Air France-KLM: Group sell-side Q2 pre close summary

Research evidence excerpt

Air France-KLM: Group sell-side Q2 pre close summary

Harry J Gowers AC Europe Equity Research

(44-20) 7134-7522 07 July 2026 J P M O R G A N

harry.gowers@jpmorgan.com

Investment Thesis, Valuation and Risks

Air France-KLM (Overweight; Price Target: €16.00)

Investment Thesis

• We see margin upside in 2026E (if elevated fuel starts to subside) from pricing growth

driven by favourable supply-demand dynamics, and better ex-fuel cost performance.

• Cabin premiumisation strategy can provide a tailwind to unit revenues in capturing the

current strong premium demand. Premium (including premium economy) seats are

expected to reach c22% of the wide-body fleet by 2028 versus c15% in 2022.

• We expect improved cost performance to continue into 2026E driven by productivity

gains, lower tariff increases, and lower pay inflation from recent CLA deals.

• We see a positive FCF inflection in 2027E as deferred wage support / one-offs subside

alongside increasing profitability.

Valuation

In our view, AF-KLM should trade on a 20% discount to its average multiples since 2014

(ex the pandemic). Our Dec-27 PT of €16 is thus based on the average of the following target

multiples applied to our 2027 forecasts (3x EV/EBITDA; 7x EV/EBIT; 3x P/E).

Risks to Rating and Price Target

AF-KLM specific risks: (1) Booked load factors slip versus the previous year. Lower

passenger demand and hence lower pricing could come from lower economic growth or

political instability in France or lower Transatlantic demand. (2) Execution on cost

restructuring is weak or unforeseen disruption costs come as seen in 2024. (3) Weakness in

other businesses (especially on the Maintenance side where we expect strong demand for

MRO). (4) FCF generation gets materially weaker leading to increased leverage / worsening