Positive Outlook for KLM
The French carrier Air France-KLM has offered investors an optimistic forecast, expecting to achieve a higher operating profit in 2025. According to Reuters, this profit is projected to grow by €300 million. Non-fuel costs are expected to rise at a single-digit rate. In its financial report released on March 6, 2025, the holding company stated that it aims to reach a profit margin of 8% between 2026 and 2028.[2] This margin is planned to be used for new aircraft acquisitions, as the current margin is insufficient. Overall, Air France-KLM achieved revenues of more than €31 billion in 2024, representing a nearly 5% year-over-year increase. Of this, almost €8 billion was generated in the last three months of the year. Its fourth-quarter operating profit of €396 million significantly exceeded analysts' expectations, which were slightly above €200 million. On the other hand, the full-year operating profit fell by more than 6% to €1.6 billion, while net profit dropped to less than €500 million. Despite delivering strong results, the airline expressed disappointment with its overall annual performance.
Lufthansa Expects a Turnaround
Competing airline Lufthansa expects 2025 to be a turnaround year. The German group presented a strong outlook in its financial report released on March 6, 2025, forecasting improvements in every aspect of its operations. It anticipates that a 4% capacity increase will drive higher revenues, strengthen its market position, and boost EBIT (earnings before interest and taxes) to €1.5 billion by 2026.[3] This optimism follows a challenging 2024, during which the company’s operating profit plummeted by more than €1.1 billion to €1.6 billion, despite a 7% rise in passenger numbers to 131 million. The airline also saw a decline in its operating margin by 4.4%, with revenues dropping 2.6%, while costs increased by nearly 2%. However, full-year revenues still reached a record $37.6 billion.
Challenges in Europe
The positive forecasts come after a year in which the European aviation sector faced multiple challenges. In addition to high inflation, airlines had to contend with aging fleets requiring costly maintenance, which affected profitability. Furthermore, aircraft manufacturer Boeing has been struggling with a growing backlog of unfulfilled orders—more than 5,500 by the end of last year, according to the BBC. Ongoing strikes have also exacerbated the situation, not only among Boeing employees but also among certain airline staff, such as those at Lufthansa. Meanwhile, Ryanair has been dealing with a labor shortage. Demand remains strong but has not yet returned to pre-pandemic levels. According to Eurostat data, the number of registered flights increased by nearly 6% to 6.7 million. For comparison, in 2019, there were 7 million flights. Lastly, climate change is also impacting profit margins. For example, due to heatwaves and Saharan dust affecting Europe, airlines had to invest more in braking fluids. Additionally, frequent storms not only damage aircraft but also cause flight cancellations, disrupting operations.
Consolidation vs. Regulation
Lufthansa CEO Carsten Spohr recently expressed support for greater industry consolidation, stating in a Reuters report that Europe has too many airlines. Lufthansa itself has recently acquired stakes in the Italian state carrier ITA Airways and the Latvian airline airBaltic, adding to its existing portfolio, which includes Swiss, Austrian Airlines, and Eurowings. The KLM group is pursuing a similar strategy and is currently in talks with the Portuguese government about acquiring TAP Air Portugal. The main goal of these mergers is to strengthen market positions and compete more effectively with Middle Eastern and American carriers. Currently, six major companies control up to 72% of the European market. However, this level of consolidation has raised concerns within the European Union over market competition. Regulators fear that large-scale mergers will lead to higher fares, ultimately burdening customers. For example, Lufthansa negotiated with the EU for nearly a year before receiving approval to acquire a stake in ITA Airways.
Price development of Air France – KLM’s stock over the past 5 years. (Source: Google Finance)*
Price development of Deutsche Lufthansa’s stock over the past 5 years. (Source: Google Finance)*
* Past performance is not a guarantee of future results.
[1,2,3] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate or subject to changes in the current economic environment. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Actual results may differ materially from those expressed or implied in any forward-looking statements.
