Category Archives: KLM Royal Dutch Airlines

KLM reduces capacity in Europe in response to second wave of COVID-19

KLM made this announcement:

The second wave of coronavirus in Europe has resulted in new lockdowns, prompting KLM Royal Dutch Airlines to make network adjustments for the coming period. KLM will keep serving as many destinations as possible, but will reduce seat capacity and flight frequency.

In the coming months, KLM will serve around 90-95% of the European destinations it served before the crisis. Service will be suspended to a number of destinations, primarily in the United Kingdom. Overall capacity aboard European flights will be reduced from about 50% to 40% compared to pre-corona figures.

In terms of intercontinental service, the number of passenger flights will be around 50-60% of pre-coronavirus levels. If we include our cargo-only services, we will be operating around 65% of our flights.

Network strategy

During the course of the pandemic, KLM strategically opted to restore service to as many of its network destinations as possible. In response to the prevailing circumstances, we are doing so with fewer flights and smaller aircraft. This means our customers have the widest possible choice of destinations, enabling us to maintain our network through our Amsterdam hub. We are also serving many of our intercontinental destinations on a cargo-only basis, in compliance with current travel restrictions.

This strategy has proved successful in recent months and has ensured that we did not have to trim our network as rigorously as some other airlines. August and September showed clear signs of recovery.

Regrettably, the second wave has led to new restrictions throughout Europe, not just in the Netherlands. Capacity will therefore be trimmed again into the coming period. KLM will maintain its existing network strategy, even adding several new destinations. Depending on developments, further adjustments will be made in the coming period.

New destinations

The coronavirus pandemic confirms that a flexible network is very important. By opening new routes, we can make up for declining demand on other routes. KLM also strengthens its market position whenever it adds a new destination to its network.

The following services have been recently added or will be added in the coming months:

  • Effective January 4, 2021, KLM will operate four weekly flights to Riyadh (Saudi-Arabia);
  • Effective December 10, 2020, KLM will operate twice-weekly service to Zanzibar, with a stop in Dar es Salaam (Tanzania) on the return leg to Amsterdam;
  • Since November 8, 2020, we have operated thrice-daily service to the new airport Berlin Brandenburg (Germany);
  • On October 29, 2020, KLM resumed its circle flight Amsterdam-Calgary-Edmonton-Amsterdam, thus restoring service to Edmonton;
  • Since October 25, 2020, we have operated daily service to Poznan (Poland);
  • Since October 24, 2020, KLM has resumed weekly service from Amsterdam to Chengdu and from Beijing to Amsterdam.

Air France KLM Martinair Cargo is ready to distribute COVID-19 vaccines

The Group has made this announcement:

Since the 3rd week of March 2020, Air France KLM Martinair Cargo has made every effort to maintain its global airfreight network, helping to keep vital supply chains in place. This has always been essential, but even more so since the outbreak of the Covid-19 pandemic, ensuring that healthcare facilities as well as private citizens have access to medicines, medical equipment, personal protective equipment (PPE) and other critical products. Approximately 6,000 cargo-only flights have been carried out in recent months. Air France KLM Martinair Cargo is currently operating services to more than 100 long-haul destinations.

One of the next logistical challenges will be the global distribution of the Covid-19 vaccines. Earlier this week, the American pharmaceutical giant Pfizer, together with German partner BioNTech, announced great success in the first interim analysis from the Phase III study of its Covid-19 vaccine candidate.

KLM Cargo (Royal Dutch Airlines) - Martinair Boeing 747-406 ERF PH-CKB (msn 33695) AMS (Ton Jochems). Image: 951924.

Above Copyright Photo: KLM Cargo (Royal Dutch Airlines) – Martinair Boeing 747-406 ERF PH-CKB (msn 33695) AMS (Ton Jochems). Image: 951924.

KLM aircraft slide show:

In terms of volume, distributing the vaccines will be an unprecedented logistical operation. Initial expectations are that around 15 billion vaccines will need to be distributed worldwide. Many of these will also need to be distributed at very low temperatures. The Pfizer vaccine must be kept deep frozen (at -70 degrees Celsius). Others will need to be distributed at a constant temperature of between +2 and +8 degrees Celsius. This means that logistical solutions will be essential to maintain quality throughout the vaccine distribution chain.

Senior Vice President Sales & Distribution Air France KLM Martinair Cargo GertJan Roelands: “Air France KLM Martinair Cargo has years of experience with temperature-controlled transportation of pharmaceuticals and was the first airline group to be CEIV certified by IATA. The distribution of Covid-19 vaccines poses specific challenges in terms of volume, transportation requirements and security. In order to be fully prepared for this we started a Covid-19 Vaccine taskforce four months ago. This taskforce represents all the relevant Air France KLM Martinair Cargo departments. Our teams have been working on an extensive action plan. For example, at our Schiphol Pharma Hub, we opened up a 1,118 m3 Climate Controlled storage facility a few months ago and we are building an additional 2,061 m3 additional Cool Room. At our Charles de Gaulle Pharma Hub, a new Climate Controlled storage area is about to be finished. We also introduced Hybrid and Advanced Passive Solutions that will be used to transport the vaccines, on top of existing full range of Active Containers. Along with many other initiatives, extra monitoring and intervention management have also been implemented.”

