Air France Shares (EPA: AF) Down 40% YTD. Barclays Downgrade & Drop Price Target In Further Hit To Holders

Air France shares (EPA: AF) have fallen by more than 12% over the last 5 trading days, bringing the year-to-date decline to a total of 40%. Beleaguered holders of Air France KLM stock will not have woken in delight to a downgrade by Barclays Bank analysts from “overweight” to “equal weight”.

In a move that weighed heavily on the carrier's stock performance, the British bank also slashed its price target for the airline from 15 euros to 9.5 euros.

Barclays justified its downgrade of Air France-KLM by pointing to a forecasted 16% decrease in EBIT for the current fiscal year and a projected 12% dip for the following year. Such a negative outlook raises concerns about the airline's ability to maintain profit margins amidst challenging market conditions.

The analysts further elaborated on the pressures facing Air France-KLM, including the uncertainties brought about by the French legislative elections. They stated that changes in government could lead to shifts in policies, potentially impacting the airline's operations.

Moreover, challenges specific to the airline's operations in the Netherlands were underscored. Analysts highlighted the uncertainty surrounding Schiphol Airport and brought attention to statements from the Air France-KLM CEO concerning difficulties in the long-haul network.

The CEO of Lufthansa also pointed out weaknesses in the economy class segment of the North Atlantic market. Considering Lufthansa's stature within the industry, such commentary possibly signals broader issues that could also affect Air France-KLM.

One of the more unexpected potential challenges for Air France-KLM mentioned by Barclays analysts involves the upcoming Olympic Games. They hypothesised that the international sports event could lead to a decrease in freight cargoes and deter connecting travelers from passing through Paris, choosing alternative routes to avoid the busy hub during the Games.

In response to these analyses, investors appeared to recalibrate their expectations for Air France-KLM, contributing to the noticeable drop in the company's share price. This downgrade by Barclays underscores the multiple headwinds that the airline is currently facing, both internally with its organisational challenges and externally from macroeconomic conditions and industry competition.

Investors and stakeholders of Air France-KLM will be closely monitoring the airline's performance in light of these forecasts and speculations. As the aviation industry continues to recover and adapt post-pandemic, the airline's ability to navigate through these predicted challenges will be pivotal for its financial stability and growth trajectory.