The carrier’s stock is the worst performer on Paris’ broad SBF 120 index this year, falling 52 percent — almost twice as much as German rival Lufthansa and underperforming International Airlines Group, formed from the merger of BA and Iberia.
The drop has shrunk the airline’s market capitalization to around 2 billion euros ($2.9 billion), about the price of 34 Airbus A320 family aircraft, of which Air France-KLM has 145 in its fleet of 547 planes.
“It is simply a reflection of them underperforming those peers in all aspects of their operations,” Morgan Stanley analyst Penelope Butcher said.
“Their revenue performance is weaker, their cost performance is weaker, their profit performance is weaker.”
Air France-KLM may suffer if the economic environment worsens as it has higher fixed costs than rivals, Cheuvreux analyst Loic Sabatier said.
The Franco-Dutch airline, which is 15.7 percent-owned by the French state and 9.8 percent-owned by employees, spends about a third of its revenue on staff costs, its biggest expense, according to its latest results filing.
This compares with about a quarter for Lufthansa and IAG.
Air France-KLM last year announced a plan to offer medium-haul flights from regional bases in France in an effort to reduce operating costs by 15 percent.
But the initiative is not due to begin until next month, giving European low-cost rivals such as EasyJet and Ryanair plenty of time to prepare their counter-attack.
“It clearly illustrates the time it takes for them to implement meaningful structural changes which are certainly needed on the cost side given an unreliable revenue environment,” Credit Suisse analyst Neil Glynn said.
Morgan Stanley’s Butcher questioned why Air France-KLM was not taking “more aggressive actions on the existing problems” instead of focusing on a multi-year strategy.
It was also the European airline most affected by travel disruptions from the Arab Spring uprisings and was forced to cut capacity to destinations such as Egypt and Tunisia.
After the 2008/09 financial crisis, the airline posted a 1.3 billion euro operating loss for the year to March 2010 — “quite comfortably the weakest financial performance of any European airline under our coverage”, Credit Suisse’s Glynn said.
“That creates the concern in the market that if we get another downturn or simply a weak economic environment in 2012 that they are less well-equipped than peers to actually deal with it,” he added.
The airline, which is switching its reporting period to a calendar year, said in July it expects to post an operating profit this year, having previously said it would beat the 28 million euros achieved in 2010 on a pro-forma basis.
Glynn estimates, however, that the carrier could be loss-making this year and next as the economic climate worsens.
The airline’s finance Director Philippe Calavia said in an interview : “For now, at the end of August, when we look at the results for July-August and bookings for the four months to come, we’re not seeing a drop in bookings like we did starting in December 2008-January 2009.”
“I’m not saying it will be easy to achieve a positive result this year, there are still four months to go,” he added.
Air France-KLM, meanwhile, sits on net debt of 6 billion euros, compared with 1.4 billion at Lufthansa and 480 million at IAG. And the French group is expected to place a major order for mid-sized aircraft to renew its fleet in the coming months, which could be worth some $25 billion at list prices.
“If you’re worried on debt and the leverage side, which it seems Europe is, they are also the weaker name in that respect as well,” Butcher added.
