euros at March 31, 2005).

Full year 2005-06: excellent results confirming the success of the merger

Revenues rose by 10.2% over the Full Year 2005-06 to 21.45 billion euros, on capacity measured in EASK up 6.2%. Operating costs were up 8.4% to 20.51 billion euros. Excluding fuel costs, the rise was just 4.5%. Unit revenues measured in equivalent seat kilometers (EASK) rose by 4.0% (3.5% at constant exchange rates). Unit costs measured in equivalent available seat kilometers rose by 2.2%. They were down by 2.7% on a constant currency and fuel price basis.

The main variations in operating costs were as follows:

- The fuel charge amounted to 3.59 billion euros (2.72 billion euros at March 31, 2005), a rise limited to 32% (with a volume effect of 4%, and an unfavorable currency effect of 2%) thanks to the efficiency of hedging measures.
- Commercial and distribution costs fell by 14.1% to 1.23 billion euros, compared with 1.43 billion euros a year earlier, reflecting the transition to the zero commission system;
- Employee costs rose by 3.6% to 6.36 billion euros, for a stable headcount of 102,422 employees;
- The items “charges to operating provisions” and “other income and charges” posted a negative variation of 146 million euros at March 31, 2006 relative to the equivalent period a year earlier, which had included provision write-backs.

Operating income amounted to 936 million euros, a rise of 69.3% (553 million euros at March 31, 2005). The operating margin (operating income over revenues) improved significantly, rising from 2.8% at March 31, 2005 to 4.4% at March 31, 2006, an increase of 1.6 points. The adjusted (1) operating margin stood at 5.4%, up 1.6 points.

After taking account of the Amadeus operation (504 million euros), income from operating activities stood at 1.46 billion euros versus 1.93 billion euros at March 31, 2005, including the balance of the negative goodwill relating to the recognition of the KLM pension fund surplus. The total write-back of negative goodwill arising on the KLM acquisition booked in the 2004-05 accounts amounted to 1.35 billion euros.

Net interest charges declined slightly to 224 million euros (229 million euros at March 31, 2005 which included 38 million euros in non-recurrent gains linked to the unwinding of two financing agreements). Pre-tax income of fully integrated companies amounted to 1.2 billion euros versus 1.76 billion euros a year earlier.

After a tax charge of 256 million euros (133 million euros at March 31, 2005), of which 135 million euros relating to capital gains, notably in respect of Amadeus, and a contribution from Associated companies of a negative 23 million euros (versus a positive contribution of 73 million euros at March 31, 2005), Net income, Group share, stood at 913 million euros (versus 1.7 billion euros at March 31, 2005). It was up 29.3% compared with 2004-05 before restatement for the KLM pension fund surplus. Earnings per share amounted to 3.47 euros, and the proposed dividend is 30 euro cents.

(1) Operating income adjusted for the portion of operating leases corresponding to financial charges (34%)


Information by business

Passenger activity
For the year to March 31, 2006, traffic rose by 8.6% on capacity up by 6.2%, leading to a 1.7 point increase in the load factor to 80.6%. This was 5 points above the AEA average, confirming Air France-KLM’s strengthening position in these markets. During the year, Air France-KLM flew 70 million passengers, a rise of 6.4%.

Total passenger revenues progressed by 10.2% to 16.94 billion euros with operating income rising by 78.6% to 686 million euros, reflecting a strong improvement in profitability in the passenger business.
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