Executive Vice President Air France-KLM Cargo Adriaan den Heijer: “We believe that cooperation and building communities around the upcoming global vaccines distribution are essential. We’ve established partnerships with many of the parties in the logistical chain, including forwarders, trucking companies, container providers, airports, cargo/logistical associates, pharmaceutical companies and healthcare-related institutes and authorities. We believe that strong cooperation between partners will be essential to successfully executing this logistical challenge.”

Together with Air Cargo Netherlands (ACN) and Amsterdam Airport Schiphol and with Aéroport de Paris (already two leading European Pharma hubs), we’ve established two taskforces to fully prepare both airports communities for upcoming vaccine transport operations.

Adriaan den Heijer: “In recent weeks, we successfully shipped the first Covid-19 vaccines. Air France KLM Martinair Cargo is ready for this logistical challenge, ready to deliver coronavirus vaccines to the Netherlands, to France and to many other countries around the globe.”

About Air France KLM Martinair Cargo

The Air France-KLM Group is a global airline group with a strong European base. Its main areas of business are passenger transport, cargo transport and aeronautical maintenance. Air France KLM Martinair Cargo is the Air France-KLM Group’s dedicated air cargo business. Air France-KLM Cargo is a member of SkyTeam Cargo (www.skyteamcargo.com) offering an even larger network coverage.

Martinair aircraft photo gallery:

Dutch airline pilots association VNV signs commitment clause

The Dutch Airline Pilots Association VNV joined seven other unions today in agreeing to contribute to KLM’s cost-reduction efforts by signing a “commitment clause”. The airline and the eight trade unions have thus satisfied a key requirement, clearing the way for the Minister of Finance to assess whether KLM now meets the Dutch government’s demands.

KLM is in the midst of the worst crisis in its 101-year history, with the COVID-19 pandemic eroding its strong performance of recent years. The EUR 3.4 billion loan package, consisting of a government loan and guarantees on bank loans, is crucial to securing the future of the airline and its network for the Netherlands. KLM is very grateful to the Dutch government for its support and willingness to provide financing at this time.

The Dutch Government has made its loan package contingent on certain conditions, one being that all KLM employees must agree to surrender certain employment conditions for the duration of the loan (expected until 2025). KLM has spent the past few months hammering out the details of this austerity programme with the trade unions for cockpit, ground and cabin personnel, in line with the required structure and percentages.

The outcomes of these negotiations have been formalised in outline collective labour agreements and incorporated as such into the restructuring plan that KLM submitted to the Dutch Government on October 1, 2020. The outline agreements define the austerity measures that will apply until early 2022 (for cockpit crews) and late 2022 (for ground and cabin personnel). It was especially important to specify the contribution that all KLM employees would be making towards the airline’s cost-reduction efforts over the entire loan period.

To meet this demand without having to re-enter negotiations, a “commitment clause” was inserted into the agreements between KLM and the trade unions. Unions CNV, De Unie, NVLT, VNC and VKP signed the clause on October 31, 2020, with FNV Luchtvaart and FNV Cabine doing so on November 2, 2020.

Today, November 3, 2020, the Dutch Airline Pilots Association VNV also signed the commitment clause. KLM and the eight trade unions have therefore satisfied a key requirement, clearing the way for the Minister of Finance to assess whether the airline now meets the Dutch government’s demands.

“Now that all eight trade unions have signed the commitment clause, we have taken an important step. Since the outbreak of the COVID-19 pandemic in March this year, we have asked a lot of all our employees, but for a common purpose: to steer KLM through this crisis. These unprecedented times call for unprecedented and unusual actions. The far-reaching measures we must take and the accompanying processes and procedures are new and complex for KLM and the trade unions.

The past few days have been incredibly tense for everyone. The company has been under enormous pressure, its reputation has suffered and there have been internal divisions. In the end, however, KLM and the trade unions got through it together, and that’s really what it’s all about. We can now look forward and outward, rebuild our route network for our customers and continue to connect the world with and via the Netherlands. Together, we will honour the trust that the Dutch government has placed in us.”

KLM CEO Pieter Elbers

KLM: FNV Cabine and FNV Luchtvaart have signed the airline’s “commitment clause”

KLM confirms that the unions FNV Cabine (cabin personnel) and FNV Luchtvaart (ground personnel) have signed the airline’s “commitment clause”, thereby agreeing to join all KLM employees in surrendering employment conditions in accordance with the Ministry of Finance’s requirements (the precise details being up to KLM and the trade unions). The clause will be inserted into the agreements between KLM and the unions.

This brings KLM one step closer to obtaining the government loan and guarantees on bank loans totalling EUR 3.4 billion. The loan package is crucial to securing the future of KLM and its network for the Netherlands. Trade unions CNV, De Unie, NVLT, VNC and VKP have already signed the commitment clause. The Dutch Airline Pilots Association VNV has not yet signed.

