air france klm presentation

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Investor Day

Presentation of the new perform 2020 strategic plan.

Clear, renewed strategic framework: growth and competitiveness Acceleration of successful operational initiatives

• Growth of the passenger hub business
• Creation of a single business unit to further optimize point-to-point operations
• New development phase in the European leisure market via Transavia
• Finalisation of cargo repositioning
• Expansion of the maintenance business

Ongoing productivity drive and financial discipline maintained across the Group Medium-term financial targets to 2017

• EBITDAR [1] up by 8% to 10% [2] per year between 2013 and 2017
• An adjusted net debt 1 /EBITDAR 1 ratio of below 2.5 from 2017
• Targets consistent with a ROCE 1 of 9% to 11% in 2017

[1] See definition in appendix

[2] At constant currency, fuel price and pension cost

Transform 2015 will be completed by the year end having fully delivered on its objective of significantly improving the Group’s competitiveness and delivering a €1 billion-plus reduction in costs. Perform 2020, the strategic plan we are launching today, will be supported by two main levers: growth, which we are looking to capture in a number of areas, and competitiveness combined with financial discipline which should continue to ensure firm foundations for the development of Air France-KLM. This is why the ambitious initiatives we are launching today will go hand in hand with redoubled efforts to reduce costs and restructure activities which remain loss-making. By 2020, we will have built an air transport Group focused on a leading long-haul network at the heart of global alliances, with a portfolio of unique brands, restructured short and medium-haul operations with a reinforced presence in the low cost segment in Europe, leadership positions in cargo, maintenance and catering, and a significantly improved risk profile both operationally and financially.

At today’s Investor Day, Air France-KLM will unveil its new Perform 2020 strategic plan.

Perform 2020 is the successor to Transform 2015, which represented the first phase in the Group’s turnaround. While maintaining the imperatives of competitiveness and the ongoing strengthening of the Group’s financial position, this growth plan will focus on the following three strategic areas:

• Selective development to increase exposure to growth markets
• A product and services upgrade targeting the highest international level
• An ongoing improvement in competitiveness and efficiency within the framework of strict financial discipline

Business review

In an environment which remains challenging but with profitable growth opportunities across all the Group’s markets, Air France-KLM plans to reinforce its key strengths, namely its network, its products and services, and its brands, while adjusting its portfolio of activities.

At the operational level, Perform 2020 reflects:

• The development of the passenger hub business based on an upgraded product offer, an increased customer focus and a stronger positioning of brands. Benefiting from the broadest long-haul network on departure from Europe, the Group will be able to continue to capture growth opportunites particularly via the reinforcement of strategic partnerships.The Group will maintain strict capacity discipline with growth in passenger capacity expected to be around 1% to 1.5% for the 2015-2017 period.
• The Group will continue to restructure its point-to-point operations , aiming at a return to operating breakeven by 2017. In addition to the full impact of the measures launched in 2013, this objective will be reached thanks to new initiatives to restructure the network and reduce costs, together with the creation of a single business unit combining HOP! and the Air France point-to-point operations.
• The accelerated development of Air France-KLM in the European leisure market, under the Transavia brand, based on the two existing companies - Transavia France and Transavia Netherlands – and new bases to be created in other European countries. In a growth market, the Group plans to build on the results achieved within the framework of Transform 2015 to move to a more pan-European scale. By 2017, Transavia will rank amongst the leading low cost carriers in Europe, operating a fleet of 100 aircraft and carrying more than 20 million passengers. This business should contribute an additional €100 million of EBITDAR in 2017. With profitability being impacted by ongoing ramp-up costs, the Group is targeting operating profits by 2018.  
• The finalisation of cargo repositioning: a significant reduction in the full-freighter fleet, from 14 aircraft in operation in 2013 to 5 aircraft at the end of 2016, should enable this business to return to operating breakeven in 2017 (versus a loss of €110 million in 2013 and a €200 million loss including bellies). The group will maintain a small full-freighter fleet as an important commercial lever to support its revenue premium on bellies. The Group will remain a major player in the European cargo sector thanks to its extensive belly network, but with only very limited remaining exposure (15% of capacity) to full-freighter volatility.
• The recent development of the maintenance business has proven successful, with increased profitability and rapid growth in the order book. The Group will pursue its growth in this segment, particularly in engines and components, including via targeted acquisitions. This business should generate an additional €50 million to €80 million of EBITDAR in 2017, depending on acquisitions.

From a financial perspective, Air France-KLM plans to pursue the reduction in its unit costs and selective capex management while adopting a disciplined approach to growth opportunities.

