Tag Archives: Air France-KLM Group

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.

7

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.

Air France-KLM reports on the first quarter

Air France-KLM Group issued this report on the first quarter 2020:


Operating result at -815 million euros, strongly impacted by the Covid-19 crisis

A strong performance at the start of the year with passenger unit revenue up +0.8% end of February 2020. March 2020 however was strongly impacted by the expansion of the virus and consequential globally imposed travel restrictions to counter the spread of the Covid-19 virus. This influenced negatively the first quarter 2020 results:

  •   Revenue at 5,020 million euros, down 922 million compared to last year
  •   Unit cost at constant currency and fuel reduced by 1.6% end of February 2020, and then up 3.5%

    end of March 2020

  •   Operating result at -815 million euros, down 529 million euros compared to last year, entirely

    caused by March 2020 with an operating result at -560 million euros1

  •   Net income at -1,801 million euros, including Covid-19 related over hedging -455 million euros,

    release of deferred tax assets -173 million euros and impairment of Boeing 747 aircraft -21 million

    euros

  •   Net debt/EBITDA ratio at 1.8x, compared to 1.5x at the end of 2019

    RAPID RESPONSE TO THE COVID-19 OUTBREAK

  •   Implementation of the highest sanitary safety standards for frontline operation staff, crew and customers to counter virus transmission risks. The Group operated special flights for repatriation of citizens, setup of an “air bridge” fore essential medical supplies, in close cooperation with the French and Dutch governments and is maintaining the essential links with territories
  •   Swift adjustments in network and capacity, March 2020 capacity down 35% and around 95% of planned capacity to be suspended for the second quarter 2020
  •   Quick and effective cash protection measures implemented, costs reduced by 500 million euros on 2020, Capex reduced to 2.4 billion euros for 2020 and positive impact of partial activity implementation and crew variable pay reduction estimated at 350 million euros per month in the second quarter 2020
  •   Liquidity injections of 7 billion euros benefiting to Air France through a bank loan guaranteed by the French state and a direct shareholder loan from the French state. Ongoing discussions with the Dutch state concerning KLM support
  •   As an integral part of the financing packages the Group will build a new transformation plan to ensure economic and financial sustainability over the medium and long term with integration of new ambitious environmental goals. This new plan will be communicated in summer 2020.

    OUTLOOK

    High level of uncertainty on the duration of the Covid-19 crisis and impact on the macro-economic environment. The Group withdraws its earlier 2020 guidance elements.The Group now anticipates:

    •   Progressive lifting of border restrictions in 2020, enabling a slow capacity resumption in Summer 2020, with capacity for the second and third quarter 2020 around respectively -95% and -80% compared to previous year
    •   A prolonged negative impact on passenger demand, not expected to recover to pre-crisis levels before several years
    •   A fleet repositioning including structural capacity reduction of at least -20% in 2021 compared to pre-crisis 2019 level

      The Group foresees significantly negative EBITDA in full year 2020 and a significantly higher current operating income loss in the second quarter than in the first quarter 2020.

7 May 2020

Air France-KLM Group

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First Quarter

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2020 Change

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Passengers (thousands)
Passenger Unit revenue per ASK2 (€ cts) Operating result (€m)
Net income – Group part (€m)
Adj. operating free cash flow (€m)
Net debt at end of period (€m)

18,111 5.80 -815 -1,801 -825 6,584

-20.1% -6.9% -529 -1,477 -1,066 437

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1 2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
2 Passenger unit revenue is the aggregate of Passenger network and Transavia unit revenues, change at constant currency

 

