European airline groups back to profit in Q3

Finally, some proper profits

The last two days have seen the publication of Q3 results for all three of the big European network airline groups. Including as it does the peak summer months, this is traditionally the best quarter of the year.

All three groups posted significant profits. Revenues at both Lufthansa Group and IAG were very close to what they achieved in the same quarter of 2019, despite capacity still being around 20% lower. Profits have not quite got back to pre-crisis levels yet - profit before tax was 29% lower than 2019 at Lufthansa Group, and 20% lower at IAG. Air France - KLM is the only one of the three that is already doing better than 2019. It’s capacity in the quarter was back to 89% of pre crisis levels, with revenues 6.6% higher and pre-tax profit up 19%. However, it was the least profitable of the three before the crisis and had the most ground to make up.

Before we get into the profitability comparisons, I think it is interesting to look at the headline size figures for the three groups. Lufthansa can claim the number one position in terms of size as measured by revenue, in part thanks to its substantial non-passenger businesses. Air France - KLM takes top place on both RPKs and passenger numbers. IAG is consistently the smallest of the three, regardless of the chosen metric.

Source: Company reports

Despite improving its relative position since 2019, Air France - KLM still lags when it to the profit metrics.

Note: In the original version of this article, I said that I thought the AF-KLM operating profit figures were flattered compared to the IAG and Lufthansa ones by the fact they booked currency losses against financial costs, whilst the other two recorded them in operating costs. In response to a query from a “well-informed reader”, I have looked again at this and the nature of the currency losses that AF-KLM is booking against financial costs (translation losses on foreign debt and lease return provisions). Those currency losses would I think also be recorded in financial costs at the other two companies, so I’ve deleted that comment and replaced it with this paragraph clarifying the situation. I also edited the paragraph towards the end where I discuss the ranking of the individual brands. None of the charts are affected.

The size of Lufthansa Group’s non passenger airline businesses still help it to comes out on top for absolute profit before tax. But IAG pulls ahead on operating profit and its superior performance stands out even more when it comes to margins.

Source: Company reports

Although IAG was consistently a stronger performer on margins before the crisis, it has been lagging throughout the pandemic. Q3 was the first quarter since 2019 that sees it back on top.

Source: Company reports

Each of the three groups consist of several airline brands. In the chart below, I’ve shown the figures for each of them, colour coded by group. I have to give a few caveats. Whilst AF-KLM gives separate figures for its low-cost subsidiary Transavia, those results are also included in the Air France and KLM figures, flattering the figures slightly (but only by around 0.2 percentage points). Finally, Lufthansa reports results for its maintenance and logistics (cargo) businesses separately, whereas those are included for the other network operators. I’ve shown what the Lufthansa margins would look like if the results of those two divisions are included in the Lufthansa numbers.

IAG’s low cost airline Vueling comes out top, although it is worth remembering that low-cost airlines are highly leisure oriented and therefore tend to be quite a bit more seasonal. It will be interesting to see what the performance looks like on a year-round basis. Having said that, the same could be said of AF-KLM’s low cost brand Transavia and LHG’s Eurowings. Vueling outperformed them both handily.

Whilst there are many more interesting comparisons that could be made, in the interests of getting this out in a timely way, I think I’ll leave this update here.

Have a good weekend everyone.