Air France-KLM S.A.

Jean-Marc Janaillac - Chairman and Chief Executive Officer of Air France-KLM and Chairman of Air France Pierre-François Riolacci - Chief Financial Officer Marie-Agnes de Peslouan - Head of Corporate Finance

Michael Kuhn - Société Générale Daniel Röska - Sanford Bernstein Jarrod Castle - UBS Neil Glynn - Credit Suisse Securities Damian Brewer - Royal Bank of Canada Jack Diskin - Goodbody James Hollins - Exane BNP Paribas Johannes Braun - Commerzbank

Thank you. Good morning, everybody.

So, we start with the third quarter. Around the table, right now, we have the IR team, Marie-Agnes de Peslouan and Dirk Voermans that you all know.

I am also very pleased to have Frédéric Gagey, who is going to replace me from today actually. So, we are really [indiscernible].

And Erik Swelheim who is the CFO of KLM, who is also attending the call. I will start right away with the third quarter.

Jean-Marc is expected to join us in a few minutes. Just to mention the highlights.

Of course, it was a third quarter with the impact of capacity growth that was expected, plus 7%, 8%. That’s on the supply side.

On the demand side, it’s fair to say that we have not seen any improvement in the trading environment. Still, the geopolitical and economical uncertainty, but also the fear factor, especially in France which is still around.

We benefited, again, from a strong tailwind from fuel for about €400 million. And still despite this environment, we have posted mitigated results.

If you look at the operation, we have, of course, the strike of the cabin crew for €90 million. That is an impact on EBITDA and EBIT, with a split of €60 million on revenues and €30 million on cost.

But beyond that slight impact, it’s clear that the passenger network business was less strong than it was in H1. And this is due to persisting cyclical [ph] flows to France, in particular, but, moreover, the imbalance of supply and demand, which is not [indiscernible].

All in all, the Q3 unit revenues on the PAX business, on the passenger business is down 7.6%, adjusted from currency, down 6.5%. I would like to highlight, however, a few achievements of Q3, which are very important.

Of course, our unit cost is down only by 0.2% this quarter. This is on the back of the extra cost we have incurred due to the strike and also the lower ASK production due to the strike.

Adjusted from strike, the unit cost is down by 1% in Q3 year-on-year, which is bang in line with our expectation and which is totally consistent with our full-year guidance. Another very important point is that the cargo restructuring has been completed in KLM and the last MD-11 has left the company in July.

And the point-to-point restructuring also in Air France has been successful once again, with adjustment of capacity, allowing for resilience in the unit revenue. Last, but not least, the growth on Transavia has been successful and we see a clear positive trend in profitability during this Q3.

If we move to the key numbers, the key data. Of course, the top line is the main issue, with revenues in Q3 at €6.9 billion, down 5.1% and 4.1% excluding currency impact.

That, of course, for us, more difficult to maintain profits when the top line is under pressure. The strike impact, again, on top line is €60 million.

As you can see in the numbers, the fuel savings have been offset as expected by increased pressure on unit revenues and the negative forex, with Q3 operating results being down by €143 million year-on-year; excluding forex, down €50 million. The currency impact indeed remains strong, close to €100 million during the quarter.

It is in line with our full-year expectation, which is a bit below €300 million – that’s at €275 million. On the cash side, I will comment further, but please keep in mind that our disposal program is expected to be complete during the fourth quarter and the bulk of our disposal will be closed at that time.

That’s it for the big numbers. If we look at business contribution, on the revenue side, there is, of course, the significant impact with the decrease of revenues on the passenger business.

This is due to a discipline on the capacity growth, but also the strike impact and as well as the increased unit revenue pressure. You see, on cargo, the impact of the restructuring and decreased capacity.

On the contrary, you see in MRO and Transavia strong growth, plus 30% excluding forex on maintenance, plus 11% on Transavia. That’s, of course, a very significant number.

On the operating results, I will elaborate, of course, in the coming slides. Again, it is down €140 million year-on-year.

Now, if we move to the business review. On the passenger business, as I mentioned earlier, a strong capacity discipline, plus 0.1%.

Even excluding the strike impact, we are plus 0.6%. So, that’s a moderate growth with very different trend on airlines.

Actually, Air France is down by a bit more than 2% where KLM is growing on the quarter by 4%. On the long-haul, we are flat, minus 0.1%.

Medium-haul is up 0.6%, especially on the Schiphol hub. I mentioned already the strike impact, which is, of course, quite significant.

I mentioned already that the RASK is under pressure, minus 7.6% nominal, minus 6.5% excluding currency. This is definitely on the back of the strong capacity growth of the industry on one side and the softness of the demand, and especially on the routes to France.

It’s worth to mention that the premium is a bit more resilient, minus 1.5%, where eco is minus 7.3%. I’m talking about the long-haul unit revenue.

