Analyse aandeel Air France-KLM

Air France-KLM onderscheidt zich op de vliegmarkt niet met een sterke concurrentiepositie. Dat geldt overigens voor de meeste vliegmaatschapijen. (Engelstalig rapport)

Neal Dihora, CFA 24 februari, 2014 | 9:02

INVESTMENT THESIS

Air France-KLM operates a highly sensitive operating model with elevated financial leverage in an industry with no competitive advantages. Nonetheless, it has carved out a lofty 29% share of the trans-Atlantic market through a joint venture with Delta that can sway pricing through capacity adjustments. Air France-KLM is also a founding member of SkyTeam, an alliance that started in 2000 and boasts 23% of worldwide bookings, second to Star's 32% and above Oneworld's 17% share.

New CEO Alexandre de Juniac updated details of the Transformation 2015 plan to lower costs and reduce net debt by EUR 1 billion to EUR 4.5 billion by year-end 2015 (a one year delay from original plan of year-end 2014). Limited capacity increases of 1% to 2% should help reduce capital expenditures to EUR 3.9 billion over the next three years, compared with EUR 5.1 billion over the past three years. Further cost cuts will come from labor, overhead, and other productivity measures to total nearly EUR 1 billion from 2012 to 2014. The company successfully reduced labor's proportion to 29% of sales in 2013 from 35% in 2009.

Air-France has lost share in its domestic and regional markets to low-cost carriers in Europe, and hopes to improve performance after posting EUR 620 million in losses in 2013. Air France-KLM will further reduce capacity in medium haul and point-to-point to limit the downside in this segment. Positively, Transavia is seeing strong demand and will grow capacity. Still, the medium-haul business seems serially frustrated with competition; we are skeptical and await signs of further progress.

Its cargo business continues to be hampered by global overcapacity and market share gains by ocean shipping. The company is set to aggressively cut full freighter capacity to 10 aircraft by 2015 from 20 in 2012 by returning, retiring, or leasing out the aircraft. Maintenance is expanding its service offerings and delivering sales growth. Catering has improved profitability with Transform 2015 implementation, but Transavia suffered operating losses in 2013, but looks to rebound in 2014.


VALUATION

Economic Moat   Fair value   Stewardship Rating   KLM
None   EUR 8.00   Standard  
Moat Trend   Uncertainty   Sector  
Stable   Very High  

Industrie- luchtvaartmaatschappijen

 

BULLS

  • Worldwide GDP will hold up, and historically, air travel demand exceeds GDP by 1.5%. Mild demand could allow for reasonable yields and, when combined with cost reductions, operating margin improvement.

  • Transformation 2015 is resulting in sustainable cost reductions that improve the company's competitive position.

  • The revamp of medium-haul and cuts in capacity-plagued cargo could lead to good EBITDA generation.

 


BEARS
  • The airline industry is notorious for adding excess capacity in good times, leading to pricing pressure in weaker times, and profitability remains elusive over the long term.

  • Air France-KLM's operating model is highly sensitive to load factors and yields. This challenge is compounded by the firm's high financial leverage.

  • France owns 16% of shares, and the Dutch government has a strong vested stake in the group. Government priorities could be different from those of other shareholders.

 

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Effecten genoemd in dit artikel

Naam effectPrijsChange (%)Morningstar Rating
Air France-KLM EUR1,00 EUR0,00

Over de auteur

Neal Dihora, CFA  Neal Dihora is an equity analyst for Morningstar.