Air France-KLM S.A.

Pierre-Francois Riolacci – Chief Financial Officer

Jarrod Castle – UBS Oliver Sleath – Barclays Capital Neil Glynn – Credit Suisse Angus Tweedie – Bank of America Merrill Lynch Damian Brewer – RBC Donal O'Neill – Redburn Partners Andrew Lobbenberg – HSBC Suzanne Todd – Morgan Stanley

Thank you for attending the call by, early in the morning. It’s a bit earlier than usual but it will give you some time to look at the numbers and hear the conference call before the opening of market.

I hope that you are not too much disappointed not to see drastic measures like it was announced in the press in the Netherlands, but you see that but we are moving – but we are moving along the lines that you would normally expect, given the context. I suggest that we move straight to Page 2, with the highlights of the quarter and a first word about the macro environment.

Clearly we have not a very strong economy in the Eurozone; no secret about that. We have also a much stronger US dollar, a lower euro against most other currencies, and we also have a decrease in the fuel price.

I remind you that the fuel price – the jet fuel price was $969 in the second quarter. It went down to $938 in the third quarter, and today we see, given the curve for the fourth quarter somewhere between [$883 depending on the market.

That's first the big macro landscape. Second, about the airline business.

It still starts in out Europe. There is clearly overcapacity on Asia, to a lesser extent North America and we are still facing a high volatility of our passenger revenues and we will elaborate on that a bit further.

On AF-KLM, the key takeaways are obviously first this Air France strike that we had in September. I will elucidate on that.

Second one is that Transform 2015 is on track with a further decrease of cost of about 1.2%, excluding RASK, excluding strike and fuel. We have also the first initiatives from Perform 2020 and, last but not least, the sale of Amadeus shares for €340 million and we have about nearly 20 million shares left for more than €500 million in service.

That's the highlights of the quarter. I suggest we move to the key numbers.

This is the usual table that we publish. We have inserted a line, which is a change like-for-like, excluding the RASK impact, but also excluding the strike.

It's not 100% perfect as you can imagine and not that easy to identify the strike impact, but we've done our best to allow for a discussion on the strike itself and on the business excluding the strike I would try to be as concerned as I can on these two items. So when you look at the numbers, revenues at €6.7 billion, down 6.7% compared to last year, but pretty stable, if you exclude strike and RASK plus 0.2%.

Strike is accounting for a bit more than €700 million and ForEx is accounting for €80 million half of it coming from US dollar and the rest remaining coming from Japanese yen and the northern and European currencies. EBITDA is €682 million, including the strike cost of €330 million and a ForEx impact of €46 million compared to last year.

It’s basically excluding RASK and strike, it’s basically stable compared to last year, and this is on the account of unit revenue pressure. Same trend on the operating results.

The net result is negative – is €100 million down €48 million compared to last year. It's including the strike impact, but it's also including the capital gain on Amadeus for over €180 million.

The debt is flat at €5.3 billion. When we move to the strike itself, on Page 4, you can see that on the production on the EASK, clearly the strike is a game-changer because on September, EASK is down by 14.5%.

It would have been plus 2% without the strike, along the line of capacity selective growth in the sense. The revenue is down €416 million.

It's the sales that we – passengers that we have not transported. This is also including negative revenues for rerouting.

So when we reroute passengers another company, then we book negative revenue. The net cost is made of a decrease of variable growth.

You obviously think about the fuel royalties also, to a limited extent, the staff. But we incurred also extra cost like compensations, like catering.

So the net impact is positive for €86 million. The operating result, therefore, is impacted by €330 million for the full strike, and you have the split by business.

And as you can imagine, in maintenance and other, it's basically the lower level of activity with Air France which is driving this negative impact on this business. So that's for the strike itself.

Before moving to the business itself, we go to Page 5 to highlight the currency impacts which is quite significant. On the revenues first, you see that the impact on Q3 is about €80 million of the ForEx.

Half of it is on account of the US dollar, 20% on the Japanese yen and the rest is coming from the Northern and Eastern European currencies. The total at the end of September is preserved a negative valuation of €350 million, which basically is the same split that we have during the third quarter.

On operating income, you see in Q3 the impact of minus €47 million. US dollar is basically – is slightly positive, neutral to positive and we are hit by the lower revenues that we have in the other currencies for over €50 million.

Total at September and it’s a negative of about €92 million, US dollar is positive by more than €100, and the other currencies are negative by about €200 and this is on the account of lower revenues when brought back in euros. When we look at the third quarter results by business segments, that’s Page 6, so again, revenues are €6.7 billion, plus 0.2% like-for-like.

It’s worth to highlight that the PAX business is down 0.3% as they stable, despite an ASK growth of 1.7% when you exclude the strike impact. So this is – these are the like-for-like numbers.

So minus 0.3% with an ASK of plus 1.7%, so you see the impact of the unit revenue pressure. I will come back on that one.

You will also note that there is a pickup in maintenance which is plus 5% like-for-like, but this include the impact of the consolidation of Barfield in the summer. And excluding Barfield the figure would have been basically flat compared to last year.

When you look at the operating results, you see it’s €247 million, minus €18 million like-for-like, this is a decrease, a slight decrease but this is a decrease and it's the first for many quarters. And this is obviously on the account of the unit revenue pressure, which is above the unit cost decrease and that has to do with the passenger business that we will detail.