If you look at the trend over the last few quarters, it’s clear that, since the second quarter of 2016, we have entered a new area where the nominal RASK is significantly down year-on-year. It is a trend that we had already excluding currency, but which is actually further deteriorating in Q2 and Q3.

That’s, of course, the reason why we’ve been very careful over the last few months of what was going to happen in the next few quarters. If we look at the different areas – page 7 of the presentation – I will not elaborate in detail, but I think it’s worth to mention that the bulk of the pressure is coming from North America, Asia and also hub, and especially on Air France hub.

On North America, you see that, despite a stable capacity, plus 0.7%, the RASK, excluding currency, is down 7.6%. On Asia, despite significant adjustment of capacity, minus 6.3%, the RASK is down minus 8%.

And the main reason is that, still as in China, we see no sign of improvement. And even since July, we see some deterioration in the aftermath of the July attack in Nice.

We see a lot of capacity coming from Chinese carriers and, definitely, less willingness to travel to EU, and especially to France. On the medium-haul, you see that the capacity, pretty stable, where cabins actually are growing a bit.

And you see also that the unit revenue is down 6.7%, mainly driven by our Paris operation. On the contrary, you see that, on the point-to-point, the capacity discipline with a negative variation of minus 6%, which is much lower than the previous year, is still paying off and allow us to maintain a RASK, which is a flat zero plus, which is the clear, also, demonstration that the French market itself is not actually hurt.

The French market is not too bad. It’s clearly the routes to France on international market, which are under pressure.

On cargo, we have seen no sign of improvement in the trading environment. As I mentioned, the restructuring of the full freighter fleet of KLM has been completed.

And the last two MD-11s have left in the first week of July. Full freighter capacity is down minus 22%, which is a big number on the quarter.

The unit revenue per ATK has decreased, is under pressure again, minus 15%, both nominal and excluding forex. We’ve seen a slight easing in September compared to July, August.

But nothing really material. We still see a downward trend.

I would like to mention that, despite the decrease in ATK, we are capable to post a decrease of the cost per ATK, minus 2.3%, excluding fuel and currency. And this is, of course, on the back of the very strong restructuring of the full-freighter and all the effort in the light of our cargo operation.

On maintenance, you see that the order book is very high. It’s now going to the P&L with third-party revenues being up sharply, like-for-like, about 30%.

So, that’s definitely a big number. The operating result, however, is stable, minus €4 million, compared to last year.

This is on the back of supply chain challenges that we had already flagged over the last two quarters. The switch of our mature contract towards the new contract; and, of course, there is a J-curve in this contract, so you need some time to ramp up the margins.

But we see also ongoing pressure on engines, especially smaller engines with a lower level of shop visits. So, again, we are very pleased with the development of our E&M operation.

You remember that, during the presentation of Q2, I warned that the margins could not increase every quarter year-on-year. So, we are coming probably to a more stable environment in terms of margins, but, of course, booming revenues.

Another good performance this quarter is on the back of Transavia. We’ve been successful again in growing the capacity, plus 15%, with a pretty stable load factor, plus 23% in the number of passengers.

It’s good to see that now Transavia Netherlands is also growing significantly. At the end of the year, Transavia Netherlands will have nearly completed the switch from their charter alteration to the full low-cost operation.

And now, they can contribute to growth, which I think is a very strong point. Transavia France ASKs are up 19%.

That’s also very impressive. You know that this business is very seasonal, so it’s very important to make a strong Q3, and that was the case, with an improved operating result, like-for-like, by €26 million year-on-year.

And even if you look at the EBITDA year-to-date, at the end of September, again year-to-date, we are close to €180 million in 2016, which is up 40% compared to 2015. So, the growth of Transavia, it starts to pay off according to what we expected.

Leaving each business and going to the full picture. On the operating costs, you see that, excluding fuel, they are up by 3.8% – excluding fuel and forex.

The two reasons are the supplier costs and the maintenance costs. And supplier, we have the negative impact of the customer compensation following the strike, for about €30 million.

We have also some increased amount in the subcontracting, especially in the IT. You see that we carry on decreasing the headcount, but we also outsourced some business.

Another item, another driver of this cost increase is the maintenance cost, which is up 21%. There is nothing you should be scared of.

It’s just that, as you know, we are growing massively our third-party revenues. And when we book €100 million of revenues, we buy outside about 70%, €70 million, in services and spare parts.

So, we grow the external costs and it’s the reason why you see a big increase on that line, but it is fully backed by growing revenues. Moving to the fuel, you see that there is a further significant decrease of our fuel bill this quarter.

A bit less than half is linked to the market price itself. but a bit more than half is linked to the cost of the hedging.