Air France-KLM Group loses 1,665 million euros in the third quarter

Air France-KLM Group issued this financial report:

The continuation of the Covid-19 crisis severely impacted the Third quarter 2020 results:

  •   Revenue at 2,524 million euros, down 67% compared to last year
  •   EBITDA loss at -442 million euros, limited thanks to cost control and state aid
  •   Operating result at –1,046 million euros, down 1,955 million euros compared to last year
  •   Net income at -1,665 million euros, including restructuring provision at -565 million euros, Covid-19 related over-hedging at -39 million euros and fleet impairment at -31 million euros
  •   Net debt at 9,308 million euros, up 3,161 million compared to end of 2019
  •   At 30 September 2020, the Group has 12.4 billion euros of liquidity or credit lines at disposal

    Air France and KLM have agreed with labour representatives on substantial restructuring plans and submitted them for final validation to the French and Dutch states.

    OUTLOOK

    Air France-KLM Group continues to implement the highest safety standards for its customers and employees to counter virus transmission risks.

    After the lockdown, the Group observed a positive demand recovery trend until mid-August. Then, the negative trend reversal for the Passenger activity led the airlines of the Group to adjust downwards the capacity planned for the fall and winter period.

    There is limited visibility on the demand recovery curve as customer booking behavior is much more short-term oriented and also highly dependent on the imposed travel restrictions, especially on the Long Haul network. The period of lockdown starting today in France is a new difficulty that will weigh on the Group’s activities.

    In this context the Group expects:

  •   Capacity in Available Seat kilometers circa index 45 for KLM and inferior to index 35 for Air

    France in the Fourth quarter 2020 compared to 2019 for the Network passenger activity

  •   Negative load factor developments for the Fourth quarter 2020, particularly on the long-haul

    network, and negative yield mix effects due to a delayed recovery in business traffic

    The Group anticipates a challenging fourth quarter 2020, with a substantial lower EBITDA compared to Q3 2020.

THIRD QUARTER 2020
Increase of demand until mid-August,
then new governmental restrictions impacted the expected level of demand recovery

Air France-KLM Group

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Third quarter

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Nine months

2020 Change

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2020 Change 1

Passengers (thousands)
Passenger Unit revenue per ASK1 (€ cts) Operating result (€m)
Net income – Group part (€m)
Adj. operating free cash flow (€m)
Net debt at end of period (€m)

8,796 4.01 -1,046 -1,665 -1,220

-69.8% -42.7% -1,955 -2,026 -985

28,124 5.05 -3,414 -6,078 -3,547 9,308

-64.7% -24.5% -4,460 -6,213 -3,663 3,161

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1 Passenger unit revenue is the aggregate of Passenger network and Transavia unit revenues, change at constant currency
1

The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 29 October 2020 to approve the financial statements for the nine months 2020. Group CEO Mr. Benjamin Smith said: “After a promising recovery during the summer, the gradual closure of international borders in the second half of August and the resurgence of the pandemic strongly impacted our results in the Third Quarter, with the Group reporting an operating loss of 1.0 billion euros. We have accelerated the implementation of cost reduction and cash preservation measures. We are also working closely with our partners on various means, such as rapid detection tests, that would allow traffic within the best sanitary conditions for our customers and employees.

Beyond these immediate necessary measures, we are engaged in a more profound transformation of our Group, with the objective of exiting this crisis in a stronger position, ready to address the future challenges of our industry. Air transport will continue to connect people and cultures, but we foresee changes in customers’ expectations that we anticipate too.

We expect a challenging Fourth quarter 2020, with current forward booking sharply down compared to last year.”

Business review

Network: With active management of capacity to meet the increasing demand, the Group was able to ramp up capacity with incremental cash positive flights

Third quarter 2020 revenues decreased by 68.3% at constant currency to 2,004 million euros. The operating result amounted to -990 million euros, a -1,631 million euros decrease at constant currency compared to last year. Measures were strengthened to preserve cash, including reduction of investments, cost savings measures, deferral of supplier payments and partial activity for employees.

Passenger network: Long-haul suffering from travel restrictions, ability to capture traffic when border controls are less restrictive

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Network

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Third quarter

Nine months

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2020 Change Change constant currency

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2020 Change Change constant currency

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Total revenues (€m) Scheduled revenues (€m) Operating result (€m)

2,004 1,856 -990

-68.6% -69.8% -1,649

-68.3% -69.4% -1,631

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7,220

6,753 -2,842

-58.8% -59.7% -3,555

-58.8% -59.7% -3,564

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Passenger network

Third quarter

Nine months

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2020 Change Change constant currency

2020 Change Change constant currency

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Passengers (thousands) Capacity (ASK m) Traffic (RPK m)
Load factor

Total passenger revenues (€m) Scheduled passenger revenues (€m) Unit revenue per ASK (€ cts)

6,782 -71.3% 32,100 -59.6% 13,752 -80.7%

42.8% -46.9 pt 1,329 -77.4% 1,265 -77.9%

3.94 -45.2%

-77.1% -77.6% -44.5%

23,671 -64.3% 103,268 -54.1% 66,861 -66.3% 64.7% -23.5 pt 5,512 -65.4% 5,271 -65.7% 5.10 -25.4%

-65.4% -65.7% -25.3%

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The passenger network activity was, as anticipated strongly reduced, at around 40% of last year’s levels. The tightening of travel restrictions, border closures and absence of corporate travel delayed the expected traffic recovery. July and August were relatively strong in term of traffic compared to a disappointing September affected by restrictive travel measures.

