Air France-KLM struggles with an unprofitable cargo operation

  • David Harris
  • August 5, 2013
  • 0

As noted in our recent discussion of air freight demand in June (here), while there was a small year-over-year increase in total international traffic, results varied widely from region to region. As has been the case for some time, carriers from the Middle East (up 12.8%) continued to take market share from carriers based in Asia (down 2.3%) and North America (down 1.7%). However, European carriers reversed a long series of declines, reporting their international freight traffic up 2.5% y-o-y in June.

 

But just as there was variation from region to region, there was also considerable variation from carrier to carrier within the European region, where the world’s biggest scheduled international freight carrier – Air France-KLM – continues what seems to be an inexorable slide. As other carriers either stay strong (Turkish for example) or see their results improve (Lufthansa, Cargolux) Air France-KLM is not only seeing its total cargo traffic fall, but also its cargo yield.

 

It is this latter that is the key. When traffic began to decline at the AF-KLM group several years ago, the company’s response was that this was not a bad thing at all, because the decision had been made to stop pursuing volume, and instead focus on profitability. But quarter after quarter, financial results have fallen right along with operational results, and the cargo division continues to report operating losses.

 

As shown in the chart at right, AF-KLM cargo is losing ground in every measured category. Given that the company has said that it would no longer pursue market share at the expense of yield, one would expect traffic to fall, accompanied by a somewhat smaller percentage fall in revenue. But at the same time, absent the unprofitable traffic, yield would climb, and divisional profitability would follow. But this has not happened (although it is true that the operating losses for the quarter and half were slightly smaller than last year).

 

Is it freighters then? The increasing availability of marginally costed belly space is often said to make it more difficult to operate freighters profitably, but it is hard to see that as an issue here, because AF-KLM has drastically cut its freighter fleet. The 4.2% decrease in cargo capacity shown in the chart represents total capacity, and hides the fact that the carrier actually cut its main-deck capacity by 18.3% from the previous year.

 

It is true that the world in general, and Europe in particular, have struggled economically in recent years, but that impacts other European carriers just as much as it impacts Air France-KLM. So why – to make the obvious comparison – is Lufthansa able to grow its cargo business, operate it profitably, and look forward to expanding its freighter fleet, while Air France flounders?

 

Any of you care to chime in with an opinion?

 

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