The Group will leverage the structured approach implemented within the framework of Transform 2015 to maintain unit cost [1] reduction at an annual rate of 1% to 1.5%. To achieve this target, the group will go beyond traditional efforts directed at reducing unit costs (e.g. reduction in external expenses, purchasing policy and renewal of the long-haul fleet). This will involve the ongoing restructuring of uncompetitive activities and implementing a systematic review of processes using benchmarking based on profit centers. It will also entail negotiating with staff on the achievement of productivity gains paving the way to growth.

A progressive increase in fleet capex will be undertaken within the framework of strict capex control. Investment will remain below its pre-2012 level. Dedicated sources of funding will be allocated to significant development opportunities to ensure control over credit ratios. For example, the first phase in Transavia expansion will be financed by the €339 million proceeds generated from the partial disposal of Amadeus shares on 9 September.

Medium-term financial targets to 2017

As a result of all these initiatives, Air France-KLM has set itself the following Group financial targets:

• EBITDAR [2] up by 8% to 10% [3] per year between 2013 and 2017
• An adjusted net debt 4 /EBITDAR 4 ratio of below 2.5 in 2017
• Base businesses to consistently generate annual positive free cash flow

These targets are consistent with a ROCE 4 of 9% to 11% in 2017.

[1] Unit cost per EASK, at constant currency, fuel price and pension expense [2] See definition in appendix [3] At constant currency, fuel price and pension cost

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About Air France

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Since it was founded in 1933, Air France has offered its passengers a unique experience on board its aircraft, which serve a vast network worldwide. Structured around three main activities - passenger transport, cargo and aircraft maintenance - Air France has become a major player in the airline industry thanks to the hard work and commitment of its employees. As an Ambassador for France, Air France showcases the talents of our country while offering excellent service. In 2004, Air France, KLM Royal Dutch Airlines and Transavia have formed the Air France-KLM group. The combination of their strengths makes it the leading group in terms of intercontinental traffic from Europe.

WE ARE AIR FRANCE

Air France governance is structured around two bodies, the Board of Directors comprising 15 directors on one side and the Executive Committee comprising 11 operational managers of the company and its subsidiaries.

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Thanks to its presence within the SkyTeam global alliance and the transatlantic joint venture, Air France is significantly enhancing its global network for the benefit of its passengers.

Renowned the world over for the quality of its offering, the structure and density of its network and its efforts in digital innovation and customer service, Air France is regularly recognised with awards in a variety of fields and in all regions of the world.

THE ART OF TRAVEL, À LA FRANÇAISE

Air France aims to offer the best of France to its customers at every step of their journey, taking elegance to new heights. With ever more comfortable travel cabins, French gastronomy prepared by outstanding chefs, curated airport lounges crafted by world-renowned designers and architects, uniforms by exceptional couturiers, and complimentary champagne in all cabins, Air France has been sharing French excellence with the world since 1933. 

OUR HISTORY: LEGEND

The history of Air France is inextricably linked with the history of civil aviation and its technical and operational advances. From the very first flights in the 1910s to Concorde, tremendous feats have been accomplished by a few hundred men and women with a great love for far-off places and innovation. As the capacity of its aircraft has increased, Air France has always prioritised the safety and comfort of its customers and excellent on-board services. Thanks to its assets, the airline is now part of AFKL, the world’s leading airline group.

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Why Air France-KLM is keen to reiterate its strategy

By Lewis Harper 2019-11-07T11:18:00+00:00

Air France-KLM’s presentation of its five-year plan on 5 November contained few, if any, surprises.

That is partly because the European airline group’s problems have been played out so publicly that the remedies were unlikely to be a shock, but also because many sections of the strategy had been widely trailed.

Indeed, for group chief executive Ben Smith, the investor presentation was about demonstrating that during his first year in the role, the foundations have been laid for the business to make the required changes that could bring about “sustained profitability”. Crucially, it was also about delivering a concise summary of what has been done and what lies ahead for key stakeholders such as unions, who could make or break the plans.

From left : Anne Rigail, Air France chief executive; Ben Smith, Air France-KLM chief executive; and Anne-Marie Couderc, Air France-KLM board chair

“Thanks to the dedication of our employees at Air France, KLM and Transavia, since the end of 2018 we have been able to establish the fundamentals of our go forward plan: simplifying our fleet, clarifying our brand and market positioning, and unlocking significant commercial and operational flexibility thanks to new labour agreements,” Smith states. “This is the starting point of a strategy that will allow Air France-KLM to reinvent itself, creating value for all key stakeholders.”

Some of the goals outlined in the presentation, such as a desire to “simplify each airline’s internal processes” and to implement “additional group synergies”, have existed, mostly unfulfilled, since Air France-KLM was formed.