For the third quarter, the unit revenues were down at -44.5% at constant currency compared to last year primarily due to load factors decline on Long Haul operations.

2

The Group’s strategy was to only operate incremental cash positive flight and several routes were taking advantage of the strong worldwide cargo demand while having few passenger on board.

The visiting friend and relative demand was driving the summer traffic, with the French Domestic, African & Middle East and Caribbean & Indian Ocean as the more resilient with a unit revenue performance between -22% and -27% at constant currency.

The medium-haul performance was mixed during summer, with some leisure destinations such as Italy, Spain, Portugal and Greece benefiting from easing travel restrictions and other strongly affected by quarantine and testing process like UK or Germany.

North Atlantic, South American and Asian networks continued to be strongly affected by the border restrictions in place with an important decline in capacity and passenger traffic during summer.

Cargo: Continued strong performance of cargo due to the gap between industry capacity and demand

Cargo business

Third quarter

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Nine months

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2020 Change Change constant currency

2020 Change Change constant currency

Tons (thousands) Capacity (ATK m) Traffic (RTK m) Load factor

Total Cargo revenues (€m) Scheduled cargo revenues (€m) Unit revenue per ATK (€ cts )

220 2,537 1,735 68.4% 676 592 23.35

-20.0% -33.3% -17.0%

+13.4 pt +31.7% +35.7%

+104.0%

+34.1%

+38.0% +107.6%

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611 7,309 4,747 65.0% 1,708 1,482 20.28

-25.7% -32.9% -24.2% +7.5 pt

+7.1%

+8.7% +62.0%

+6.9%

+8.4% +61.6%

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Global air cargo capacity is at the end of the Third quarter 2020 approximately 15% lower than 2019. Tightening of supply and demand levels increased yields by significant amount over the past months.

September was the fifth consecutive month of gradual air cargo market improvements and Air France- KLM’s Cargo activity continued to strongly perform with a unit revenue at constant currency up 104.0% in the Third quarter 2020. The Cargo capacity of the Group has been down 33.3%, primarily driven by the reduction in belly capacity of passenger aircraft partly offset by the increase of the full freighters’ capacity and mini cargo flights (passenger aircraft with only belly capacity commercialized). The load factors were strongly up 13.4 points for the quarter.

On the demand side, world-wide air freight volumes are down due to Covid-19 crisis but are expected to rebound to 90 to 95% of pre Covid-19 levels in 2021. The supply-demand gap of the past months is foreseen to narrow as industry capacity supply will increase and will depend on the passenger traffic recovery. Air France-KLM is in preparation to transport the future Covid-19 vaccines.

3

Transavia operating loss in the Third quarter at -13 million euros, impacted by border restrictions reinstatement

Transavia

Third quarter

Nine months

2020 Change

2020 Change

Passengers (thousands) Capacity (ASK m) Traffic (RPK m)
Load factor

Total passenger revenues (€m) Unit revenue per ASK (€ cts) Unit cost per ASK (€ cts) Operating result (€m)

2,014 -63.3% 6,009 -44.7% 3,869 -61.8%

64.4% -28.7 pt 262 -60.6% 4.38 -30.2% 4.61 -1.3% -13 -189

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4,453 11,178 8,505 76.1% 521 4.55 6.39 -206

-66.6% -57.4% -64.9% -16.4 pt -62.9% -16.3%

+32.5% -364

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The Third quarter operating result ended 189 million euros lower compared to last year at an operational loss of -13 million euros, as a result of the Covid-19 crisis.

Activity levels were close to 55% of last year’s level, with an unit revenue down -30,2% compared to the Third quarter 2019. Transavia France and Holland were able to capture traffic and fill their planes with reasonable load factors and good yields on several leisure destinations. Spain, Greece, Portugal and Italy routes were the most resilient during the quarter. However, severe travel restrictions from the Netherlands to Spain and Greece in the course of the third quarter, did put pressure on activity levels and loadfactor.

Transavia France will expend its French Domestic operation starting in November 2020 from Paris Orly and provinces airports.
However, the resurgence of Covid-19 and border restrictions have slowed down Transavia in the traffic recovery.

Strict cash preservation measures are still in place including reduction of investments, cost savings measures, deferral of supplier payments and partial activity measures.

Maintenance business operating result for Third quarter 2020 at -46 million euros, impacted by Covid-19

Maintenance

Third quarter

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Nine months

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2020 Change Change constant currency

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2020 Change Change constant currency

Total revenues (€m) Third-party revenues (€m) Operating result (€m) Operating margin (%)

616 247 -46 -7.4%

-47.1% -54.5% -117 -13.5 pt

-53.1%

-111

-13.1 pt

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2,255 963 -366 -16.2%

-34.7% -40.7% -536 -21.2 pt

-41.6%

-542

-21.3 pt

The Third quarter operating result stood at -46 million euros, a decrease of 117 million euros, highly impacted by the Covid-19 crisis. Revenues declined and were also impacted by the Air France-KLM Group airlines decrease in activity.

During the Third quarter, contracts signature have restarted and will be included in the order book before year end. The Maintenance business is carefully managing agreements with clients on payment terms.