Page 7, you can see on the passenger business the very significant impact of the strike on the capacity, minus 4.1%. Adjusted from the strike, it would have been plus 1.7% and this plus 1.7% were in line with the strategy of selective capacity growth with long-haul up 2.3% 0.2 points down 14% and medium-haul slightly negative minus 0.8%.

That's the capacity move quarter-to-quarter. The other capacity that we have in the market, together with the weak demand in Europe, put pressure on the RASK, which is negative by 1.8% as you can see in the bottom of the page on the left-hand side.

There is indeed an impact of the mix. You know that we are reducing point-to-point capacity and we are increasing long-haul capacities.

So this is detrimental to the RAK, that's true. But still, if you look at the long-haul RASK, it's down by 1%.

And we have the same trend that we indicated during the traffic numbers, which is that the business overall is okay. The pressure is coming from economy, and especially the high-yield range of the economy class, especially the late bookings, because here you definitely see the impact of overcapacity when people are coming to buy their tickets where they have a wide offer.

And you need to manage the yields to make sure that you have a different load factor and that’s what is happening on some markets. So the outcome is that we end up with the RASK down by 1.8%, where the unit cost is down by 1.2%.

Page 8, we try to give you some data about the variation on a monthly basis over the last 15 months of our capacity, and also from the RASK. And this is to illustrate the significant volatility that we have, so each number should be taken cautiously.

It’s especially true for the September minus 3.7%, which sounds impressive and here as I mentioned, it’s not that easy to identify the impacts of the strike and the impact of the market itself. So you need to a bit careful.

It was clearly a negative number, but it’s difficult to say exactly where we are, 3.7% is clearly our best guess. However, it’s clear that September was not a good month.

You see the July was minus 1.1%, but August was plus 0.5%. So definitely we face high level of volatility, and for us it's not very easy to steer – to steer and to forecast precisely each and every month.

When you look through the numbers and the volatility, it's clear that there is not a strong trend, and it has – you see that the pressure is actually growing over the quarter. And if you were trying to draw the line, the line would be slightly declining.

That's what we have and that was obviously the reason why we decided to warn in July that's exactly what we anticipated at that. When you look on the unit revenue and the numbers on the different part of the network and I am on Page 9, first on the top of the page.

If you see the cut in the capacity in the 0.2 points has been very significant, minus 13.2%, with a very positive reaction of the RASK plus 7.3% with an increased load factor of 1.7% so it’s going in the right direction and clearly the reaction of the network is good, and clearly the shaping is heading in the right direction, On medium-haul, we have a slight decrease of capacity minus 0.8% that is a slight positive impact on the RASK 0.4%. On the long-haul, as you can see we increased the capacity by 2.3% with a RASK negative 1.3%.

You have the different geography on the map, maybe we should mention North America with a capacity increase by 4% and a RASK which is down by 1.3%. It’s not that, that’s such a bad number, but remember that in June it was up.

Since the beginning of the year, it’s not that bad, but we definitely see the impact of overcapacity in the United States, and even more in Canada. In South America, we have increased our capacity by more than 7%, with the yield – sorry, with the unique revenue down 10.4%.

This - half of this is coming from Caracas. If you remember that we had very profitable route last year which started early this year to sell tickets locally.

So the revenues underlying has been down. So this is accounting for about half of the decrease, but it’s clear that we are also hit by the weak economy in South America, and some overcapacity in this market.

In Asia, we have capacity which is growing by 2% with negative RASK variation of 3%. And here again you find the overcapacity in this market, especially on South Asia and Southeast Asia, where we are facing the tough competition of the Gulf carriers.

Africa, capacity is stable, with the development of RASK which is positive plus 2%. There is some contrast within Africa, because the western part and Central Africa, West Africa is doing all right.

And it's fair to say that we see limited impact of Ebola. You know that we have closed one line in Sierra Leone.

For the right we have very limited impacted on Ebola so far. On the Eastern part of Africa, we see pressure on the yields.

Difficult to say, whether it’s seeing to Ebola or to other factors and especially the pressure that we have from competition coming from the East. So that’s what we see today, but as you can see Africa in the third quarter has been at the end of the day has a resilience, with the exception of Eastern Africa, that leaves, especially KLM, which is more exposed to the part of the world.

For Cargo, page 10, there is no, no big change compared to what you can – you could draw from the first half of the year. We carry on with the restructuring effort, especially on Charles de Gaulle side, with full-freighter capacity which is down by 7%.

This is based on July and August number, because for September we have the strike impact. So it’s a bit more difficult to assess.

The unit cost is down 1.8% as the total of the cargo operation in this context of reducing capacity. We had definitely a disappointing operating environment in Europe which is still sluggish.

As you can see, the RATK is down 2.1% like-for-like. You remember that we had during the second quarter some better demand which allowed for increase in load factor on stabilization of the yield in the third quarter.

We struggled actually even to maintain the load factor. So definitely, as the environment is in line with what we have seen for a while now which is overcapacity coming and full-freighter operators.

The discussion has started with the unions in Schiphol to implement our decision to reduce the number of full-freighter and we would be moving forward along the schedule, On maintenance, Page 11, in the third quarter, we benefited from an increased external revenues of 5% constant ForEx and this is on the impact of – an effect of the Barfield acquisition. It's fair to say that we are still facing low level of sales in small engine business, with a very limited number of shop visits, so that’s what we see.