The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 6 May 2020 to approve the financial statements for the first quarter 2020.
Benjamin Smith, Chief Executive Officer of the Air France-KLM Group, said: “The Air France-KLM Group had a promising start to the first quarter in line with the objectives of the strategic plan presented in November 2019. However, the acceleration of the Covid-19 crisis in March had a strong impact on the Group’s first quarter results. I would like to thank our teams for their exceptional mobilization in this unprecedented crisis. The Air France-KLM Group has adapted rapidly, by implementing health safety measures essential to our staff and customers, reducing our costs to preserve our liquidity, continuously adjusting our flight schedule, and the many repatriation flights and flights to transport medical equipment. Uncertainties remain regarding the evolution of Covid-19 and we must be cautious in the assumptions of recovery in the coming months. Nevertheless, the commitment to financial support of the French and Dutch governments to our Group, as well as that our banking partners participating in these schemes, is a strong testimony of their confidence in our ability to weather this crisis and rebuild. We are working on a renewal plan to ensure that the Air France-KLM Group regains its competitiveness in a deeply shaken world and reaffirms its leadership in the sustainable transition of air transport. These new orientations will be presented in the coming months.”

The Air France-KLM Group and Air France secure funding of €7 billion to help overcome the crisis and prepare for the future

In its communication of April 9, 2020, the Air France-KLM Group stated that, given the major impact of the COVID-19 crisis, which will weigh heavily on its EBITDA, and despite the significant measures taken to preserve its liquidity, it predicted that in the absence of additional funding, a liquidity injection would be necessary in the third quarter of 2020.

The Air France-KLM Group, Air France and KLM therefore engaged in talks with the French and Dutch governments regarding the implementation of specific aid measures that would enable them to maintain their solvency.

Following several weeks of discussions with the French state and banking institutions, the Air France-KLM Group and Air France were able to finalize the various components of a support mechanism dedicated to Air France on which principle agreements are being finalised:

This support mechanism is comprised of:

  • A French state-backed loan of €4 billion granted by a syndicate of six banks to Air France-KLM and Air France.  The French state is guaranteeing this loan up to 90%, and it has a maturity of 12 months, with two consecutive one-year extension options exercisable by Air France-KLM;
  • A direct shareholder’s loan of €3 billion from the French state to Air France-KLM with a maturity of four years, with two consecutive one-year extension options exercisable by Air France-KLM.

 

This aid mechanism, which remains subject to approval by the European Commission, will enable the Air France-KLM Group to provide Air France with the means necessary to meet its obligations by continuing its transformation in order to adapt in a sector that the global crisis will severely disrupt.

The Dutch state has also stated its intention to support the KLM Group. Discussions to finalize the aspects and conditions of an additional aid are ongoing.

The transformation plan, which will be finalized in the coming months, will include economic, financial and environmental commitments. It will notably involve a review of Air France’s activities looking to adapt them to the new market reality brought about by the crisis, and will have to strengthen its financial situation. This transformation will also contain an ambitious environmental roadmap to accelerate the Group’s sustainable transition.

Once this plan has been finalized and when better visibility on post-crisis air traffic levels becomes available, the Air France-KLM Board of Directors will consider increasing its equity capital subject to market conditions.  At the latest, this could occur at the latest following the Board meeting scheduled to approve the financial statements for 2020.

In this context, the French state has indicated its intention to examine the conditions under which it might participate in such an operation to increase its capital.

“On behalf of the Air France-KLM Board of Directors, I would like to thank the French state and our banking partners for this aid, which will enable the Air France-KLM Group to overcome this unprecedented crisis,” said Anne-Marie Couderc, Chair of the Air France-KLM Board of Directors. “It is also the recognition of the strategic role our Group plays in the service of France, the Netherlands and our fellow citizens. The management and all employees of the Air France-KLM Group will undertake every effort to prove ourselves worthy of the trust placed in us.”

“On behalf of our Group and its employees, I would like to thank the French state and our banking partners for their support in ensuring the future of the Air France-KLM Group,” said Benjamin Smith, CEO of the Air France-KLM Group. “This aid, along with the Group’s action plan, will enable us to withstand this crisis and foresee the future of Air France-KLM with ambition and determination. We are a strong Group and we are united in face of this crisis. I would like to once again salute the exceptional commitment of our employees for their dedication to the repatriation of our fellow citizens, the transport of medical equipment, and maintaining the essential links with territories.”