Among other targets, the topic of “simplification” had been discussed at previous quarterly results briefings and elsewhere since Smith took the reins. Announcements had recently been made, for example, about rejigging the allocation of aircraft types within the group to reduce complexity within each unit, including the decision that Air France would be taking Airbus A350-900s previously allocated to KLM. The death knell had also already been sounded for the French unit’s A380 fleet.

Low-cost unit Transavia’s expansion had meanwhile been made possible by a pilot union vote in July that lifts the cap on the number of services the low-cost unit can operate, while the renaming of Hop and the dropping of Joon earlier this year had signalled a consolidation of branding across the group.

On environmental targets, KLM had already established the group’s credentials with its “Fly Responsibly” campaign.

Other priorities mentioned in the presentation – including network optimisation, better utilisation of data, personalised offerings for passengers, increasing the profitability of support units such as cargo and MRO, and the pragmatic evaluation of “consolidation activities” – are on the to-do list of most airline management teams.

REPEATED MESSAGE

But for Air France-KLM executives facing a unique set of well-rehearsed challenges that have stumped previous incumbents, the reiteration of strategy to key stakeholders can probably never happen enough. The more they hear about the strategy and its importance, the less likely they are to spring any nasty surprises.

Whatever Smith’s ambitions, he knows that any one of a number of factors – including often-intransigent unions, political wrangling over group governance, unbalanced contributions from individual units to overall profitability, and a high cost environment amid competitive moves from budget operators – could stymie his plans, or even deliver a fatal blow to them.

Smith’s appointment in August 2018 was all about bringing a fresh approach at Air France-KLM, the Canadian being the first non-French national to lead the business. His appointment of Anne Rigail as chief executive of Air France – a rare female airline leader – also gave the impression that this was not business as usual for the group.

Alongside progress made on various points so far, his breakthrough with French pilot unions earlier this year, which allows a reconfiguration of Air France’s long-haul fleet, stands out as important.

But the mixed market reaction to the five-year presentation – Air France-KLM’s share priced dipped on 5 November and analysts reacted cautiously to the strategy – reflects a reality where Smith still needs to prove he can deliver where many have failed, and implement a true group-wide approach that can endure into the long term and deliver that sustained profitability.

As he attempts to implement key changes, Smith’s success or otherwise will continue to be at least partly measured based on short-term financials. Reassuring investors and stakeholders on that count alone may prove difficult, amid a volatile fuel environment and slowing global economy. The dip in profit seen in the group’s recent third-quarter announcement reflects the potentially bumpy road ahead.

Beyond that, if sustained profitability is achieved or is at least on the horizon, Smith might then face calls from unions for employees to be appropriately compensated.

For now, he would likely consider that a nice problem to have.

• Air France-KLM Group
• KLM Royal Dutch Airlines

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Air France-KLM

FR001400J770

• Air France KLM : Roadshow Presentation Full Year 2019

INVESTOR ROADSHOW PRESENTATION FULL YEAR 2019

Resilient operating results in a challenging macro-economic context

Net improved operating performance since 2012

Leverage successfully taken down to investment grade like levels

Group guidance for 2020-2024: Capacity growth +2 to +3% p.a.

Commitment to Global Environmental Sustainability

Group numerous unique strengths

• France #1 world inbound destination
• Schiphol Best-In-Class European hub

New 4-pillar strategy recently unveiled

• Optimize the operating model : Reduce operating costs and increase efficiency
• Refocus growth of passenger revenue on most profitable segments by leveraging hubs and powerful brand identities
• Continue to grow other group's businesses and leverage customer data , Flying Blue, Cargo, and Engineering & Maintenance
• Continue to pragmatically evaluate consolidation opportunities

Results 2019 FY

2019 highlights

Labor stability

• Improved social dialogue based on trust, respect, transparency & confidentiality
• 37 staff agreements signed in 2019 for Air France and new CLAs for all KLM staff categories

Operational reliability

• Air France operational measures resulting in strongly-improvedArrival-punctuality.
• Customer satisfaction scores (NPS) at a record level for Air France and at a steady-state high level for KLM

Sustainability

• A step up in sustainability, launching new impactful initiatives by Air France-KLM
• Regaining the world leader position 2019 in the Dow Jones Sustainability Index

2019 KPI targets achieved

(1) 2018 and 2019 results restated (with a similar impact in both years) for LLP componentization

5 accounting change. For details see slide 36 and/or notes to the consolidated financial statements paragraph 2, page 12-15

Full Year operating result at €1,141m,

with revenues +3.7% and fuel expenses +11.2%

6 (1) 2018 and 2019 results restated (with a similar impact in both years) for LLP componentization accounting change. For details see slide 36 and/or notes to the consolidated financial statements paragraph 2, page 12-15

