IAG and Air France-KLM Push Back on Ryanair's Narrative

IAG and Air France-KLM say demand is strong. Also: Air France is raising money from its loyalty program, BA is improving its digital interface, and the European corporate recovery is slowing.

Dear readers,

If there's light softness in European demand, as Ryanair reported recently, two of continent's biggest airline groups either aren't seeing it, or prefer not to see it. And executives at one big group say they aren't amused by Michael O'Leary's tone.

"Ryanair is usually pessimistic — let's start over there," Air France-KLM CFO Steven Zaat said last week on the company’s first half 2023 earnings call. "They predicted that the high inflation would have an impact on the residual income of people and they would not fly on legacy carriers. And you see what our yields and demand is today. I don't know what they are seeing, but we don't see any drop in bookings [or] yield."

No one at International Airlines Group — or IAG, parent company of British Airways Iberia, Aer Lingus and Vueling — name-dropped Ryanair, but executives shared similar sentiments. “We continue to see strong demand in the third quarter, which is 80 percent booked,” CFO Nicholas Cadbury said.

Not everything is perfect, though. Air France-KLM has what Zaat called a “negative equity situation” and it is on a mission to restore its balance sheet, likely by selling a bond linked to its frequent flyer scheme. Both Air France-KLM and IAG say corporate demand continues to sag and no one knows when it will recover. And over at IAG, British Airways is trying to overcome years of cost-cutting as it seeks to improve how it interacts with customers digitally and on the phone.

More on those items in a moment — but first some quick numbers. Air France-KLM reported a net profit of €604 million ($664 million U.S.) on revenues of €7.6 billion ($8.36 billion U.S.). The French airline buoyed the group in the second quarter with 10.3 percent operating margin, two points higher than KLM's.¹

IAG did better, reporting net income of slightly more than €1 billion ($1.1 billion U.S.) between April and June on total revenues of about €7.7 billion ($8.47 billion U.S.). Iberia is the group's winner, with the airline taking advantage of strong demand across the Southern Atlantic. For the first half of 2023, Iberia’s operating margin was 11 percent — roughly three points higher than British Airways, and seven points higher than Aer Lingus.²

We won’t know whether we should have believed O’Leary or his competitors about demand for several more months. So for today, let’s focus on what I believed where the most interesting parts of these calls — how Air France-KLM is searching for cash, how British Airways is seeking to improve its product, and how both Air France-KLM and IAG are handling the slow return of corporate travel.

Let’s start with Air France-KLM.