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Air France-KLM (AFLYY)Stock (Airlines Industry, Transportation Industry)
 Air France - KLM (OTC:AFLYY) is the result of the 2004 merger of Air France and KLM Royal Dutch Airlines. With operating revenues of €23.1 billion, it has the highest airline revenues in Europe in terms of Revenue Passenger Miles and 27% of the revenue share of the Association of European Airlines.[1] Operating with hubs out of Amsterdam and Paris, the company offers flights to 62% of the total Long-Haul destinations offered from European airlines. The company has additional revenues of €342.7 million as a result synergies related to its 2004 merger. It has also been artificially insulated from increasing fuel prices by securing 78% of its fuel at prices between $70 and $80 per barrel. However, these advantages over other airlines will not hold for long as airline consolidation becomes a trend and the fuel hedging contracts expire in March 2009. [2] The company does not receive the state-supported increased insurance coverage that airlines in the US benefit from; however, France and the Netherlands signed an agreement to recognize the importance of their airports for the company and to consult each other on regulation changes and airport restrictions.[3]The French State remains a 17.9% shareholder in the company.[4]
[edit] Corporate OverviewIn 2006 and 2007, unit cost decreased and unit revenue increased, leading to an increase in revenues and operating income.
[edit] State SupportAlthough the French State sold its majority share in Air France KLM, it still owns 17.9% of the shares available and commands 18.0% of the voting rights for the company.[6] Furthermore, the French and Dutch governments have signed an agreement of mutual understanding as to the importance that Schiphol and Charles de Gaulle (Paris) Airports have for Air France - KLM and thereby agreed to consult with each other on regulation changes and developments.[7] The company itself claims that French and Dutch State support for its business is limited, citing the coverage for excess damages that the United States government offers airlines. [8] However, Ryanair Holdings (RYAAY) filed a claim in February 2008 that the Dutch Government's decision to exempt transit flights from environmental taxes was made in order to benefit Air France - KLM. [9] [edit] Business segmentsAir France - KLM divides its business into Passenger Transport, Cargo Transport, Maintenance, and Other. Furthermore, it divides its Passenger and Cargo segments into Long-Haul and Medium-Haul segments.   
[edit] Key Trends and Forces[edit] Fuel CostsAfter the cost of labor, the cost of jet fuel is the second highest cost for Air France - KLM and represents 19.5% of the company's operating expenses, two percent more than in the previous years. [21] The company has, however, secured 78% of its fuel until March 2009 at prices between $70 - $80 per barrel. The airlines' European competitors Lufthansa and British Airways secured 83% and 72% of their fuel requirements at lower rates as well; however, Austrian, Iberian, and Lingus Airways all secured less than 50% of their fuel at lower prices. The only American airline to secure more than 50% of its fuel through similar options is Southwest Airways. [22] After March 2009; however, Air France - KLM's fuel contracts will have to be renewed and will almost certainly be at higher prices. In order to face the pressures that increasing fuel prices have caused, the company added a new fuel surcharge in March 2008 and is investing approximately $1 billion per year in more fuel efficient aircraft.[23] [edit] ConsolidationThe merger of Air France and KLM was one of the first major mergers in the airline industry. Although Delta and Northwestern are planning to merge and talks have been underway between a number of different airlines in the United States, Air France - KLM have already been able to benefit from a merger. The company estimates that in 2007, their merger secured €67.1 million in additional revenue and €29.6 million in fewer costs. Since their merger, the companies estimate having a combined benefit from the merger of €342.7 million. The company continues to look for ways to reduce costs and has targeted a unit cost reduction of €1.4 billion or 3% of per unit cost by the end of 2010.[24] [edit] Currency Exchange RatesAir France - KLM conducts many of its purchases in foreign currencies, specifically in the US Dollar. In 2007, the company's costs less revenues in the USD were approximately $2.8 billion. As a result, as the dollar falls in value against the Euro, the company's costs also fall; however, if the dollar increases in value against the Euro, the company's costs increase. The company attempts to reduce the risk of currency fluctuations by hedging the currencies that it holds. [25] [edit] CompetitionAlthough Air France - KLM's primary competitors vary based on the routes which it serving, over 60% of the company's revenue comes from customers in Europe. From hubs in Paris and Amsterdam, Air France - KLM offers 111, or 62% of the 178 Long Haul destinations offered from Europe. The company's two main competitors are:
Although there are a variety of low-cost and budget airlines that provide each route, the higher per unit revenues of business class fliers are generally reserved for a larger airlines.[27] Other competitors include the thirty three members of the Association of European Airlines, of which Air France - KLM has a 27% revenue market share. In 2006, more than 343 million passengers traveled through this area, a 4.5% increase in number of passengers as well as a capacity increase of 4.4% and a traffic increase of 5.2%.[28]  Air France-KLM2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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