Operating result at €1,141m with cost-efficiency measures

offset by pressure on Cargo unit revenue and a higher fuel bill

Operating result evolution in € m

Passenger -80m

Cargo -220m

• 2018 and 2019 results restated (with a similar impact in both years) for LLP componentization accounting change. For details see slide 36 and/or notes to the consolidated financial statements paragraph 2, page 12-15

Revenue growth for all businesses, margin

decline in Passenger airlines and a positive margin trend in Maintenance at 5.6%, +0.7pt

Full Year 2019

Maintenance

(1). Capacity is defined as Available Seat Kilometers (ASK), except for Network Cargo capacity which is Available Ton Kilometers (ATK). Group capacity is defined as Passenger ASK (Network Passenger ASK + Transavia ASK)

(2). Unit revenues = revenue per ASK, Cargo unit revenues = Cargo revenue per ATK, Group unit revenue = (Network traffic revenues + Transavia traffic revenues) / (Network Passenger ASK + Transavia ASK).

Growth in traffic +3.2% underpinned by load-factor improvements, mitigating yield pressure on unit revenue at -0.4%

Network: Strong improvement in Air France operational and NPS performance, steady solid appreciation in KLM

Both airlines improved results in Q4 2019, with cost efficiency measures paying off for Air France resulting in a margin increase of +0.8pt

11 (2) Net Debt / EBITDA: 12 months sliding, see calculation in press release

Net debt stable and Leverage ratio at full year guidance of 1.5x ( 1 )

FY 2019 Free cash flow evolution

Net debt stable

12 (1) Net Debt / EBITDA: 12 months sliding, see calculation in press release

(2) Adjusted operating free cash flow = Operating free cash flow with deduction of repayment of lease debt

Network: Passenger

unit revenue outlook for Q1 2020 impacted by Covid-19

After a good performance with positive unit revenue in January, recent developments with regards to the Covid-19 have impacted the demand outlook, especially in the Asian network.

Due to Covid-19:

• Passenger network unit revenues now expected to be down for Q1 2020
• Cargo unit revenue under pressure in the first part of the year
• Impact on operating result (Feb-Apr 2020) estimated at between -€150 to -€200m, with:
• Suspension of China operations in February-March and possible resumption of operations starting from April 2020 (1)
• Negative impact for connecting traffic and weakness in rest of Asia taken into account
• Variable cost savings as no redeployment so far is taken into account

Long-haul forward booking load factor

(change vs previous year)

Feb-20Mar-20Apr-20May-20

Fuel bill to decrease by €450m in 2020

• Assuming average exchange rate on US dollar/ Euro of 1.11 for 2020 and 1.12 for 2021

Currency impact

on operating result

on revenues and costs In € m

FY 2020 guidance update 2 March 2020

Currency impact FY 2020: +€100m , based on spot €/$ 1.11 Net operational exposure hedging for 2020:

Unit cost ex-currency at constant fuel price between -1% and 0%

• 2020 unit cost trend for Air France foreseen to be more than at target
• KLM unit cost performance impacted by Pension plan (1) and new CLAs
• Negative cost implications related to Covid-19 are foreseen due to lower-than-planned capacity growth and expenses for disruptions
• Simplification plan measures on track for 2020 :
• Transformation well underway in Group and Airlines, foreseen to deliver over €90m of structural savings in 2020
• Over 150 identified simplification and optimization projects started in 2020

17 (1) Lower discount rate for KLM Ground Pension fund (2019: 1.85%, 2020: 1.15%) €70m

Summary of Full Year 2020 guidance

In view of the recent evolutions of Covid-19 The Group is monitoring closely the situation and will communicate an updated guidance in due time, but at the moment, there is too much uncertainty to provide a precise direction

Debt reimbursement

profile at 31 December 2019

Debt reimbursement profile (1)

(1) Excluding operating lease debt payments and KLM perpetual debt.