Air France-KLM reports its second quarter results

Air France-KLM made this report:

July 31, 2019

RESULTS AS AT JUNE 30, 2019

Increased operating result and improved passenger unit revenue

SECOND QUARTER 2019

  • Passenger growth +5.1% and load factor +1.3 point.
  • Passenger unit revenue up by 0.8%.
  • Unit costs decrease by -2.3% at constant currency and fuel.
  • Operating result at 400 million euros, up 54 millions euros compared to the second quarter 2018 hit by Air France strikes1, and reflecting unit cost improvement partly offset by an increased fuel bill.
  • Further reduction in Group net debt, down 466 million euros to 5.7 billion euros and Net debt/EBITDA ratio at 1.4x, an improvement of -0.1pt compared to 31 December 2018.

OUTLOOK 2019

  • Based on the current data for the Passenger network:
    • Long-haul forward booking load factors from August to December are on average ahead compared to last year.
    • Network passenger unit revenue at constant currency expected to be stable versus last year for the third quarter 2019.
  • Full year guidance update:
    • The Group will pursue initiatives to reduce unit costs, with a targeted 2019 reduction of between -1% and 0% at constant currency and fuel price.
    • The 2019 fuel bill is expected to increase by 550 million euros compared to 2018 to 5.5 billion euros, based on the forward curve of 26 July 2019.
    • Net debt/ EBITDA ratio below 1.5x.

Benjamin Smith, CEO of Air France-KLM Group, said: “In a challenging environment, Air France-KLM Group posted a robust second quarter. The slight increase in passenger unit revenue that we had anticipated, together with continued execution in unit cost reduction, enabled us to more than offset rising fuel costs. These elements, combined with satisfactory long-haul forward booking trends lead us to confirm our guidance for 2019. At the same time, we continue to implement our strategic vision focused on reducing costs and making our Group more robust in the very competitive marketplace in Europe. We have also made key decisions on the renewal of our fleet to transition to cleaner aircraft in order to support a more environmentally responsible operation, including the order of sixty Airbus A220s for short- and medium-haul and the accelerated phasing out of ten Airbus A380 to be replaced by more modern fuel efficient aircraft.”

Air France-KLM Group Second Quarter First half
2019 Change1 2019 Change1
Passengers (thousands) 27,800 +5.1% 50,474 +4.2%
Passenger Unit revenue per ASK2 (€ cts) 6.75 +0.8% 6.48 -0.4%
Operating result (€m) 400 +54 97 -131
Net income – Group part (€m) 80 -30 -240 -81
Adj. operating free cash flow (€m) 110 +111 351 +210
Net debt at end of period (€m) 5,698 -466

Second quarter 2019 business review 

Network: Solid revenue growth and increase in operating result

Network Second Quarter First Half
2019 Change Change
constant currency
2019 Change Change
constant currency
Capacity (ASK m) 75,680 +3.9%   145,440 +3.2%
Total revenues (€m) 6,016 +5.6% +3.9% 11,191 +3.8% +2.6%
Scheduled revenues (€m) 5,708 +5.8% +4.0% 10,601 +3.6% +2.3%
Operating result (€m) 291 +55 +77 12 -138 -68

Second quarter 2019 combined Passenger and Cargo revenues increased by 3.9% at constant currency to 6.0 billion euros, for capacity growth of 3.9%. The operating result amounted to 291 million euros, a 77 million euro increase at constant currency compared to last year, with the non-fuel unit cost improvement partly offset by a higher fuel bill.

Passenger network: Long-haul driving the improvement of unit revenue as anticipated

  Second Quarter First Half
Passenger network 2019 Change Change
constant currency
2019 Change Change
constant currency
Passengers (thousands) 22,906 +4.8%   42,651 +3.7%  
Capacity (ASK m) 75,680 +3.9% 145,439 +3.2%
Traffic (RPK m) 67,020 +5.7% 127,241 +3.8%
Load factor 88.6% +1.5 pt 87.5% +0.6 pt
Total passenger revenues (€m) 5,482 +6.4% +4.8% 10,110 +4.2% +3.2%
Scheduled passenger revenues (€m) 5,254 +6.6% +4.8% 9,674 +4.2% +2.9%
Unit revenue per ASK (€ cts) 6.94 +2.6% +0.9% 6.65 +1.0% -0.2%

Second quarter 2019 capacity increased by 3.9%, mainly driven by the South American, North Atlantic and Asian networks, with respective growth of 7.8%, 6.7% and 4.0%.
Taking into account a positive calendar effect from the Easter shift, the passenger network posted a positive unit revenue of +0.9% at constant currency.