Operating costs have been reduced in the Third quarter 2020 by a reduced maintenance activity level, partial activity pay schemes for employees and other initiated cost savings measures.

The Maintenance order book is assessed to 9.3 billion dollars at 30 September 2020 a decrease of 2.2 billion dollars compared to 31 December 2019, explained by the Covid-19 crisis effects already occurring and expected.

4

Air France-KLM Group: Decline of 5 billion euros in revenues and 2 billion euros in EBITDA during the third quarter

Third quarter

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Nine months

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2020 Change Change constant currency

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2020 Change Change constant currency

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Capacity (ASK m)

Traffic (RPK m)

Passenger unit revenue per ASK (€ cts)

Group unit revenue per ASK (€ cts)

Group unit cost per ASK (€ cts) at constant fuel

38,109 17,621

4.01 5.56 8.31

-57.8% -78.4%

-43.4% -26.5% +26.7%

-42.7% -25.6% +38.2%

114,446 75,367

5.05 6.34 9.33

-54.4% -66.2%

-24.6% -12.3% +36.7%

-24.5% -12.3% +40.4%

Revenues (€m)
EBITDA (€m)
Operating result (€m) Operating margin (%)
Net income – Group part (€m)

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2,524 -442 -1,046 -41.4% -1,665

-66.8%

-2,095

-1,955

-53.4 pt -2,027

-66.4%

-2,071

-1,931

-53.2 pt

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8,725 -1,282 -3,414 -39.1% -6,078

-57.6%

-4,545

-4,460

-44.2 pt -6,213

-57.7%

-4,554

-4,470

-44.2 pt

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2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses

In the Third quarter 2020, the Air France-KLM Group posted an operating result of -1,046 million euros, down by 1,955 million euros compared to last year.

Net income amounted to -1,665 million euros in the Third quarter 2020, a decrease of 2,027 million euros compared to last year, of which exceptional accounting items due to Covid-19:

  •   Restructuring costs provision of-565 million euros with Departure Plan of French Ground staff, contractual termination for Air France flight attendants, complement for contractual termination for Air France pilots, Departure Plan for Air France-KLM International Commercial staff and Departure Plan for HOP!
  •   Q4 2020 and Q1 2021 fuel over hedge has been recycled to “Other financial income and expenses” for -39 million euros
  •   Fleet impairment on Airbus A380 and the Canadair Jet of HOP! At -31 million euros Currencies had a negative 92 million euro impact on revenues and a positive 67 million euro effect on

    costs including currency hedging in the Third quarter of 2020.

    Since the beginning of the crisis, Air France, KLM and Transavia proceeded 1.8 billion euros of refunds including 300 million euros of voucher issued.

    The Third quarter 2020 unit cost increased by 26.7%, primarily caused by Covid-19 related capacity reductions

    Group net employee costs were down 36% in the Third quarter 2020 compared to last year, supported by partial activity implementation at Air France and KLM, release of temporary and hired staff and no profit sharing provisions to be made at both airlines. The average number of FTEs (Full Time Equivalent) in the Third quarter 2020 decreased by 5,500 compared to the Third quarter 2019, including 2,500 temporary contracts.

5

Net debt up 3.2 billion euros

In € million

Third quarter

Nine months

2020 Change

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2020 Change

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Cash flow before change in WCR and Voluntary Departure Plans, continuing operations (€m)

Cash out related to Voluntary Departure Plans (€m) Change in Working Capital Requirement (WCR) (€m) Net cash flow from operating activities (€m)
Net investments* (€m)

Operating free cash flow (€m)

Repayment of lease debt

Adjusted operating free cash flow**

-594 -2,115

-137 -115 124 +831 -609 -1,399-362 +418 -970 -981 -251 -5-1,220 -985

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-1,926 -4,950

-152 -119 666 +582 -1,412 -4,487 -1,473 +738 -2,885 -3,749 -662 +86 -3,547 -3,663

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* Sum of ‘Purchase of property, plant and equipment and intangible assets’ and ‘Proceeds on disposal of property, plant and equipment and intangible assets’ as presented in the consolidated cash flow statement.
** The “Adjusted operating free cash flow” is operating free cash flow after deducting the repayment of lease debt.

The Group generated adjusted operating free cash flow in the Third quarter 2020 of -1,220 million euros, a decrease of 985 million euros compared to last year, mainly explained by an operating cash flow decline of 1,399 million euros, partly offset by a reduction in net investments of 418 million euros.

Postponement of social charges, taxes and negotiation with suppliers compensated the refunds process and the low inflow of bookings and generated an improvement of +582 million euros in Change in Working Capital Requirement compared to last year.

In € million

Both airlines results negatively impacted in the Third quarter 2020

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30 Sep 2020

31 Dec 2019

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Net debt
EBITDA trailing 12 months

9,308 -417

6 147 4 128

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Net debt/EBITDA trailing 12 months

-22.3 x

1,5 x

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Third quarter

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Nine months

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2020 Change

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2020 Change

Air France Group Operating result (€m)

Operating margin (%)

KLM Group Operating result (€m)

Operating margin (%)

-807 -54.1% -234 -20.5%

-1,200 -62.6 pt -745 -36.8 pt

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-2,401 -47.4% -1,002 -25.2%

-2,699 -49.8 pt -1,736 -33.9 pt

6

OUTLOOK

Air France-KLM Group continues to implement highest safety standards for customers and employees to counter virus transmission risks.