Clearly, airlines are managing and there is a lot of competition. Still, it’s a good quarter for maintenance, because even if we have been impacted by the strike, with an impact of €22 million due to a lower level of internal activities especially on the airframe.

We see that the margins were slightly up and excluding strike, it would have even been very strong result, because we end up with a positive variation of €7 million like-for-like plus €27 million, so it’s a stronger – it was strong quarter, due to higher margin activities, also some one-offs that we benefited from this quarter. We have some negative last year, some positive this year, but still it’s a strong quarter for maintenance which is going in line with our expectation.

You know that this business is growing and we see benefits from strong backlog over €5 billion in maintenance. Page 12, a few words about Transavia.

Our strategy of growing our low cost business is on track during this third quarter. We manage to do a strong growth in Transavia France, with an increase of capacity of over 20%, while maintaining the RASK even improving slightly plus 0.5%.

I think is clearly an achievement that shows that there is in the French market a strong potential for Transavia given the use of f Orly and the lower market share of low cost compared to other European countries. In Netherlands, we carry on shifting the model moving from charter to schedule.

Charter capacity is down by 4% in the quarter where scheduled capacity is up 15% and the negative cost development in Netherlands is really linked to charter while on the scheduled part definitely behaving reasonably well. Despite the strong growth in operation, Transavia posted stable operating results in Q3 which is in line with our expectations.

Page 13, you have the wrap of the change in operating costs. As you can see, they are up by 1% in constant currency, plus 0.8% like-for-like with EASK up by 2%.

Employees costs are down by 1.7% at constant ForEx; supplier costs up 3% at constant ForEx. In that line you with some strike costs, especially the compensations and some extra cutting.

It’s difficult to say exactly how much probably about €40 million €50 million which are hurting on that line. Aircraft costs down 1.2%, and purchase of maintenance is plus 0.6%, which is not too bad, you know this time is under pressure due to escalation clauses in some of our step-up and maintenance contracts.

The fuel is down by 6.4%, it’s actually plus 0.4% like-for-like with an increase in EASK of 2%. So, it’s clearly taken in account both efficiency and the slightly lower fuel price year-on-year.

You remember that we are 70% of fuel which we hedge for each quarter– for each current quarter. Employee costs, page 14, just a few words to mention that headcount reduction in Q3 is about 780, it is on track We are expecting that this decrease in headcount will slow down during the second half of the year with a significant amount of fleets that will incur actually at the end of March 2015.

So this is in line with expectation. We still manage to convert the decrease in headcount into decrease in the total employee cost, managing the wages and also benefiting from the seniority of the people who are leaving the company which helps to maintain reasonable costs for staff.

Page 15, it is actually the summary of what we just say. We report an increase of unit costs of 1.6%.

This is due to the very high level of the decrease in our ASKs on the account of the strike corrected from the strike as the currency, the fuel price, and any change in pension expense. You see that the unit cost is down by 1.2% which is Transform 2015.

When you look page 16 to the waterfall of the Q3, you see on the right-hand side that we have identified strike impact for minus €330 million. Excluding the strike, the operating result of the third quarter would be down by €64 million.

Part of the €64 million is coming from the macro that is the currency impact minus €47 million plus €20 million on the fuel price. You see the very significant impact of unit revenue decrease, minus €130 million.

You see that we benefit from our unit-cost management, together with the pension, it make about €80 million and activity is plus €12 million. It gives you the bridge between the two quarters.

I think the main reason is that we had to pay during this quarter a significant decrease of the unit revenues which is above our capacity to reduce the unit cost for this quarter. It's obviously different from the beginning of the year.

Operating fee cash in nine months, that’s Page 17, you see that it’s close to €900 million where it was €10.71 last year for the first nine months. So the operating cash flow is down by €180 million and this is linked to the EBITDA decrease year-on-year of about €200 million that we have seen at the beginning of the presentation.

The restructuring costs are €162 million. They are ahead of what they were last year and we are nearly completed the program for this year, there would be very limited restructuring cost for the fourth quarter, much of 2015 has been done already, the rest will come in 2015.

Change in working capital is positive plus €272 million was plus €317 million last year. You need to be careful on that one, because at September and we have not yet booked all the impact of the strike.

So we expect a negative variation of the working capital because some tickets that were not used has not been repaid yet. Some costs which have been charged to the P&L has not been cashed out yet and we see in October, this cash out coming in.

So we anticipated obviously the variation of the working cap in the fourth quarter to end up probably at around with a slightly positive number. That’s our expectation today.

Investments are set at €1100 million, up compared to last year €900 million. For the third quarter they are pretty close to what they were last year.

So after high H1 investments are putting down and they are consistent with our target to have net CapEx of about €1.4 billion for the full year excluding the impact that we’ve plan on the A340. The net debt is size €5.3 billion, including a negative ForEx impact, especially on Venezuela of €480 million.

That is for the numbers. Maybe just highlight on our liquidity position.

We have a cash position at September end of €3.2 billion. We have – and on the credit line of €1.8 billion on the two airlines and at the holding level.

We’ve been, you have been in the market in June, you remember to issue €600 million bond which helped the financing €700 million that we repaid in January. We have about to - close to €100 million of existing bonds in the market.