The industry capacity growth has been lower in North America, Caribbean & Indian Ocean and Middle East network in comparison to previous year. The long-haul network generated positive load-factors and yields compared to last year in all networks except in the Latin American network:

  • The North American network posted positive unit revenue at +2.6% compared to last year, with the strength driven in particular by US points of sale.
  • The Asian network unit revenue was up 3.9% in the second quarter, driven by the continuing strength of the Japanese network, partly offset by some competitive pressure on the Chinese network.
  • The Caribbean & Indian Ocean network posted a strong result with the unit revenue +4.7%, driven by leisure demand.
  • The Africa & Middle East network saw a substantial unit revenue improvement of 8.7%, underpinned by positive results from the West African networks and network rationalizations in the Middle East.
  • The unit revenue pressure in the Latin American network remains ongoing for the time-being due to the current economic context in Argentina and Brazil.

The medium-haul network showed a mixed picture with a positive performance for the medium-haul hubs with the unit revenue +0.2% and, as anticipated, pressure in the medium-haul point-to-point network with unit revenue down -9.1%.
 

Cargo network: Unit revenue impacted by a challenging airfreight market

  Second Quarter First Half
Cargo business 2019 Change Change
constant currency
2019 Change Change
constant currency
Tons (thousands) 279 +1.5%   549 +0.7%  
Capacity (ATK m) 3,630 +2.8% 7,092 +2.1%
Traffic (RTK m) 2,122 +1.2% 4,168 +0.9%
Load factor 58.5% -0.9 pt 58.8% -0.7 pt
Total Cargo revenues (€m) 534 -1.7% -4.1% 1,081 -0.5% -2.7%
Scheduled cargo revenues (€m) 454 -2.8% -5.2% 927 -1.7% -3.9%
Unit revenue per ATK (€ cts ) 12.54 -5.1% -7.5% 13.09 -3.6% -5.7%

Negative market dynamics and continued higher industry capacity put pressure on the unit revenue during the second quarter 2019. After two strong years, renewed overcapacity in North America and Asia is putting pressure on freight rates, resulting in unit revenue down -7.5% at constant currency.
The Group’s Cargo strategy is focused on maintaining and increasing load factors where possible and taking a pro-active approach to new opportunities.

Transavia: High capacity growth and positive unit revenue

  Second Quarter First Half
Transavia 2019 Change 2019 Change
Passengers (thousands) 4,894 +6.7% 7,823 +7.0%
Capacity (ASK m) 9,527 +9.2% 15,353 +10.0%
Traffic (RPK m) 8,754 +9.1% 14,122 +10.1%
Load factor 91.9% -0.1 pt 92.0% +0.0 pt
Total passenger revenues (€m) 500 +10.4% 748 +8.7%
Unit revenue per ASK (€ cts) 5.24 +1.3% 4.83 -0.4%
Unit cost per ASK (€ cts) 4.70 +5.1% 4.95 +2.6%
Operating result (€m) 52 -9 -19 -22

Strong capacity growth of 9.2% in the second quarter 2019. The unit revenue was up by 1.3% compared to last year, supported by the Easter shift, strong demand throughout the network and a good ancillary revenue performance.
The second quarter 2019 operating margin stands at a level of 10.4%, with an absolute operating result of 52 million euros, 9 million euros down compared to last year explained by fuel price and currency headwinds.