Other Long-term Debt : AF and KLM Secured Debt, mainly "Asset-backed"

(Net Deposits)

Achievements Financial Key

Leverage Successfully Taken Down

to Investment Grade Like Level

• Pre-IFRS16 restatement as per 2017, Restatement 2018 and 2019 for LLP accounting change, Adjusted Net Debt/EBITDAR, with Adjusted net debt =

Strong Focus on Unit cost Reduction and Increasing Productivity

Unit Costs reduction evolution

At constant currency, fuel price

FTE reduction and productivity improvement

Improved Operating Performance

Though Not Yet Up to the Level of Peers

Operating result evolution (1)

Operating margin evolution versus peers

Revenues in € bn

-2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Operating margin (1)

Source: Companies published results

A I R F R A N C E - K L M G R O U P

Building A European Champion Based on a New Value-Focused Model

Air France-KLM has Numerous Unique Strengths

Our Core Assets

Our Unique Competitive Advantages

Our Value Creation Model

To be a European Champion

85,000 engaged and professional employees and a diverse culture

Portfolio of attractive, strong brands and a common frequent flyer program "Flying Blue"

FLEET & NETWORK

An extensive network operated with an optimized fleet

PARTNERSHIP

A powerful network

of suppliers and partnerships

A stable shareholding structure with the French and Dutch states, Delta Air Lines and China Eastern

ENVIRONMENTAL

An experienced and knowledgeable player in the industry committed to contributing to a positive change

Be the best place to work

PLANET & SOCIETY

Contributing to UN sustainability goals

HOURS OF TRAINING PER EMPLOYEE

NET DEBT/ EBITDA RATIO

4.2% OPERATING MARGIN

79,9 G / PAX / KM CO2

Our Employees, #1 asset of the Group

and are pushing our

3 contribution to sustainability

• Social partnerships with 5,000+ employees involved in volunteer work, skill-sharing and donation projects

27 (1) Percentage change in the Employee Promoter Score (EPS) measured among Air France and KLM employees July to December 2019 period compared to last year

Our customers at the forefront of everything we do

Record levels of customer satisfaction in 2019

Exceed customer expectations

Brands' sustainability commitments

• Installation of Air France full flat beds in Business Class to end in 2021, KLM entire fleet done
• Wi-Fi connect will be available on 93% of fleet in 2020, 100% in 2021
• Lounge refurbishments, including KLM Crown lounge, Paris-Orly and Terminal 2F
• On Time Performance ranking Air France as 7 th airline world-wide in 2019
• Record high customer satisfaction in 2019 for Air France with NPS score of 27 and KLM steady-state with NPS score of 41
• KLM as world's first airline introducing 'Fly responsibly' concept
• Replace single-use plastics on board Air France flights
• CO 2 compensation for all French Domestic flights

Becoming a European champion reaching top financial performance

SHAREHOLDERS

Reach top financial performance

Optimize our Operating Model

Grow Profitable Passenger Revenue

Leverage European Consolidation

Develop Customer Data, Flying Blue, Cargo and Engineering & Maintenance

Air France-KLM the leading airline group in 2019 on Sustainability

European airline groups' Sustainability

rankings by leading rating agencies

New Financial Strategic Framework 2020 - 2024

Mid-Cycle Operating Margin Reaching 7-8%

Air France-KLM operating profit evolution (€m)

Target Mid-Cycle

Operating Margin: 7-8%

Operating Margin:

other businesses

CAPEX 2020-2024 Underpinning Objective

to Rejuvenate Fleet & Improve Ownership Ratio

Capex investment 2020-2024

Before leases

Capex 2020-24:

• Profitability uplift

• Improved fleet age & ownership ratio

2019 2020-24

Capitalized Maintenance

Spare Parts incl. third-party growth

Aircraft Modifications

Ground & IT innovation

Fleet rejuvenation

Air France-KLM group fleet projection of average years of age

Improvement ownership ratio and lease debt reduction

(1) Air France-KLM Group portion of fleet under operational lease versus the total fleet

Financial Structure Robustness

Leverage Ratio to Remain ~1.5x

Group Capacity Evolution

Capacity evolution 2020-24

Passenger Network & Transavia In Available Seat Kilometers

+2 to +3% p.a.

Long-haul capacity evolution

Strict Cost Control

Turn-Around Plans to Deliver Unit Cost Reduction in Average of -1% per Annum

Net cost break-down

Net cost RTM 2019 (1)

Unit cost objective 2020-24

Unit cost at constant fuel and currency

Other revenues

Operating cost

Depreciation

Salary cost

Fuel efficiency

Wage inflation

Productivity

Price inflation

Transformation projects

Commercial cost

Maintenance cost

Cost control targeted to exceed inflationary pressure

Average -1% p.a.

Despite an upward inflationary trend

Inflation (2) 3%

Group Objectives and Guidance

Objectives medium-term (2024)

Operating margin mid-cycle at 7-8%

Adjusted Operating Free Cash Flow positive

Operating margin mid-cycle at 7-7.5%

Operating margin mid-cycle at 9-10%

Guidance elements (period 2020 till 2024)

Capacity growth +2 to +3% p.a.

Unit cost average -1% p.a.

Capex average ~€4.0bn p.a.