And we’ve raised also over €300 million through the Amadeus shares disposal that we have completed during September. You have Page 19, the financial ratio that we are used to see; you see that there – if you look at the right-hand side, the adjusted net debt-to-EBITDA is up from €4.2 million to €4.4 million and the net debt-to-EBITDA is up from €2.9 million to €3.2 million.

We have retreated in the red or pink blocks as the impact of the strike, not in the depth, because I mean clearly we have an increase of the debt which is included to the strike and it will stay, but on the EBITDA and corrected from this number you see that we are moving on along a roadmap to decrease these ratios and it would have been 4.0 compared to 4.2 for adjusted net debt-to-EBITDA and so there is 2.7 compared to 2.9 for net debt-to-EBITDA. Definitely it show the half.

On fuel bill, just to give you some numbers, because I am sure that it’s something that you are looking carefully at. As you can see, we expect now a fuel bill for the year to be closer to €8.9 million excluding the strike would have been probably €8.8 million given that we had indeed this strike.

So Q4 is expected indeed to be down compared to last year by about €150 million, including the impact of the hedging. We are today 70% of Q4 which is hedged.

So on next year based on the current cost and the solar costs, so you need to be careful. But based on the current market conditions, and including the impact of our hedging portfolio, as you can see we are 55% of 2015 bill expenses – fuel expenses which are hedged.

We plan to have a fuel bill of about €8.2 billion. That’s the current situation and obviously it can move from one day to the other.

So all in all, Page 21, when we look at the outlook for the full year, definitely, we will benefit from the positive impact of Transform 2015 on the costs. There will be some further – even if Transform 2014 is slowing down in the headcount decrease for the second half of 2014, it will still give positive impact in Q4, probably at a lower base.

Let’s say €30 million to €50 million to come again in Q4. We faced a tough market.

We expect a negative variation in unit revenues for Q4. Actually, for passengers it will be close to be stable, maybe slightly negative close to this level.

So a bit better on what we’ve seen in Q3 and this is no more given that we expect overcapacity to be lower on Q4 than in Q3. On the top of this basket spend, we see a further impact of the strike for €50 million to €80 million coming on deduct of this variation that I just indicated on the market and the revenues.

We has built a winter program. We see in Q4 a stable capacity except for Transavia.

So the discipline is still very strong and we stick to this golden rule in managing the revenues. We will benefit from a lower price but, obviously we will also face a strong US dollar.

So not all the benefit of the – it will slow, but definitely we will lose some of it on the phase of the currency. And that’s the reason why all in all we have revised downward our guidance from July €2.2 million, €2.3 million for about €500 million for strike and depressed unit revenues and unfortunately, we have no signal that the expense would be improving and definitely the Q4 expectation is not at the ahead of the range that what we have and that I tried to explain to you during this.

I think that is for the presentation of the account at the end of September. I think that I would just mention beyond the number that Perform 2020 is on the move.

I mentioned what we are doing in terms of capacity for the winter season, you should understand that we are also working on the point-to-point capacity and we will carry on in 2015 reducing our capacity in point-to-point. So we are moving forward.

You know that we are also created this business unit in Air France for the point-to-point market bringing together hub and Air France management tea. So that is definitely started to move.

We are moving in the reduction of the full-freighter fleet, four full-freighter aircraft will leave the fleet by March of 2015 both in Air France and in KLM. And as you know, we are also working on Transavia France.

I'm sure that there will be some questions, and I we look to make good progress in line with what have been achieved over the last few weeks after the strike. Thank you for being patient and listening to all this information and now we move into the Q&A session.

And any of you can ask for questions from the attendants.

Good morning. It's Jarrod Castle from UBS, but close enough.

Three questions, if I may please? Just want to get an understanding, just where negotiations now stand with the unions and I guess the relationship with the unions are post the strike, how constructive are the conversations?

Secondly, just in terms of the fuel and kind of the tailwind, I mean, do you see yourself giving back some of the tailwind to consumers? Or do you think you'll hold onto the majority of it?

And just in relation to the $8.2 billion, clearly you are also hedging your dollar exposure. Can you maybe just express it in terms of the $8.2 billion, how you'd see that in terms of a euro amount, given your hedging ratio and current kind of euro spot rate to the dollar?

And then just lastly, what is your expectation on the restructuring charge now for 2015? Thanks.

As you know, we made good progress in discussing with the pilots, the French pilots union on Transavia. We have finalized an agreement and now it is in the hands to go through their own process of approval, which is a lengthy one.

And that's a sensitive issue. So I will not comment.

But we have been through the finalization of this agreement. And now really we expect in the coming few days for them to start officially the process.

We shall see exactly what we end up – what we end up with. However, as you can imagine, we are working on our B plan.

They are aware of that. So, we are definitely – we have some intention to move on this subject.

It's a good question that you raise on the relationship that we have with the unions. Clearly, it's a severe blow as you can imagine, in this discussion.

We need to overcome the consequences of the conflict with the pilots themselves. And I think that, obviously, being in the situation of signing this agreement would help.

It would be a good news because this industry it would help to heal the wounds of such a significant conflict. But also it triggers some worries in other parts of the company, because many, many people it's very apparent in KLM.

But it's also true in Air France for other categories of staffs. They are not – they are afraid that they would have to pay the price of the pilot strike.

And so in the discussion with the unions we need to definitely say a strike is one thing, then what we need to achieve with Perform is another thing. And that's definitely part of it.