Maintenance: Strong third-party revenue growth and margin improvement

  Second Quarter First Half
Maintenance 2019 Change Change
constant currency
2019 Change Change
constant currency
Total revenues (€m) 1,120 +11.2% 2,290 +10.0%
Third-party revenues (€m) 527 +11.9% +5.0% 1,081 +14.9% +7.6%
Operating result  (€m) 55 +9 +1 102 +30 +18
Operating margin (%) 4.9% +0.3 pt -0.2 pt 4.5% +1.0 pt +0.6 pt

Maintenance revenues increased compared to last year with third-party revenues up by 11.9% and 5.0% at constant currency, a continuation of the growth trend underpinned by the inflow of new contracts. The Maintenance order book stood at 11.6 billion dollars at 30 June 2019, an increase of 0.2 billion dollars compared to 31 December 2018.
The operating margin expressed as a percentage of total revenues stood at 4.9%, an increase of 0.3 point primarily driven by the components activity.

Air France-KLM Group: Operating result at €400 million with positive passenger unit revenue and unit cost improvement

  Second Quarter First half
  2019 Change Change
constant currency
2019 Change Change
constant currency
Capacity (ASK m) 85,207 +4.5%   160,793 +3.8%
Traffic (RPK m) 75,774 +6.1%   141,363 +4.4%  
Passenger unit revenue per ASK (€ cts)  6.75 +2.4% +0.8% 6.48 +0.8% -0.4%
Group unit revenue per ASK (€ cts)  7.28 +1.6% +0.0%  7.05 +0.2% -1.0%
Group unit cost per ASK (€ cts) at constant fuel  6.82 -0.3% -2.3% 6.99 +0.4% -1.4%
Revenues (€m) 7,050 +6.4% +4.5% 13,036 +4.9% +3.3%
EBITDA (€m) 1,147 +98 +114 1,571 -99 -42
Operating result (€m) 400 +54 +72 97 -131 -69
Operating margin (%) 5.7% +0.5 pt +0.8 pt 0.7% -1.1 pt -0.6 pt
Net income – Group part (€m) 80 -30   -240 -81  

In the second quarter 2019, the Air France-KLM Group posted an operating result of 400 million euros, up 54 million euros compared to last year, which was impacted by the Air France strike for 260 million euros.

Compared to last year, the Group’s unit revenue was stable, the positive passenger unit revenue impact of 53 million euros being offset by a -54 million euro negative impact from Cargo.

The fuel bill including hedging amounted to 1,404 million euros for the second quarter 2019, up 220 million euros. This increase is explained mainly by a lower hedge gain for the second quarter 2019 (gain of 56 million euros compared to 212 million euro last year), and a negative currency effect on the fuel bill of 89 million euros due to a stronger dollar.

Currencies had a positive 123 million euro impact on revenues and a negative 52 million euro effect on costs (ex-fuel) including currency hedging. Together with the 89 million euro fuel currency effect, the net impact of currencies amounted to a negative 18 million euros for the second quarter 2019.

Unit cost down confirming the full year guidance
On a constant currency and fuel price basis, unit costs were down -2.3% in the second quarter 2019. This decrease is supported by the successful execution of cost focus measures in Air France and the high basis of comparaison last year due to the strikes at Air France.
However this was partly offset by higher unit costs at KLM due to the implementation of last year’s labor wage agreements.

Group net employee costs were up 4.6% in the quarter compared to last year, explained by additional hires in response to the capacity growth and the impact of wage agreement implementation for Air France and KLM staff. The average number of FTEs in the second quarter 2019 increased by 1,650 compared to last year, including +700 Pilots and +650 Cabin Crew. However, productivity measured in ASK per FTE increased by 3.1% in the second quarter 2019.

Net debt down, leverage ratio improved slightly further, on track for full year guidance of below 1.5x

  Second Quarter First Half
In € million 2019 Change 2019 Change
Cash flow before change in WCR and Voluntary Departure Plans, continuing operations (€m) 1,096 +175 1,465 +31
Cash out related to Voluntary Departure Plans (€m) -6 +92 -11 +110
Change in Working Capital Requirement (WCR) (€m) -19 -45 787 -46
Net cash flow from operating activities (€m) 1,071 +222 2,241 +95
Net investments before sale & lease-back* (€m) -711 -136 -1,389 +99
Operating free cash flow (€m) 360 +86 852 +194
Reduction of lease debt -250 +25 -501 +16
Adjusted operating free cash flow ** 110 +111 351 +210

* 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 with deduction of the repayment of lease debt.