After the lockdown, the Group observed a promising demand recovery trend until mid-August. Then, the negative trend reversal for the Passenger activity led the airlines of the Group to adjust downwards the capacity planned for the fall and winter period.

There is limited visibility on the demand recovery curve as customer booking behavior is much more short-term oriented than before the Covid-19 crisis and also highly dependent of the imposed travel restrictions, especially on the Long Haul network. The period of lockdown starting today in France is a new difficulty that will weigh on the Group’s activities.

In this context the Group expects:

  •   Capacity in Available Seat kilometers circa index 45 for KLM and inferior to index 35 for Air

    France in the Fourth quarter 2020 compared to 2019 for the Network passenger activity

  •   Negative load factor developments for the Fourth quarter 2020, particularly on long-haul

    network, and negative yield mix effects due to a delayed recovery in business

    The Full year 2020 Network passenger activity will be inferior to index 50 compared to 2019, due to the Covid-19 crisis.

    The Group anticipates a challenging fourth quarter 2020, with a substantial lower EBITDA compared to Q3 2020.

    At 30 September 2020, the Group has 12.4 billion euros of liquidity or credit lines at disposal.

    The Group foresees important liquidity requirements in the Fourth quarter 2020 with:

  •   Negative Fourth quarter working capital requirement influenced by deferred payments and

    substantial lower level of new bookings compared to Q4 2019.

  •   Capex spending at 0.6 billion euros, of which half is fleet Capex fully financed. The Group has

    reduced to 2.1 billion euros his 2020 capex guidance. This is a reduction of -1.5 billion euros

    compared to the initial 2020 guidance of 3.6 billion euros.

  •   The hybrid bond was repaid in October for 0.4 billion euros.

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AIR FRANCE AND KLM HAVE AGREED ON SUSBTANTIAL RESTRUCTURING PLAN WITH LABOUR REPRESENTATIVES

The Group’s strategic orientations defined during the 2019 Investor day started to deliver results in 2019 and in early 2020. However, the Covid-19 which began in the first quarter of 2020 around the world is having an unprecedented impact on the industry and the Group has immediately reacted with safety, operational and cash protection measures.

The focus on reducing external expenses and the number of employees were one of the top priorities. Futhermore, the French and the Dutch governments have provided financial packages and the partial activity implemented in France and the “NOW” mechanism in Holland allowed the Group to further reduce labor costs.

To weather the crisis and cope with the new reality, Air France-KLM Group is accelerating its transformation plans and presented a substantial restructuring plan around the competitiveness and sustainability pillars. Negotiations with the trade unions have resulted in several agreements in Air France and KLM.

To better align the fleet with the lower passenger demand, Air France-KLM Group has accelerated the phase-out of the Airbus 380, Airbus 340, Boeing 747, Canadair Jet and Embraer 145 aircraft. These decisions will bring forward cost savings and efficiency gains due to operating fewer aircraft types. The Group does not anticipate to return to the pre-crisis levels of global demand before several years and the short-term recovery expected has been delayed with the resurgence of Covid-19 end of summer.

KLM business model is still both valid and valuable but needs to be reshaped to the new reality. KLM will be smaller, cheaper, more frugal, more agile and more sustainable.
Operating costs will structurally being reduced in 2021 and beyond, with 750 million euros benefits in 2021 coming from labour, fleet, procurements and fuel costs decrease.

KLM’s restructuring plan calls for a reduction of 5,000 FTEs end of 2020. The plan submitted to Dutch Government early October complies with state aid conditions.

Air France will enlarge and accelerate its restructuring plan to build a post-crisis successful model on several pillars to restructure the French domestic, optimize external spendings, transform support functions, adapt the opeartions to the new activity, modernize the fleet and regain commercial success.

This will bring 800 million euros structural benefits by 2021 and 1.2 billion euros in total by 2022. Air France’s restructuring plan calls for a reduction of 4,000 FTEs end of 2020 and a total of 8,500 FTEs by 2022. The plan submitted to French Government complies with state aid conditions. The long term partial activity establishement is under discussion with representative unions.

KLM loses EUR 234 million ($273.1 million) in the third quarter, scales back for the winter

KLM Royal Dutch Airlines has made this announcement:

The Air France-KLM results for the third quarter of 2020 grimly reconfirm the extent to which the COVID-19 pandemic has disrupted the air transport industry. This is without doubt our deepest crisis since World War II – for broader society, for aviation in general, and certainly for KLM. Our cargo division is performing well and generating extra revenue, but our passenger flights have been scaled down further for the winter season.

Traditionally, the third quarter is especially strong in the air transport industry, but KLM has now incurred a loss of EUR 234 million for the quarter, down EUR 745 million compared to Q3 last year. The result incurred during the first nine months of 2020 has deteriorated by 1,7 billion compared to 2019.

There were cautious signs of recovery in July and August, with an increase in bookings for KLM’s European flights. Regrettably, KLM was forced to respond to changing travel warnings for many European countries in September, downscaling its European network for the winter season, which will result in a further decline in revenues.