Net debt/EBITDA ~1.5x

Creating Win-Win Partnerships with Employees

Air France Signed a New Pilot Agreement Permitting Increased Flexibility in Commercial and Fleet Strategy

A New, More Flexible Agreement Has Been Signed Between Air France and SNPL Pilots

Previously, an agreement was in place with Air France pilots

While Block Hours and number of aircraft directly affect pilot

ASK metric is replaced by a

new KPI based on Maximum

regulating the growth of Air France in relation to KLM, based

employment, the ASK metric has no direct link with pilot activity

Seating Capacity of aircraft

Air France is now able to make

optimal fleet and product

on three metrics:

Restrictions regarding

decisions , to extract maximum value and profit

• Capacity (ASK)
• Block Hours
• Number of Long Haul Aircraft

This KPI forced Air France to

make financially punitive fleet & product decisions

maximum number of aircraft

at Transavia France (TO) have been lifted

Example: Paris/Amsterdam - Singapore

• Same aircraft : Boeing 777-300ER
• Same block time: 12 hours 30 minutes
• +35% ASK for KLM due to cabin configuration (Air France: 296 seats | KLM: 408 seats)

Summary of Key Initiatives Currently Underway

And Estimated Operating Result Impact

Air France Turn-Around - Priorities

Revenue mix optimization

CDG hub consolidation (incl. cabin LOPA

improvement)

Revenue enhancement (including CRD, Ancillary), Brand & product portfolio

Focus on Simplification

Ambitious action plan has already started…

2020 Accelerate implementation of transformation projects: some highlights

• And will deliver steadily until 2024

of transformation projects €400m+

TRANSVERSAL

External spend

• Implement "Control tower" on spends and contracts
• Enforce speed savings: review of contracts
• Optimize marketing, training, catering, outstations, maintenance costs
• Accelerate channel shift

Organization simplification

• Improve prioritization and standardization
• Develop further agility in innovation projects for efficiency and time to market delivery

(after inflation)

• Simplify processes and break silos, with specific focus on overheads and support functions (delayering, mutualization)

• Optimize fuel consumption

• Optimize full flight simulators usage

• Launch successfully the Supply Chain program
• Digitize processes to enhance customer experience and reduce costs

AIR FRANCE - KLM INVESTOR DAY - NOVEMBER 2019

Air France Turn-Around-Timeline

Medium-term objectives

Deliver sufficient operating

margin to ensure profitable growth

Operating margin objective

KLM Strengthening of the Success Model - Priorities

Focus on cost and operational excellence

Operational excellence

External spend management

Margin improvement initiatives

Operating result +€250M

KLM Strengthening of the Success Model - Timeline

Objective medium term

Further grow KLM's successful model,

including continuous focus on cost

Operating margin objective mid-cycle

Attachments

• Original document

Air France-KLM SA published this content on 04 March 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 March 2020 19:57:05 UTC

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AIR FRANCE-KLM : 2024 earnings burnt by the Olympic flame

July 26, 2024 at 08:06 am EDT

Analysts' Consensus

Quarterly earnings, rate of surprise.

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Air france-klm q1 2024 results.

April 30, 2024

Group capacity increased by 4.5% compared to last year with load factor at 86%

Increase of passengers carried to 20.9m, +6.2% compared to last year

Group Passenger unit revenue up +2.1% compared to last year

Group revenues at €6.7bn, up 5.1% compared to last year

Operating result at -€489m impacted by disruption costs and cargo unit revenue reduction

Positive recurring adjusted operating free cash flow driven by promising peak summer ticket sales at €0.6bn

Stable Net debt/EBITDA ratio of 1.3x

Continued fleet renewal resulting in 21% new generation aircraft, +4pt compared to last year

Commenting on the results, Mr. Benjamin Smith, Group CEO , said:

“Despite a challenging start to the year with persistent geopolitical tensions, Air France-KLM recorded further revenue growth this quarter, capitalizing on a structurally robust travel demand. However, as anticipated, our operating income was impacted by disruption costs and a slower Cargo business. We nonetheless remain confident in our ability to achieve our 2024 unit cost outlook, and are focused on executing our strategic roadmap to deliver our mid-term commitments. Our sustainability roadmap is also well on track, with continued next generation aircraft deliveries and SAF sourcing initiatives. Finally, we are actively gearing up for a promising summer season with, in Paris, the eagerly-awaited Olympic and Paralympic Games. A unique opportunity for Air France to showcase its expertise and customer service excellence.”

Unit revenue up thanks to improved load factor and yield

First Quarter 2024: Operating result impacted by cargo unit revenue reduction and disruptions

In the first quarter 2024, Air France-KLM welcomed 20.9 million passengers which is 6.2% above previous year. As capacity increased by 4.5% and traffic grew by 5.0%, the load factor was slightly up 0.4 point compared to last year.