Positive adjusted operating free cash flow
The Group generated positive adjusted operating free cash flow of 110 million euros, an increase of 111 million euros compared to last year, mainly explained by lower capex in the second quarter 2019 due to a year-on-year shift in the investment-timing pattern.

Leverage on track with full year guidance of <1.5x       

In € million 30 Jun 2019 31 Dec 2018
Net debt 5,698 6,164
EBITDA trailing 12 months 4,118 4,217
Net debt/EBITDA trailing 12 months 1.4 x 1.5 x

The Group reduced its net debt to 5,698 million euros at 30 June 2019 versus 6,164 million euros at 31 December 2018, this 466 million euro reduction being driven by operating free cash flow generation and the repayment of lease debt.
The net debt/EBITDA ratio stood at 1.4x at 30 June 2019, a decrease of 0.1 point compared to 31 December 2018, explained by the reduction in net debt.

Air France improvement explained by last year strike, KLM impacted by fuel

Second Quarter First Half
  2019 Change 2019 Change
Air France Group Operating result (€m) 143 +130 -113 +51
Operating margin (%) 3.3% +3.0 pt -1.4% +0.8 pt
KLM Group Operating result (€m) 258 -70 202 -186
Operating margin (%) 8.9% -2.8 pt 3.8% -3.7 pt

Outlook

The global economic and geopolitical context remains uncertain and the Group operates in a highly competitive marketplace.
Based on the current data for the Passenger network:

  • Long-haul forward booking load factors from August 2019 to December 2019 are on average ahead compared to last year.
  • Network passenger unit revenue at constant currency is expected to be stable compared to last year for the third quarter 2019.

Capacity growth update:

  • With the growth of Transavia France adjusted slightly downwards, Transavia is expected to grow at a sustainable pace of 7% to 9% for full year 2019.
  • Passenger network plan remains unchanged to moderately grow capacity by 2% to 3% for the full year 2019 compared to last year.

Full year guidance update:

  • The Group will pursue initiatives to reduce unit costs1, with a targeted 2019 reduction of between -1% to 0% at constant currency and fuel price.
  • The 2019 fuel bill is expected to increase by 550 million euros compared to 2018 to 5.5 billion euros2, based on the forward curve of 26 July 2019.
  • The Group plans capital expenditure of 3.2 billion euros for 2019 and is targeting a Net debt/EBITDA ratio of below 1.5x.

*****

Air France-KLM’s first quarter loss widens

Air France-KLM Group (Air France, KLM Royal Dutch Airlines, Transavia Netherlands, Transavia France, Hop! and Martinair) reported a first quarter net loss of €504 million ($56.9 million), compared to a net loss of €485 million ($546 million) in the same quarter a year ago.

Read the full report: CLICK HERE

Copyright Photo: Ton Jochems/AirlinersGallery.com. The group retired three Boeing 747 freighters in the Winter 2014-15 season, while another five Martinair McDonnell Douglas MD-11s will be retired by the end of the Winter 2015-16 season. The Group plans to operate only five full-freighters by the end of 2016. McDonnell Douglas MD-11 (F) PH-MCS (msn 48618) of Martinair taxies at the Amsterdam cargo hub.

Air France aircraft slide show: AG Airline Slide Show

KLM aircraft slide show: AG Airline Slide Show

Martinair aircraft slide show: AG Airline Slide Show

Air France-KLM Group 2014 profit falls nearly 15% due mainly to the pilot strike

Air France-KLM Group (Air France) (KLM) (Paris and Amsterdam) reported its pre-tax 2014 earnings fell to 1.59 billion euros ($1.81 billion) from 1.86 billion euros ($2.1 billion) for the previous year. As a result, the group is delaying deliveries of aircraft for both Air France and KLM. Air France will also maintain its Airbus A380 fleet at 10 aircraft and delay taking delivery of the last two.