A wide array of measures have already been taken to downsize KLM operations in line with the sharp decline in demand and flights. By the end of the year, the KLM Group will have bid farewell to around 5,000 employees (-15%). In view of recent developments prompted by the second wave of the pandemic and the sombre outlook, further rightsizing of the organisation will be considered.

These results confirm just how bad things are in the air transport industry. KLM has incurred a loss of EUR 234 million in the third quarter, down EUR 745 million compared to Q3 last year. Without the Dutch government’s NOW support scheme, we would have incurred a loss of EUR 500 million.
To safeguard the future of our airline and employment opportunities, the loan and loan guarantees offered by the Dutch government are of crucial importance. 
These poor results are certainly no reflection of the continued commitment of KLM employees, who are braving difficult working conditions to keep serving our customers. I greatly appreciate and respect their efforts.
Pieter Elbers – CEO & President KLM

KLM submits restructuring plan to Ministry of Finance

KLM Royal Dutch Airlines submitted its restructuring plan to the Netherlands Ministry of Finance. The presentation of this restructuring plan was a key condition in obtaining a government loan and guarantees to the value of EUR 3.4 billion. The plan outlines how KLM intends to overcome the worst crisis in almost 101 years in operation, explaining how KLM intends to fulfil the conditions imposed by the Netherlands government. The plan is currently under review at the ministry.

The presentation of the plan is a very important milestone. Substantively, the plan includes elements such as the reassessment of strategy, cost-cutting initiatives, financial considerations and how KLM staff will contribute by way of reduced employment conditions.

The basic principle of the restructuring plan is that KLM’s existing business model is still valid and valuable, but that far-reaching, structural initiatives are required to ensure KLM’s future success. Owing to the effects of the corona pandemic, KLM is preparing for an extended period during which fewer flights will be operated. The organisation will become smaller and less costly, as well as more sustainable, economical and efficient.

As KLM plays such an important economic and societal role in the Netherlands, the government has offered the airline a loan package, to which it has attached certain conditions. One condition is that KLM staff should contribute to KLM’s restructuring by accepting reduced employment conditions, amounting to income-dependent, graduated cutbacks of up to 20%. These reduced conditions will apply for the duration of the loan period.

KLM has now reached agreement with all unions for ground, cockpit and cabin staff on key principles of this plan for the period through 2022. This includes the unions VNC and FNV Cabine in the cabin domain and the unions FNV Luchtvaart, CNV, De Unie, VKP and NVLT in the ground domain, as well as the Dutch Airline Pilots Association VNV in the cockpit domain.

One of the other conditions imposed by the government is a 15% reduction in controllable costs. The KLM Works Council has been asked to advise on the downsizing and further simplification of the KLM organisation. In addition, there are more than 70 initiatives that will mainly reduce external costs. Significant cost savings will be achieved by phasing out leased aircraft and deploying a more efficient fleet. KLM is also meeting with suppliers and chain partners to contribute to cost reduction.

In terms of labor costs, KLM has already achieved savings by shedding jobs. KLM has already downsized by way of various measures, including non-renewal of short-term contracts (1,500 jobs) and a voluntary resignation scheme (2,000 jobs). By the end of the year, KLM will employ around 4,500 fewer people than it did before the coronavirus pandemic.

Regrettably, further cutbacks cannot be excluded in view of the magnitude and gravity of the crisis. KLM has also reached agreement on a social plan with trade unions for ground personnel and cabin crew. The existing collective labour agreement for cockpit crew already provides a social plan.

Furthermore, KLM will reopen a voluntary resignation scheme targeting specific divisions and departments in order to minimise involuntary dismissals.

The KLM Works Council has reviewed and evaluated 37 requests for advice. The restructuring plan is ambitious and pressure ran high leading up to 1 October. The constructive contribution of divisional staff representatives and the Works Council deserves high praise. The Works Council’s positive advice on restructuring plans was subject to the successful negotiation of a social plan.

Today we took a major, exceedingly important step towards restructuring KLM. The plan we submitted to the Ministry of Finance today is a condition for obtaining a financial package, making this an important milestone in KLM’s recovery. The aim is to ensure that KLM survives this crisis and emerges stronger than before. The measures are far-reaching and painful for KLM staff, but they are necessary. I am grateful for the support of the Netherlands government and proud of the efforts of all involved – KLM staff, our Works Council and trade unions – who worked together to achieve this result.”
KLM President-directeur & CEO Pieter Elbers

KLM further reduces its winter schedule

KLM Royal Dutch Airlines has issued this statement:

Owing to adjusted travel warnings, prompting Code Orange (essential travel only) designations for the UK, Spain, parts of France and other countries, the planned upscaling of KLM’s European network in September has been put on hold. The quarantine rules in the United Kingdom have had a particularly marked impact on KLM’s network. For the period thereafter, KLM will keep close tabs on the developing situation with regard to travel warnings issued by the authorities in the Netherlands and elsewhere.

Due to the COVID-19 pandemic, KLM’s winter schedule will be a lot more restricted than it was in the same period last year. The timetable for the European network in November is currently around 55% of capacity in 2019.