The Group passenger unit revenue per ASK was up +2.1% at constant currency compared to last year. This increase was driven by an increase in yield across all long-haul areas except for Asia & Middle East, where capacity grew by 32% while Short & Medium-haul yield increased as well.

The operating result was €183 million below last year standing at -€489 million and was impacted by an increase of the unit cost (€243 million) and decrease of cargo unit revenues (€157 million) although partly compensated by a lower jet fuel price including ETS cost (€144 million) and a higher passenger unit revenue (€124 million).

The group unit cost per ASK 1 is up 4.0% versus last year which is in line with the outlook provided during the FY 2023 results presentation. This increase resulted mainly from higher operational disruption costs accounting for 0.8% in the unit cost development, as well as a one-time salary payment at KLM as agreed in the collective labor agreement for 0.8%.

Operating free cash flow stood at €140 million driven by a positive working capital development due to promising summer ticket sales although impacted by the payment of deferred pension, social charges and wages taxes inherited from the pandemic.

These deferrals correspond to the one time pension payment of €610 million by Air France in January 2024 to the Caisse des Retraites des Personnels Navigants (CRPN) as well as the social charges and wages taxes amounting to €120 million and paid by the Group during the quarter.

Recurring adjusted operating free cash flow excluding deferred social charges and wage taxes and including lease debt and net interest payment amounted to €593 million.

In March, Air France-KLM has repaid, at the request of the bondholders, circa €452 million of the outstanding €500 million of the bonds convertible into new shares and/or exchangeable for existing shares due March 25, 2026 (the “OCEANE 2026”).

The cash at hand amounted to €9.9 billion, a decrease of €0.6 billion versus the end of 2023 due to the repayment of the convertible bond. Net Debt / EBITDA ratio stood at 1.3x.

Post quarter, Air France-KLM, Air France and KLM have executed the first one-year extension option of their Revolving Credit Facilities linked to ESG KPIs. Air France-KLM and Air France executed the accordion option in the facility to increase the RCF with an amount of €90 million bringing the amount of the two RCFs to approximately €2.3 billion.

Sustainability

Transition plan and trajectory

Since 2019, Air France-KLM has accelerated its environmental transition and has set ambitious sustainability performance targets to highlight its sustainability commitments. The Group’s ambition is to reduce its greenhouse gas (GHG) emissions by 30% by 2030 compared to 2019 (gCO 2 eq/RTK).

Sustainability key performance measures:

Three pillars to reduce greenhouse gas emissions

Fleet Renewal : Air France-KLM is committed to renewing its fleet with more fuel-efficient and less noisy aircraft. By the end of March, 21% of its fleet was composed of new-generation aircraft, compared to 17% end of March 2023. The Group plans to increase this ratio to 80% by 2030.

Compared to previous generation aircraft the A220 reduces CO 2 emissions by 20%, the Airbus A320neo family by 15%, and the Airbus A350 by 25%.

During the first quarter one A321 Neo (new generation) was phased in and two A319 (old generation) were phased out.

Sustainable Aviation Fuels (SAF) : Air France-KLM Group is committed to increasing its use of SAF, which can reduce carbon emissions by up to 80%, on a life cycle basis, compared to conventional jet fuel. The Group estimates it will use 1% SAF over the total jet fuel consumption in 2024.

Operational Efficiency : Air France-KLM has launched internal programs to improve operational efficiency and reduce CO 2 emissions. The programs focus on weight reduction, aircraft performance optimization, route and flight path optimization, and other fuel-saving measures.

2024 Outlook

The Group expects the capacity in Available Seat Kilometers for Air France-KLM Group including Transavia to increase by 5% in 2024 compared to 2023.

Unit cost 3

Q2 unit cost development expected at +2% compared to last year.

For the full year 2024, the Group expects a unit cost in the range of 1% to 2% compared to 2023 supported by the below action plan:

Accelerated transformation initiatives on top of the 700 existing ones to further increase cost savings both at Group and airline level via simplification, reduce overhead and create further synergies

Hiring freeze of support staff (SG&A)

Stabilizing operations

New fleet delivery to support unit cost development

Full year 2024 net capex is expected to stand at 3 billion euros.

Business review

Network result

Compared to the first quarter 2023, total revenues increased by +1.5% to €5,663 million. The increase in revenues was driven by the healthy demand in passenger network despite the weakening of the Cargo market. The operating result stood at -€356 million impacted by an increase in salary costs and other operating expenses.

Q1 2024 was impacted by operational disruptions especially in January and February resulting from supply chain issues.