Read the the full report: CLICK HERE

Copyright Photo: Ton Jochems/AirlinersGallery.com. KLM is celebrating 95 years of flying and is adding special 95 Years logos on select aircraft including the pictured Boeing 777-306 ER PH-BVK (msn 42172) at the AMS hub.

Air France aircraft slide show: AG Airline Slide Show

KLM aircraft slide show: AG Airline Slide Show

AG Aviation friend

Transavia orders 17 Boeing Next-Generation 737-800s

Boeing (Chicago, Seattle and Charleston) and Transavia Company (Transavia Airlines and Transavia France), a wholly owned subsidiary of the Air France KLM Group, today announced an order for 17 Next-Generation 737-800s, including options for three additional airplanes. The order, valued at $1.6 billion at current list prices, was previously booked and attributed to an unidentified customer on the Boeing Orders & Deliveries website.

The order will significantly support the growth of Transavia’s operations from France and the Netherlands. The airline currently has a combined all-Boeing fleet of 45 Next-Generation 737s.

Air France and KLM are now funneling more routes to its two main subsidiaries.

Transavia Company has six bases, with Amsterdam’s Schiphol Airport and Paris-Orly Airport as its main hubs, serving 110 destinations in Europe and North Africa. Passenger numbers reached 10 million in 2014.

Photo: Ton Jochems/AirlinersGallery.com. Boeing 737-8K2 PH-HSJ (msn 42150) taxies at the Amsterdam base in the now old 2005 livery.

Transavia Airlines (Netherlands) aircraft slide show: AG Airline Slide Show

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KLM to introduce the first Boeing 787-9 Dreamliner on October 26

KLM 787-9

KLM Royal Dutch Airlines (Amsterdam) is planning to introduce the new Boeing 787-9 Dreamliner on the Amsterdam-Abu Dhabi-Bahrain route on October 26 per Luchvaart News.

Air France-KLM Group has 25 787-9s on order.

Image: Boeing.

KLM aircraft slide show:

Air France-KLM to retire the Martinair McDonnell Douglas MD-11 freighters in 2015 and 2016, will expand Transavia leisure flights

Air France (Paris) and KLM Royal Dutch Airlines (Amsterdam) (Air France-KLM Group) issued this statement about its shrinking and unprofitable freighter fleet including Martinair‘s (Amsterdam) McDonnell Douglas MD-11 freighter fleet:

At its meeting on September 4, 2014, the Air France-KLM Board of Directors examined the findings of the strategic review of its full-freighter operations which was launched earlier this year.

On top of the ongoing reduction of the full-freighter fleet, and facing a slower than expected recovery in demand, the Board of Directors has decided to reduce the full-freighter fleet based in Amsterdam to 3 aircraft in operation by the end of 2016. Five MD-11s will be phased out on an accelerated basis during 2015 and 2016.

By then, the Group will operate five full-freighter aircraft: 2 Boeing 777Fs in Paris and 3 Boeing 747 ERFs in Amsterdam, compared with a total of 14 in 2013.

The group intends to find alternative employment internally for all affected staff. It will engage in consultations on this matter with the Works Council and trade unions of the companies involved.

The Group will remain a major player in the cargo sector in Europe through its extensive belly network effectively supplemented by a limited number of full-freighter aircraft.

This adjustment of the full-freighter fleet is part of a broader strategic vision designed to increase cargo contribution to the group. Other measures include a strong focus on specialized products such as pharmaceuticals and express, as well as investment in state-of-the-art IT infrastructure and E-developments, further cost reduction and expansion of partnerships.

In other news, the Air France-KLM Group will expand its leisure operations under the Transavia brand with new bases outside of Paris and Amsterdam. The Group issued this statement:

At its meeting on September 4, 2014, as proposed by its Chairman and CEO Alexandre de Juniac, the Air France-KLM Board of Directors approved the group’s development project on the leisure market in Europe.

This development will take place under the Transavia brand from the two existing airlines – Transavia France and Transavia the Netherlands – and new bases will be opened in other European countries.

This project will strengthen the development of Transavia France (Paris) and Transavia Airlines (Amsterdam) in the Netherlands. The terms of these developments are the subject of consultations in both countries.