It is not that we have a positive hedging contribution, but it’s a much lower negative hedging contribution. So, we are now benefiting more and more of the full fuel benefit.

And it is increasing, of course, the savings we make on fuel. And it will last again for a few quarters.

If you look at the full 2016 fuel bill, indeed, you see that we still expect a decrease of about $1.8 billion in 2016 compared to 2015. There is no change.

You know that – compared to last time, you know that the fuel cost today is hedged at 80%. So, we have, today, a strong visibility on the full-year fuel bill.

2017 fuel bill is expected around the same level of 2016 today, which is a bit higher than what we had last quarter. The reason being, of course, that the fuel price has gone up.

50% of our 2017 consumption is today hedged. But as you can see, we do not expect in 2017 any further savings on fuel in the current market conditions.

On employee cost, page 14 of the presentation, it’s good to see that we carry on decreasing the headcount again for another quarter. It’s not the end of it because you know that we have different plans in our airlines, which are going to decrease further the headcount.

We have the different HVO project, in particular, in KLM. And we have also another voluntary plan in Air France, which is expected to kick in in the first quarter of 2017.

And that will help to decrease further the headcount next year, for about 1,500 people. What is a bit disappointing is that, despite this decrease of headcount, the total employee costs are pretty stable, which is mainly on the back of the profit sharing because the unit cost all-in-all is increasing, but this increase is explained 100% by the profit sharing.

And excluding profit sharing, our employee costs would be down by 3.5%, which I think is a good number. At the end of the day, moving to profit sharing is also creating variable-ization of our employee costs.

And you know that, for an airline, it is critical. And, for us, it is a very significant achievement.

If we look at unit costs in the third quarter, as I mentioned earlier, it’s down 0.2%. Excluding strike, it would have been minus 1% excluding currency, fuel and pension.

You have the little square on the right bottom of the table, which shows that the reported unit cost decrease is minus 0.9%; excluding strike, minus 1.4%. We have confidence that we can deliver the minus 1% target for the full year, of course, excluding strike.

But even including strike, we should be very close or even slightly above this minus 1%. So, again, no bad news.

On the contrary, we had a good implementation of the plan and unit cost decrease. What is important also – page 16 – is, at the end of the day, the variation of our operating result, I think the – you see the strike impact of minus €90 million.

Jean-Marc Janaillac is joining us, so I will speed up the end of the presentation to give more time for Trust Together. You see on this page 16 that capacity to retain the fuel benefit has been eroding throughout the year and it was even negative in Q3.

That, of course, is a change in the environment that we had flagged during the Q2, from May onward. I would like to mentioned that the Q3 has been broadly in line with what we were expecting at the end of July.

So, we end up with an impact of minus 7%. It is stabilizing now around that number.

We see no further signs of deterioration. I guess, I will have some question about the Q4.

On the cash flow side, no big news. You see that we are growing our capital expenditure, in line with our full-year guidance.

I think that, one of the key questions, we have is in the working capital. That’s, for us, the key incentive [ph] the year end because we have today a level of prepaid tickets in Air France which is lower than last year.

But you remember that we had that deterioration at the end of 2015. So, we have about €100 million uncertainty on the level of the working cap at year-end, which is, for us, an uncertainty to manage.

Page 18, we give you a confirmation of where we stand in terms of investments – €1.8 billion, €2 billion range for the CapEx. We indicate also that free cash flow, after disposals, should be positive between €0.6 billion, €0.8 billion.

So, we have narrowed; and we have narrowed in the lower part of the range. And this is taking in account the uncertainty on the working cap that I just mentioned.

We have a strong level of confidence on our capacity to close the Servair deal by year-end [indiscernible]. And you know that we [indiscernible] Amadeus shares.

That could be honored by the end of the year. We keep open the amount of CapEx for 2017, with a wide range, €1.7 billion, €2.2 billion.

The discussion we’ll have in a few minutes on Trust Together. I will not comment the slide 19 for the sake of time that will give you an update on the pension.

You see that the net pension deficit has deteriorated by about €200 million. This is on the back of the lower long-term euro interest rate.

And I think that we are making progress along the line we explained at the end of July, in reserving the KLM pilot pension issue. On the financial ratio, they improved, of course, compared to year-end, but that’s a pure calculation.

I don’t think I need to comment further. If you go page 21, the performance of our two airlines.

It’s important to note that, at the end of September, both airlines are contributing to the improvement of EBITDA compared to last year. It’s clear that KLM has been outperforming Air France, partly on the cost, with the successful CLA implementation.

And I think this should be commended. But, also, due to the strike and variation in the development of unit revenues.

There is about 2% difference in the deterioration of the unit revenue between the two airlines. That explains a lot of this discrepancy in results due to the French situation.

If we go to page 23, on the outlook, we are still cautious, of course, for Q4. We have no sign of further deterioration.