So I'm not – I will not deny that definitely the strike is not accelerating the Perform process, because indeed, in the discussion that we have with the unions, we need to be careful and we need to take more time to explain what we want to achieve and why – what is the rationality behind the efforts that everybody including the pilots, need to execute along the line of Perform. So we are working on it.

Definitely, the strike was not a good news. But we have started all these discussions already and we are making good progress on that part in explaining why we need to go further despite – and it's not because of the strike, but because of the environment and our own transformation process.

Your second question on fuel and unit revenue is a few hundred million dollar question I mean, we definitely believe that we will keep some of the price advantage. But we also make the assumption that part of it will be transferred to customers in a market where there is overcapacity, there is a real risk that part of the fees on the cost structure would go through the customers.

Today, we can't say that we see that as a major trend, but it's pretty new. And I think that we need to be careful.

And I will not permit in saying that we will keep the majority of it. We'll keep a significant chunk.

It could be well above the majority, it could be below. Today, unfortunately I cannot comment on that.

What we will get out of the decrease in the fuel bill is indeed you cannot take $700 million, $8.9 million minus $8.2 million for next year, because part of it will go away with the euro-dollar. I cannot give you the amount and the volatility on the euro-dollar is also very significant.

So, today, to me it's impossible to give you this number. I cannot comment neither on the restructuring cost in 2015.

The reason is that we are now discussing with the unions about Perform 2020. We have not yet been through the negotiation.

Of course, discussions will start in KLM in November, December. Discussions will start with Air France probably a bit later in during the end of the winter.

So, today, it's impossible to give an idea of the cost of restructuring, given that we have not decided for the further Perform 2020 measures. I can confirm however, that for Transform 2015, we have a cash-out on restructuring, which is still about €120 million.

But this is on account of Transform 2015 and on Perform 2020. So you can take that number as the minimum.

Okay. Thanks very much.

Yes, good morning. I just had a couple of questions on Transavia please and then also one following up on the winter environment.

Just on Transavia, I'm interested to know with the draft agreement you have with the new pilots, what kind of limitations are there in terms of your growth rate and the expansion of that going forward? It looks to me like you commented in the release that you're expecting to take that aircraft fleet up in France to 37 aircrafts by 2019, which looks like about a 20% growth rate.

So any color you can add there in terms of what or are there any further limitations to this in terms of aircraft cap or where Transavia is allowed to operate would be useful? And secondly, what about the financial targets that you gave for Transavia at the Perform 2020 presentation?

The targets of breakeven or medium in 2017, does that still stand? And then finally, just looking at the capacity environment, as you go into the winter, clearly, you've highlighted there is still a lot of available capacity around, particularly, Asia as well as North Atlantic.

What are the key regions do you expect to see, I guess continued pressure into the winter as opposed to regions where the situation is improving more quickly? Thank you.

On Transavia, the new agreement that we have finalized allow us to increase the number of aircrafts that will operate from 14 to 40 4-0. With that number, which has no specific saving year-per-year, it clearly allows us to go through the full development of Transavia France over the next few years.

We have also a clear authorization to operate wing-to-wing on over 25 routes beyond the 14 that we do have already. And we operate from a fleet of 737, this has been agreed also.

So, I think that the key principles of developing Transavia France are secured within this agreement. Obviously, we gave, as you imagine, we gave some compensation to pilots.

The main one being that we protect the level of activity in Air France including not flying in Charles de Gaulle through Transavia and when we go for wing-to-wing, not transferring flights from Air France to Transavia. That's the basic balance of the agreement.

So, definitely it is consistent with the plan that we had with Transavia France. And that's why we are quite eager to get the approval of this agreement.

You know that we have stopped the Transavia Europe project. In terms of financial impact on the business plans, it doesn't hurt because, as you can imagine, the recovery of Transavia Netherlands and the growth of Transavia France are coming earlier in the business plan than the breakeven of Transavia Europe, which is a Greenfield development.

So, clearly what happened, it has no negative impact on our strategy and our targets to breakeven in 2017 on Transavia. So, no negative impact of this discussion.

Why aren't we more positive on the development in Q4? When we take all the forecasts on capacities in the Q4, we see that capacity was up quarter-to-quarter in Q3 by 6.3%.

And when we look at the Q4 number, on the same base, we see that capacity is up by 5.5%. So it's better, but still it's not that better.

So, that's what we see in the European long-haul market. So it's fair to say that in North America there is a significant decrease of the growth of capacity between Q3 and Q4.

That's true. But on other areas unfortunately, it's not the case.

Middle East it's – they are increasing. Latin America it is increasing.

So, we have areas where indeed the capacity in the Q4 is rather high. And also, you may take in account that when people announce winter capacity, it relates to the winter season, and sometimes October is not really in the winter season, which means that we get a better impact for the full winter than what we get on the Q4.

So that's why we are still cautious on our Q4 revenue assumption.

All right. Thank you.

That’s very clear. Thanks.

Well. Good morning.

If I could ask three questions please? The first couple on the OpEx side.

Just with respect to Transavia unit costs, I was looking for some insight into the unit cost development in Transavia France, where you can see from the third quarter, you are growing ASKs by 8%. So I am not really sure how unit costs do not fall when you are growing by 8%.

Are there implementation costs in there? Or are unit costs at Transavia France at least falling?