The group is positioning itself as a major player in this rapidly growing market in Europe.

This project is part of the group’s new plan for growth and competitiveness, Perform 2020, which will be presented in details to investors and to the press on September 11.

Air France-KLM have also unveiled its new “Perform 2020” program which replaces its “Transform 2015” program. Here is the formal plan:

Air France-KLM unveiled 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 strictfinancial disciplineAir France-KLM’s Chairman and Chief Executive Officer, Alexandre de Juniac, made the following comments:
    “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.”

    1 See definition in appendix
    2 At constant currency, fuel price and pension cost

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.

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 finalization 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 selective capex management while adopting a disciplined approach to growth opportunities. financial perspective, Air France-KLM plans to pursue the reduction in its unit costs and The Group will leverage the structured approach implemented within the framework of Transform 2015 to maintain unit cost 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 September 9.

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 up by 8% to 10%5 per year between 2013 and 2017
  •   An adjusted net debt/EBITDAR4 ratio of below 2.5 in 2017
  •   Base businesses to consistently generate annual positive free cash flowThese targets are consistent with a ROCE of 9% to 11% in 2017.

Read the analysis by Bloomberg Businessweek: CLICK HERE

Top Copyright Photo: Keith Burton/AirlinersGallery.com. Martinair’s McDonnell Douglas MD-11 (F) PH-MCS (msn 48618) prepares to land at London’s Stansted Airport.

Air France: AG Slide Show

KLM: AG Slide Show

Martinair: AG Slide Show

Transavia Airlines (Netherlands): AG Slide Show

Transavia Airlines (France): AG Slide Show

Bottom Copyright Photo: Ton Jochems/AirlinersGallery.com. Transavia Airlines’ (Netherlands) Boeing 737-8K2 PH-HZA (msn 28373) with a Kulula underside taxies at the Amsterdam base.

 

Are the days numbered for Martinair?

Martinair‘s (Amsterdam) days could be number. The cargo subsidiary of the Air France-KLM Group could be sold to a third party and even shut down i.e. “internal restructuring”. The cargo divisions of the Air France-KLM Group continue to bring down the group financially. As part of its first half financial report, the Group issued this statement concerning the cargo divisions, including Martinair:

Second Quarter 2014 cargo revenues amounted to 669 million euros, down 5.1% and by 1.9% on a constant currency basis. Faced with a slower than expected recovery, the group continued to reduce full-freighter capacity (down 8.6%). In consequence, total capacity decreased by 2.0%. Traffic decreased by 1.6%, leading to a 0.3 point increase in load factor to 63.2%. Unit revenue per Available Ton Kilometer (RATK) increased by 1.1% on a constant currency basis (-2.1% on a reported basis).

The operating result improved slightly to -45 million euro, up 5 million euros.

The recovery in demand being slower than expected, the group has initiated a strategic review of its full-freighter business, with different scenarios under consideration. Having already decided in October 2013 to reduce its full-freighter fleet to 2 aircraft in Paris and 8 aircraft in Amsterdam by 2015, the group is now looking to further reduce its Amsterdam-based full-freighter exposure either through a partnership with a third party or through internal restructuring. In consequence, the group has recorded an impairment of 106 million euros in its Second Quarter 2014 accounts.

First Half 2014 cargo revenues amounted to 1,344 million euros, down 4.3% and by 1.6% on a constant currency basis. Traffic was stable for a -1.5% decline in capacity, leading to a 1.0 point increase in load factor to 64.0%. Unit revenue per Available Ton Kilometer (RATK) was stable on a constant currency basis (down 2.7% on a reported basis).

On a constant currency basis, cargo unit cost was down 1.7% in the First Half (down 3.9% on a reported basis). The operating result improved by 21 million euros to -79 million euros.

Will Martinair be sold or disbanded? It is unlikely to remain as it is today.

Copyright Photo: Ton Jochems/AirlinersGallery.com. McDonnell Douglas MD-11 (F) PH-MCY (msn 48445) taxies at the Amsterdam base.

Martinair: AG Slide Show