Solid growth in passenger network unit revenue

During the first quarter 2024 capacity in Available Seat Kilometers (ASK) was 3.7% higher than last year. Higher traffic growth (+4.5%) than capacity growth has led to an increase of the load factor to 86.1% (up 0.6 point compared to last year) while yield continued to rise. This performance had a positive impact on Unit revenue per ASK which rose by +0.5%.

During the first quarter we observed per area the following trends:

North Atlantic Q1 capacity increased by +3% compared to last year. Load factor improved 1.9 points at 84% against a solid Q1 2023 performance while yield was broadly stable at +0.3%.

Latin America Demand remained very strong with high and stable load factor at 90% and a yield increasing by 1.1%. Capacity was down -2.4% on the back of a high comparison basis.

Asia & Middle East Capacity in the first quarter has significantly increased (+31.8%) versus 2023, driven by both Asia and Middle East. Load factor remained stable compared to last year despite the significant capacity increase and the geopolitical disruptions across the area which affected the yield development (-6.9%).

Caribbean & Indian Ocean

The first quarter continued to show capacity reductions compared to 2023 (-14.2%) due to redeployment of the fleet to other long-haul areas. This lower capacity pushed the load factor up to 91% and yield improved by 11.2%.

Africa T he geopolitical situation affected the Group’s capacity development resulting in a -5% capacity decline while unit revenues improved. The yield showed resiliency and was up 1.6% above 2023 while the load factor was broadly stable (+0.1pt).

Short and Medium-haul Capacity increased by +2.1% with different dynamics. KLM Medium Haul went up significantly while Air France Short and Medium Haul went down. Air France was impacted by the ATC system test roll out during January and February. Load factor improved +1.2 point at 82% and yield was well oriented +2.6% compared to last year.

Cargo: Unit revenue down due to cargo market situation and implementation of an IT system

The demand in the airfreight industry in the first quarter was higher than the capacity growth and was driven by e-commerce from Asia and the red sea disruption. The Group was limited in its ability to benefit from this tailwind due to relatively low capacity on China and payload restrictions on Asian flights due to the Russian airspace closure.

In the first quarter, unit revenue was below last year, driven by a -26% yield decrease and the challenging implementation of an IT system .

Transavia: Significant unit revenue improvement despite double digit capacity growth

Transavia’s capacity increased by 11.1%, traffic increased by 9.0%, and the number of passengers increased by 8.9% resulting in load factor at 88.7% in the first quarter. The load factor declined compared to last year, driven by Transavia France which posted a high load factor last year due to reduced capacity as a result of the ATC strikes in France. The operating result amounted to -€166 million which is a slight improvement compared to last year driven by higher revenues which were partly compensated by higher cost.

Maintenance business: Third party revenues continue to recover significantly

The maintenance segment continued its growth in the first quarter 2024. Total revenues increased by 32.1% compared with the same quarter last year while third party revenues increased by +43.4%, showing a very strong recovery especially on the engine side. The maintenance is still suffering from the supply chain issues and mechanics scarcity in all its activities. The operating margin stood at 2.3%, which is 0.6 point higher than in 2023.

Revenue outperforming capacity growth but operations remained difficult for both airlines

Air France Group

Air France’s revenue increased by +2.8% driven by passenger revenues. The operating result stood at -€249 million and was impacted by supply chain issues and an IT system implementation for the cargo activity weighing on the revenues and on the profitability.

KLM’s revenue grew by +8.5% while operations were especially impacted in January and February by supply chain issues. The operating margin stood at -10.6%, down -5.6pt compared to last year, hampered by one-time payment salary in January (c.€50m), as well as high customer compensation in January and February (c.€50m).

Flying Blue Miles

At the end of last year, Air France-KLM created a subsidiary, which holds the commercial partner contracts related to the joint Air France-KLM loyalty programme ("Flying Blue"), as well as the exclusive right to issue "Miles" for the airlines and their partners. This quarter is the first in which the Group reports Flying Blue Miles activity at Group level.

In the first quarter Flying Blue miles generated €196 millions of total revenue, including third party airline and non airline partners. The operating margin margin stood at 24.0%.

Nb: Sum of individual airline results does not add up to AF-KLM total due to intercompany eliminations at Group level.

The results presentation is available at www.airfranceklm.com on April 30, 2024 from 8:15 am CET.

A conference call hosted by Mr. Smith (CEO) and Mr. Zaat (CFO) will be held on April 30, 2024 at 09.30 am CET.

To connect to the webcast, please use below link:

https://channel.royalcast.com/landingpage/airfranceklm/20240430_1/

Income statement

Consolidated balance sheet

Statement of Consolidated Cash Flows from January 1 until March 31