The second question on employee cost savings, you obviously mentioned that there is a slowdown in the savings in the third quarter in line with your plan. But do you envisage that we start to see employee costs stabilize pretty imminently or are there more declines to ramp up again through 2015?

And then the final question, just on Asia revenues. If you look towards the total revenue line the way you reported so we have ASK and RASK, the revenue performance has actually been flat in the third quarter, which is a bit of an improvement on the second quarter.

But, it just makes me think, is there a need to be more selective in how you approach Asia given how frustrating that market has been for sometime when you can't even grow revenues.

Thank you, for these very clear questions. On the unit cost of Transavia, it has indeed actually it does not improve over the third quarter despite the strong increase in capacity.

This has to do with startup costs. It has to do obviously with significant marketing costs.

I think for the quarter, it’s is €7 million, talking from the top of my head. So significant marketing costs in Transavia France that indeed supports the level of cost and prevents us to benefit from a lower cost in Transavia France.

Employee costs, we expect employee costs to carry on declining. Let's say it may be different from one quarter to the other, but we have a negative trend in employee costs up to the first half of 2015.

And this is in account on the further leaves that we are expecting in the first quarter 2015, which are significant in Air France. So it will help moving the employee cost down for a few other quarters.

So this stabilization is not yet there. Revenue is flat in Q3 and you point out the disappointment that we may have on Asian routes.

Well, if you look at the numbers on Q3, you can see that on Asia, we have basically – we have a slight increase of ASK with a decrease in RASK. That's part of the network management, I mean, you need to be careful.

If you look at routes we operate in Asia, we have reduced already some frequencies. They are routes that we need to operate, because our customers, and especially our business customers expect us to provide a minimum offer and that's part of the network management.

However, however, we are working now on the summer capacity program for 2015 and it's clear that we will take in account the variation of the unit revenue in some areas of the world, and this will have impact on the capacity for summer. You know that we have posted for – with Perform 2020 a target to grow our long-haul capacity by about 2%.

This is a mid-term target. It doesn't imply that we feel obliged to grow by 2% every year minimum.

There may be years at 3%; there may be other years below 2% and 2015 given the current environment, we need to be careful and we need to take in account some disappointing results when shaping the network and that is the current discussion that we have. We will update you as soon as we have the summer program.

That’s great. Thanks Pierre-Francois.

Good morning. Two questions from me please.

Firstly, there has been a bit of press out yesterday about the CGT going on strike on the 4th of November and that's going to include airport staff in France is my understanding. Do you see that as material an issue for the fourth quarter?

And secondly you are clearly running in to the sort of fee renewal in your discussions with ADP in December. How much scope do you think there is to achieve a reduction there given the assessments we've seen in Spain for example?

Thanks.

On the CGT strike in November, we don't see that as an event. So we do not expect to see any material impact on our fourth quarter.

On the ongoing discussion with ADP, as it is a current discussion, I would not comment. But you should not expect a huge decrease, I mean, that's a tough discussion.

But I won't comment on the current negotiations.

Okay, thanks.

Good morning. Three questions please.

This seems to be the fashion. First of all, could you talk to us a bit more about on the revenue side what you are doing or what you are thinking about to win back passengers after the two week strike at Air France?

Are there any initiatives under way? Are there any costs attached to them?

And if so could you give us a flavor of those? Secondly, KLM, I noticed in the numbers profits they are down despite the absence of the strike.

Is that all revenue-related? And if so, could you give us a little bit more detail of what's driving that?

And then very finally in a sort of bigger picture on Latin America and East Africa, how will you tackle the overcapacity and competitive issues there? Is there going to be a further refocus of the network?

Will you pull back some of your frequencies? Or will you downgrade aircraft?

Are there any thoughts about how you are going to react to that? Thank you.

Thank you. On the post-strike impact, first I will mention that based on the latest report that I have, we are recovering along what we expected.

And we are – we now have a better view on, obviously, October numbers and they are in line with our expectations. So, we are recovering and the recovery plan is doing well.

It is different for corporates and for the pure retail, as you can imagine. We are working very hard on corporate, because it's important to be there.

And the feedback that we have is basically it's a very simple one, okay, guys, this is the last one. So our corporate customers stick to us.

But, they clearly say that this will not happen again. That's no big surprise.

But the good news is that, we – they are coming back and they are coming back online, in line with expectation. For retail, we have been in the market with some promotion with some fares which are attractive.

This is part of the unit revenue development that I mentioned. You remember that I said that the strike would have a further unit revenue impact.

This includes some efforts that we make to bring back our customers in the start. And this is clearly done.

I mentioned that the further cost of strike during the fourth quarter could be €50 million to €80 million. So it includes lower booking load factor and also all the efforts that we make to get all the people back.

KLM performance in the third quarter was definitely disappointing. Yes, it was on the account on revenues, mainly.

It's fair to say that the costs are up anyway. Unit costs are slightly up quarter-to-quarter.

You remember that KLM has been performing very well over the past few years. They started Transform a bit earlier, maybe it was not named Transform, but they started the updation – at cost adjustment a bit earlier.

And now in the second half of 2014, we see that the cost-cutting programs are been completed, a lot of efficiency have been done. And now the programs are running out of steam.

So that's why they were not able to post a strong contribution in unit costs. But the blow came from the revenue side from Asia and from Eastern Africa.

