All eyes are on the airline sector, which could go into a tailspin this year if the most pessimistic projections are to be believed. Michael O’Leary, the chief executive of Ryanair, is the self-appointed chief doommonger, predicting a perfect storm of persistently high oil prices and an economic downturn.
Yet figures released by Air France-KLM today show that traffic in the third quarter of the year has held up well and that operating income has been higher than expected.
As the world’s largest airline by revenues, Air France-KLM is an important barometer of the market. However, as a state-backed giant with industrial relations issues and a legacy of integration problems, it is probably one of the most vulnerable of the flag carriers on the Continent.
While British Airways has been focusing for the past three years on achieving an operating margin of 10 per cent, the more unwieldy Air France has only managed to push its margin up to 6.1 per cent. That figure is dwarfed by the double-digit margins that the aggressive low-cost carriers make.
Yet, according to today’s strong numbers, Air France-KLM is holding its own, which suggests that an economic downturn is not yet being felt on mainland Europe, or at least not among the airline’s loyal passengers.
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Meanwhile, Air France is playing a key role in consolidating the airline sector on both sides of the Atlantic. In Europe it is in exclusive negotiations to buy Alitalia and in the US it is expected to invest into a combined Delta and Northwest.
Concerns that the political problems of Romano Prodi will drag out negotiations over Alitalia have been weighing on Air France’s shares. But this airline has got its fuel hedging in place, landing a bill $62 million (£31 million) lower than analysts expected. It has implemented fuel surcharges and is taking action on costs.
The fact that it has confidently repeated its target of achieving 7 per cent return on capital employed in the full year suggests that its crystal ball is distinctly clearer than Ryanair’s.