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Air France-KLM Summary

Core Content

Air France-KLM participated in the Nice conference on 20 May 2025, with Steven Zaat (Group CFO) and Marouane Mami (IR) representing the company. The report highlights the airline's performance, cost structure, and future outlook, along with analyst ratings and valuation methods.

Main Topics Covered

Demand

• Demand is holding up well, especially in transatlantic routes.
• Transatlantic demand has shifted toward US point of sale: 54/46 at KLM and 57/43 at Air France.
• Management reported that 2Q demand was broadly fine, with rising RASK (Revenue per Available Seat Kilometer) in April, May, and June.
• Yields increased by +4% in May and +6% in June, indicating strong pricing power.
• However, 3Q is expected to show continued softness in main cabin bookings on long-haul routes.

Costs

• Air France-KLM is benefiting from two main cost tailwinds: lower fuel prices and reduced non-fuel costs (net benefit of €300m).
• Fuel cost benefits are estimated at €600m at current prices.
• The company is also managing increased levies on tickets in France and higher airport tariffs at Amsterdam Schiphol.
• Dialogue with unions is improving, with pilots now flying each other’s planes.

Cargo

• Cargo yields are holding up reasonably well.
• There is some front-loading of volumes in Q1, but not significant capacity shifts to Asia-Europe routes yet.
• The company views recession as a greater risk than tariffs for its cargo business.

Capex and FCF

• The airline is in a high investment phase, with 2024 capex of €3bn.
• Capex is split between maintenance, fleet-related, spare parts, and non-flying related (e.g., IT).
• The current high investment phase is expected to last until 2028, after which capex will decrease.
• Despite high capex, the underlying business is FCF positive, but the repayment of deferred social charges from the pandemic and cargo year may drag FCF negative in 2025.
• Air France-KLM is in talks with Air Europa regarding a potential investment.

Analyst Comments

• Air France-KLM is rated Market-Perform with a price target of €9.00.
• The airline is sensitive to the economic cycle and exposed to macroeconomic risks, including trade wars.
• The price target is based on a valuation methodology using 6.4x 2027 EV/EBIT, assuming an EBIT forecast of €2.5bn for FY27.

Risks

• Upside risks: Cheaper fuel, stronger fares, rising ancillary sales.
• Downside risks: More expensive fuel, weaker fares, ancillary initiatives failing, and the Dutch government imposing a Schiphol capacity cap.

Rating Definitions

• Market-Perform (M): The stock is expected to perform in line with the market index, within ±15%.
• Outperform (O): Expected to outpace the market index by more than 15%.
• Underperform (U): Expected to trail the market index by more than 15%.
• Neutral (N): Expected to perform within ±10% of the relevant index.

Valuation Metrics

Investment Implications

• The report concludes that Air France-KLM is rated Market-Perform with a price target of €9.00.

Conflicts of Interest

• Société Générale (SG) and AllianceBernstein (AB) have a joint venture with Bernstein, and SG beneficially owns 1% or more of Air France-KLM’s common equity.
• Bernstein and its affiliates have received and expect to receive compensation for investment banking and research services from Air France-KLM.

Legal and Distribution Information

• The report is independently prepared and distributed in compliance with various local regulations.
• It is intended for professional investors only and is not suitable for retail investors.
• Distribution is restricted to certain jurisdictions, including the UK, Ireland, EEA, Japan, Singapore, Hong Kong, Australia, and India, depending on the regulatory requirements.

Key Contacts

• Alex Irving, CFA: +44 207 676 7044 | alex.irving@bernsteinsg.com
• Antoine Madre: +33158987452 | antoine.madre@bernsteinsg.com

Summary of Key Points

• Demand: Strong in premium classes, with transatlantic demand shifting to US point of sale.
• Costs: Benefits from lower fuel prices and reduced non-fuel costs, with ongoing union discussions.
• Cargo: Yields are stable, with some front-loading of volumes.
• Capex: High investment phase expected to continue until 2028.
• Valuation: Based on 6.4x EV/EBIT for FY27, leading to a price target of €9.00.
• Risks: Economic downturn, fuel price increases, and regulatory challenges.
• Rating: Market-Perform, indicating expected performance in line with the market.