Definitely, KLM was badly hurt by the development of the revenues. And that’s definitely what we need to address, because there are – these are two areas which are important for KLM and we are working on it.

You mentioned, how well do we react basically through these tough market conditions and you mention Latin America and East Africa. I just answered about the summer capacity and definitely the network will be under pressure for summer.

We will be working on that. On Latin America, maybe more and more specially, you know that we have this partnership with GOL.

We have just been through the discussion for the winter season. And GOL is making now adjustments to its network for the winter.

So that we tried to increase our connecting passengers in the main routes to Brazil. This is the sort of thing that can really help driving up the unit revenues.

So, we are working on the network. We are working on the partnerships and we are working obviously commercially to make sure that we get the maximum of our competition position.

East Africa is with Asia another topic where we really need to change the network.

Thank you.

Hi guys. Good morning.

Two questions if I can. First one you mentioned in the statement that you intend to adapt your investment plans.

Could you give us an indication of what that means, is it a reduction in aircraft CapEx or selling assets? And secondly, just in reference to pricing, you mentioned on premium economy and I guess economy on long-haul, can you give us some idea about is the weakness there coming from connecting traffic or is it coming from point-to-point traffic at Schiphol and Charles de Gaulle?

Thanks that would be great.

On the investment plan, we cannot ignore two things. The first one is that the unit revenue development is different today than what it was six months ago.

And the second thing that we cannot ignore is that we had a strike that cost us in the balance sheet net debt impact would be not all the €500 million, but let's say 80% of the €500 million. So let's say €400 million in the balance sheet.

So we cannot ignore that this happened and this needs to have also consequences and that's the minimum that we can say. So definitely, we need to adapt our – especially our free cash flow target is there.

So we need to adapt our cost structure, our CapEx plan to make sure that we stick to this plan. We don't want to jeopardize the key principles of Perform 2020.

So we need to manage very carefully all the asset base. This includes the fleet, of course, and this includes basically our portfolio of assets.

So we'll be working tough on the CapEx and as you can imagine we are in the budget process. So we have very tough discussions with the businesses to make sure that we get the best in terms of cash, both on costs and CapEx.

I mean I won't comment further on that. We will not jeopardize the key principles of Perform 2020, but we need to adapt to the reality that we have.

And clearly, when you look at the Transavia numbers where you see that they are bang in line with expectations. So it gives credit to the CapEx plan.

When you see the unit revenue pressure, and then you clearly see that you need to manage your capacity on long-haul. And that definitely is exactly what we discussed a few minutes ago.

That's exactly the sort of discussion we have and there will be adjustments in this investment plan according to what the business is doing. That's a very, very normal way of steering a company and we will apply.

On the eco - and on the pressure on unit revenue that we have, it's not easy to say what is coming from connection what is coming from point-to-point. But if you look at some routes, for example Canada, it's clear that some point-to-point pressure is there, not especially connecting.

And also what is interesting to see that the trends that we see in Paris and Schiphol are very similar. So, there is no specific issues that we would be facing in one case or the other.

I mean, clearly, when we say the same geography, we see the same trends. And you know that the point-to-point pipe – part is higher in Paris than what it is in Schiphol.

So I don't – it did not came – it did not come as a major difference connecting versus point-to-point in the unit revenue variation.

Okay, thank you very much.

Hi there, guys. You've had a lot of simple three questions.

Let me ask one complicated single question. Can you talk about relations between the Group and KLM?

Because there seems to be what's the right adjective, a lot of excitement or tension in the Dutch media around the leadership of KLM, around potential restructuring. How are you guys going to manage through this when in recent years KLM has been strongly outperforming Air France, but now there is the need to push on with further restructuring efforts, because it appears to be a sort of fresh tension within the Group?

Well, I start with the complex one, if I understand. Okay.

I am not an expert in psychology and I am better at numbers than in the sorts of things. What is for sure, two things are for sure.

The first one, as you pointed out, KLM has been outperforming Air France over the (Inaudible) Okay, I hope that you can all hear me. Yes indeed, KLM has been outperforming Air France in margins for the last year.

But when you look at the Q3 number, it's clear that there is a pressure with the KLM results, because the unit cost reduction is not there anymore, exactly what I answered a few minutes ago. And now clearly KLM needs to face a tough revenue environment and needs to adjust rather its cost.

Nothing to do with the (Inaudible) that we've heard over the last few days, which is a total non-sense to be very clear. But indeed, there is a need to further adjust the cost structure of KLM.

That's the first item. The second item is that, we have been through a management change in KLM.

You remember that when Peter Hartman left, there has been a dual structure which has been put in place with two senior managers, Camiel Eurlings and Pieter Elbers. Decision has been made to shift from this dual structure to a single head structure, that’s as simple as that.

These two items, as you can imagine, create the condition for a press and buzz, why? Because some people, for example in the unions, see that some tough measures are coming and in this case, you shout before being hurt.

That you expect the blow will be lower. So I think that has a lot to do with the adjustment efforts, which are going to be asked and they know it's coming because they know the results.

Everybody knows that something has to be done so there is a sort of preparation. I am not surprised that people say, oh!

Here comes a big blow, et cetera. That's a bit of the gimmick that you would expect.

And then when you have a change of management like that, second topic, you always have some buzz and some consequences. I don't think we should really – we should overemphasize what's going on.

