General presentation of Air France-KLM :
Everyone knows the Air France-KLM KLM group, which is none other than the leader of French airlines, but few people know that it is also at the top of the international airline rankings.
Its turnover is generated by various activities such as of course the air transport of passengers, but also the transport of goods for more than 85% of its turnover or even maintenance or catering services for 7.3% of the turnover, while the transport of low-cost passengers represents 6.1% through its subsidiary Transavia.
It owns the fleets of Air France-KLM, but also KLM, Régional, Brit Air, City Jet and Transavia France. Most of its turnover is generated in France and Africa.
Air France-KLM is, of course, a company of international stature, by virtue of its core business of air transport. It is therefore interesting to know the distribution of its turnover according to countries. Here is the detail of this information:
Passenger transport still accounts for 80% of Air France-KLM's turnover at present. Depending on the destination, this turnover breaks down as follows:
- 42% of turnover concerns flights to Europe.
- 17% concerns flights to Asia.
- 15% of turnover comes from flights to North America, mainly to Canada and the United States.
- 13% of turnover comes from flights to Africa and the Middle East.
- 7% comes from flights to South America.
- Finally, 6% of turnover comes from flights to the Caribbean and the Indian Ocean.
To know the competition of the Air France-KLM share:
The Air France-KLM group is still today one of the main air carriers in France and is gradually creating a place for itself in Europe. However, it is still facing increasing competition from various European airlines. We invite you to find out more about these direct competitors who are overshadowing Air France-KLM.
- British Airways: The airline British Airways is undoubtedly Air France-KLM's main competitor, which it far outstrips in terms of turnover following a drastic reduction in its costs in 2004.
- Low-cost airlines: But the low-cost airlines, which have developed over the last few years, also represent a real threat for Air France-KLM. This is the case of the Irish company Ryanair, or the British company Easyjet, or the German Eurowings, which are positioning themselves ahead of the low-cost subsidiary of Air France-KLM, Transavia, with more attractive prices.
- International airlines: Finally, the French group also faces competition from other international airlines based in the Gulf. Indeed, the companies Emirates, Etihad or Qatar Airways, financed by a State shareholder, are gaining more and more market share in this sector.
The strategic alliances set up by the Air France-KLM group :
The Air France-KLM group has also developed certain partnerships over time with a few companies in various sectors.
- American Express: This is notably the case with the American Express group, whose partnership has lasted since 1998.
- Hertz: Air France-KLM is also a partner of the car rental company Hertz, which offers car rental at preferential prices to Hertz passengers.
- Small companies : Air France-KLM is also a partner of some small companies such as Air Caraïbes or Air Seychelles which operate routes not served by the French group, allowing it to broaden its offer.
- Atout France: Recently, in 2019, Air France-KLM has also strengthened its partnership with the Atout France group with the aim of promoting France as a destination, in particular through joint actions to highlight the diversity of the French tourism offer and the objective of developing tourist flows to the various French destinations as much as possible, notably by acting to strengthen the services offered to the airline's customers.
- Virgin Atlantic: Also in 2019, Air France-KLM signed another agreement with Virgin Atlantic, of which the group acquired 31% in 2017, concerning a code-sharing arrangement. As a result, the group's passengers will have access to 24 new routes between the United Kingdom and North America with stopovers in London or Manchester.
What are the advantages and strengths of the Air France-KLM share as a stock market asset?
The first thing that can be stressed about the Air France-KLM group is of course its positioning in the air transport market. Indeed, the French company is one of the leaders in this sector of activity and currently has the largest air network between Europe and the rest of the world. Air France-KLM is also the leader in passenger transport in Europe, with inter-European travel accounting for more than ¾ of the carrier's business. Finally, Air France-KLM is also the international leader in freight transport and aircraft maintenance.
If Air France-KLM has been able to position itself profitably on the world market, it is notably thanks to the SkyTeam alliance that it manages and which currently represents more than 20% of the international market share. The partnership with the Indian company Jet Airways and the joint venture that the group has set up with Delta Airlines for the North Atlantic market is also to be welcomed, with a collaboration contract signed until 2019. This strong presence outside the European market alone is reassuring for investors.
The Air France-KLM group also stands out from its competitors by offering a remarkable range of connections thanks to the connecting platform known as the double intercontinental hub, which combines the hubs at Roissy-Charles-de-Gaulle and Amsterdam-Schipol airports.
Recently, it has been noted that Air France-KLM has multiplied its investments in the high-end travel sector, which represents an important challenge for this sector of activity and promises interesting results. At the same time, the group has also been able to position itself in the low-cost sector with its low-cost subsidiary Transavia created in 2007 and which has been generating profits since 2012. This has notably enabled a major restructuring of the group's point-to-point network.
Recently, Air France-KLM has also become more profitable thanks to its maintenance services. The group has become the second largest in this sector on an international scale.
Like all air transport companies, Air France-KLM has also benefited for some time from the fall in crude oil prices, which has enabled it to make significant savings on its paraffin purchases. As these expenses represent more than 35% of operating expenses, this offers good prospects.
Finally, the company's efforts to reduce its level of indebtedness can also be highlighted, with a significant drop in debt since 2015.
What are the shortcomings and weak points of the Air France-KLM share as a stock market asset?
The first weak point of this company is of course its significant exposure to the economic health of Europe. Indeed, although Air France-KLM benefits from an increasingly important international presence, particularly in North America and Asia Pacific, 2/3 of its sales remain centred on the European geographical sector.
Air France-KLM is also relying heavily on short routes, which are increasingly being competed against by various low-cost airlines such as EasyJet or Ryanair or by top-of-the-range companies from the Gulf States and South-East Asia. TGV travel is also an important competitor on this type of journey.
Air France-KLM also suffers from a higher cost of taxes in France and stopovers compared to competing airlines, which weighs on its profitability and competitiveness.
There has also been a recent decline in the profitability of the Air France-KLM group's long-haul transport activities. As this sector is usually the most profitable of the group, we can therefore expect consequences on future results. Cargo transport activities are also suffering from a loss of speed with a load factor that has fallen below 60% for the past few years.
For many years, the group has also had major concerns with the French trade unions and the dialogue here remains complicated with numerous strike movements in particular.
Finally, Air France-KLM can also be blamed for significant operating losses that seem to persist from one year to the next despite the efforts made by the group's management.