KLM was gradually and responsibly expanding its European and intercontinental network, after the corona crisis had prompted severe restrictions on destinations and frequencies. KLM’s primary aim is to offer customers the widest range of destinations, after which we will consider increasing the number of frequencies or expanding capacity by deploying larger aircraft.

In August, KLM served almost 100% of its European network in terms of destinations, with capacity at approximately 60% compared to pre-coronavirus levels. Effective October 25, 2020, KLM will begin operating daily flights to the Polish city of Poznan.

Intercontinentally, KLM served 80% of its destinations at 60% capacity. At present, a third of these intercontinental flights are carrying cargo only. This means seat capacity is way down. KLM will carry passengers on these flights again as soon as local travel regulations allow.

From the beginning of September, KLM will resume a twice-weekly service to the Chinese city of Hangzhou, flying via Seoul Incheon in South Korea. KLM will also operate a twice-weekly service to Cairo. Riyadh will also be added to the KLM network as a new destination (original start was September 26th, but is now scheduled for December 7th). On October 29, KLM will also start a circle flight to add Edmonton back to the Canadian network. The flight will depart to Calgary, then call at Edmonton and fly back to Amsterdam.

Slot Waiver

It is good news that the European Commission has announced the extension of the so-called ‘slot waiver’ to the entire winter timetable. It will enable KLM to respond more adequately to the rapidly changing market conditions as a result of COVID-19, even during the winter season. In addition to the financial impact, operating less well-filled flights would also be undesirable from a sustainability perspective.

KLM aircraft photo gallery:

KLM and TU Delft present successful first flight Flying-V

KLM Royal Dutch Airlines made this announcement:

The scale model of the Flying-V – the energy-efficient aircraft of the future – has flown for the first time. A year and a half ago TU Delft and KLM announced the start of the design of the Flying-V during IATA 2019 and after extensive wind tunnel tests and ground tests it was finally ready. The first successful test flight is a fact.

Last month a team of researchers, engineers and a drone pilot from TU Delft travelled to an airbase in Germany for the first test flight. “We were very curious about the flight characteristics of the Flying-V. The design fits within our Fly Responsibly initiative, which stands for everything we are doing and will do to improve our sustainability. We want a sustainable future for aviation and innovation is part of that. KLM has been among the top three most sustainable airlines worldwide in the Dow Jones Sustainability Index for many years. We want to continue to do so in the future. We are therefore very proud that we have been able to achieve this together in such a short period of time,” says Pieter Elbers, President and CEO of KLM.

The Flying-V is a design for a very energy-efficient long-haul aircraft. The design of the aircraft integrates the passenger cabin, cargo hold and fuel tanks in the wings, creating a spectacular V-shape. Computer calculations have predicted that the improved aerodynamic shape and reduced weight of the aircraft will reduce fuel consumption by 20% compared to today’s most advanced aircraft.

Collaboration and Innovation

KLM presented the scale model for the first time during KLM’s 100th anniversary in October 2019. Several partners are now involved in the project, including manufacturer Airbus. Elbers: “You can’t make the aviation sector more sustainable on your own, but you have to do it together,” says Elbers. Collaborating with partners and sharing knowledge takes us all further. That’s why we will further develop the Flying-V concept with all partners. The next step will be to fly the Flying V on sustainable fuel”.

KLM will fly to Hangzhou again

KLM Royal Dutch Airlines has made this announcement:

As of August 27, 2020 KLM Royal Dutch Airlines will fly again to the Chinese city of Hangzhou. The weekly flight will be operated via Seoul Incheon (South Korea) with a Boeing 777-200. KLM is making every effort to add a second frequency as soon as possible.

KLM’s passenger flights to mainland China were suspended at the beginning of February in connection with COVID-19. Thanks to relaxation of travel restrictions by the Chinese government, KLM was able to resume passenger flights to Shanghai on July 21. The passenger flight to Hangzhou is now added as the second Chinese destination. KLM has continued to transport cargo to and from China.

The flight schedule is as follows:

  • KL 0857 departs from Amsterdam on Thursday at 18.55 hrs and arrives in Seoul Incheon at 12.25 hrs the next day. KL 0821 departs from Seoul Incheon at 13.50 hrs and arrives in Hanghzou at 15.00 hrs.
  • KL 0822 departs from Hangzhou on Friday at 18.50 hrs and arrives in Seoul Incheon at 21.55 hrs. KL 0858 departs from Seoul Incheon on Saturday at 00.25 hrs and arrives in Amsterdam at 04.45 hrs.

All times are local.

Extra hygiene measures

Naturally, KLM has taken measures to ensure that flights are safe for both passengers and staff. For example, face masks are mandatory when boarding and during the flight, extra hygiene equipment is on board and KLM’s aircraft are additionally cleaned using suitable cleaning agents. The air on board is quickly refreshed using HEPA filters.

KLM complies with the strict requirements set by the Chinese government for the resumption of international flights. This means that passengers must complete a health declaration online and that the temperature of passengers is checked. The toilets, for example, are also inspected extra frequently during the flight. Furthermore, there are as few contact moments as possible between crew and passengers, which means there is limited catering available on these flights.

KLM aircraft photo gallery:

KLM aircraft slide show:

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