KLM is a very important company in Netherlands, very visible like Air France in France, and you are not surprised to see that it's running on the front page of the newspaper. At the end of the day, there is no discussion whatsoever, no opposition whatsoever between the senior management of KLM and the senior management of the Group.

There is no position whatsoever between the supervisory board of KLM and the Group. So there is no plans whatsoever to do anything with KLM.

So, we are just in the middle of a buzz. It's most unfortunate and it doesn't come at the right time.

It's fair to say that the strike with Air France is probably shaking confidence in the Netherlands. Actually, it's shaking confidence everywhere, including in France; people were surprised by such a big blow.

First being said, it is instrumented for some reasons I mentioned by some people. We should not be more worried about that.

And the only thing is that it should not take the management attention away of what needs to be done and what needs to be done is Perform 2020 and we should stick to that in Air France, in KLM and in the Group. And I think that, we feel very strongly about that and I feel personally very strongly about that.

So we stick to running the business and everything will settle down.

Hi, good morning. Just one question please.

You booked negative equity at the end of September quarter. I am assuming that's due to revaluation of pensions, if I could just confirm that?

And furthermore do you see any requirements whether legal or from an accounting perspective to take action on the balance sheet?

Thank you, Suzanne. That's a good catch.

Indeed, it is on the back of pension adjustment. You know that the long-term rates paid in the Eurozone have come down by more than 100 basis points from 1st Jan 1 to September end.

We have then revised according to IFRS rules, the discount rate of our pensions. So the DBO has gone up very sharply over the last three quarters, over €3 billion.

We have some compensation on the asset side. We have some compensation on the deferred tax, but still the net impact is very strong; for the full nine months, it's €1.8 billion.

And this is what is bringing our consolidated equity slightly negative at the end of September. Difficult to say what it would be at the end of December.

We are working on some assumptions, and there will be also you see the fourth quarter events. Well, you are familiar with IFRS regulations.

It's fair to say that under IFRS, equity is including many things including this pension, the fair value of portfolios, and many other things. I don't that we should pay too much attention to this number, even if it's not comfortable to be the CFO with a negative equity.

I am not saying it's good but I'm saying that, unfortunately it starts to be a bit meaningless. There is no legal requirement or whatsoever which is attached to the consolidated equity.

There is in France some legal requirements, which are attached to the local accounts, the statutory accounts. But here there is no problem in equity at all and it's not also – there is no impact of the pension all that stuff.

So we are comfortable with that and we are not under pressure to take any action from legal requirements or even from covenant perspective whatsoever because we have none. However, I mean, as I mentioned, I would be better rough with a few billion of equity, but unfortunately IFRS wipe it off.

That’s very clear Pierre-Francois. Thanks very much.

Hello. I just had – more out of curiosity than anything else, I think you were saying that some of the economic surplus you'll be getting from lower fuel, some transferred to consumers.

I was wondering, whether you see that on incremental capacity growth from other people or just the same amount of capacity in the market, but people looking to try and discount a little bit. Thanks.

I think that I will now exactly the same answer for passengers and cargo. I think that on passenger, I doubt that much more capacity would come on the market.

It would be more that in a market, which is a bit unbalanced clearly if you have some ease on your cost structures some people may be tempted to decrease some price expectations. On cargo, you know that you have many air crafts, which are grounded today, because they are highly fuel-intensive.

If the jet fuel price was declining further, we may see some full-freighters coming back, because they would be in a better economic terms. For us, it's not very sensitive given the direction that we have taken to have full-freighter, but it could create some further pressure on the cargo unit revenue for the time-being.

And it's – I don't think that we will see that immediately. It will take some time and it will take time for operators to be sure that the fuel landscape has changed for a while before making the decision to get our cost back.

Okay, that’s helps. Thanks.

Yes thank you for taking the follow-up question. I was just to ask about the flexibility you have in your capacity and fleet given your comments about summer next year, in particular the older members of the fleet versus 747- 400 across Air France and KLM and the A340s across Air France.

How close are we to any sort of potential breakpoints in the operating leases or even potentially state clauses in the finance leases in those parts of the fleet. And how much contingency planning is going on for fleet flexibility next year or will it simply involve a reduction in utilization if you were to grow less next year?

We have – we are operating aircrafts, which are close to full depletion and they are on the balance sheet and these are the ones that you mentioned which are old aircrafts. We are also – you know that sometimes people are upset with the very large number of operating leases that we have.

But it gives also some flexibility. So indeed, we have, even including the long-haul fleet, we have some flexibility in managing our capacity.

Now I think that the key question is definitely, how many underperforming aircraft should we phase out in the coming years including 2015 and you pointed out the right ones. The A340; that is the 747.

These are aircrafts, which are performing obviously much less efficiently than the new generation ones. I mean, that's definitely part of the issue.

But you know that managing capacity has an impact on the asset base, but it has also an impact on the staffs. So that's why it's very – it's always a tough decision and I think that's what we are working on for 2015.

Okay, clear. And just be quite clear, the A340 fleet is there a common type rating for the pilot and cabin crew with the A330 fleet, can they strikes the cost if maybe?

Yes.

Okay, thank you.

Okay.

Thank you, thank you very much for attending the call and thank you for your questions and obviously the IR team would be happy to go forward and if there are any further points that you may have when looking carefully at the numbers. Thank you all, bye.