But, however, we believe that the uncertainty is very high. But, so far, it is not easy, given the change in the basis of comparison with the last year, the Paris attack.

So, we are still cautious about Q4. We believe, for sure, that the fuel bill savings that we get in Q4 will not be preserved for us and that will go to the market and probably beyond.

We are confident – I mentioned this already on our capacity – to reduce unit costs within fuel and forex by about 1% compared to last year. We’ll be very strict on capacity.

Free cash flow expected to be €0.6 billion to €0.8 billion, with disposals expected to be between €0.4 billion and €0.6 billion. We also expect to convert the free cash generation into further net debt reduction, taking in account, of course, the non-cash impact that we have seen already at the end of September.

That’s it for the Q3 results. And I will immediately hand over to Jean-Marc, so that he can take you through Trust Together presentation.

And we’ll have, at the end of this presentation, a Q&A session for both topics. Thank you for your attention.

Thank you, Pierre-François, for your last presentation of the Air France-KLM results. Before you leave the group, I would like to pay tribute to the relevance of your actions and your commitment to Air France-KLM and to highlight the quality of the relationship you have been able to establish with the financial community.

I have no doubt that, in this regard, Frédéric Gagey will be a worthy successor. At the first-half result presentation, then during the series of meetings with analysts and investors this autumn, I told you that a new project, Trust Together, would be announced in November.

And I am now going to give you a presentation on the main strategic orientation. Over the past few months, I have carried out a comprehensive analysis of the group by listening to our employees’ representative and to get an opinion.

So, after this work, we have decided to launch this project, with a strong ambition which is to – for Air France-KLM to return to the offensive. First, to regain a leadership position in the global air transport industry, built around two major airlines, Air France and KLM, combining two European hubs.

So, it means that this model, we think it’s powerful and strong and we want to develop based on this. And second, to be the European pillar of the most integrated partnership in the world.

To be a major point-to-point player within Europe, especially from the French and Dutch markets. Thanks notably to Transavia, the group’s low-cost vehicle became the – becomes the industry reference for customers in terms of operational efficiency, product quality and customer personalization, be a world leader in the airline MRO business, and defend the cargo business in support of the passengers business.

And to realize this ambition, we’re going to have to accelerate our transformation and be able to adapt, on a permanent basis, to contend with the competition and very rapidly evolving marketing trend. So, our group must regain the offensive by generating the resources needed to finance our growth.

This is the aim of Trust Together, a project that is, at the same time, ambitious and realistic and based on the series of strategic priorities. As you’re going to see, in this project, there are more action concerning Air France and KLM because one of the goal of the project is to fill the gap of growth and competitiveness that has been created between the two airlines.

So, the first priority is to regain the offensive in the long-haul. It’s slide number 3.

The long-haul is a market growing at 5% per year and we are confronted too, with the growth of the traditional Middle Eastern and Asian airlines, with more favorable cost structures. And we also see the emergence of new low cost flyers like Norwegian or French Blue.

We are under attack from these players, but we have a very strong strength, especially network between Europe and the rest of the world, which is unrivaled and a significant share in our domestic markets. On this offensive, we’re going to deploy a number of levers.

On the revenue lever, we plan to bolster our alliances based on the increased commercial integration with our partners to benefit from an expanded market position and the sharing of our distribution networks, which is a very powerful tool, in order to be able to offer our customers a global proposition in each market. At cost level, we shall pursue our efforts to improve the competitiveness of Air France and KLM.

Furthermore, to contend with some ultra-competitive situation on loss-making routes and to achieve our growth ambition, we want to create a new long-haul company to complement Air France operation within the Air France group. This new company will constitute the group response to the Gulf State airlines, which are developing at low production costs on key markets where Air France-KLM is fostering its growth ambition.

It will offer a simple, modern and innovative product proposition whose positioning will not be low cost on business and leisure destinations, with comparable standards to Air France in terms of pilot quality and the professionalism of the crews. We’d like it to number ten long-haul aircraft by 2020, with some 30-odd-percent of operations focused on newly created routes.

The aircraft will be operated by Air France pilots that were conditioned to adapt to its competitive positioning. The transfer of Air France pilots to the new company will take place on a volunteer-only basis.

For cabin crews, an independent carrier path will be created to enable this new company to be operated at the level of market cost. The ground operation will also be optimized, benefiting to the maximum from digitalization.

The HR framework for this new company will be negotiated with the unions in the coming weeks. With these new levers, we are targeting profitable growth for the long-haul operation of between 2% and 3% per year through to 2020.

The second priority to improve the efficiency and connectivity of the hubs – it’s slide four – our hubs, which are global in scale, occupy a central place within our network and within those of our partners, and thus our strategy better – and that’s our strategy. Nevertheless, a significant portion of our routes are not sufficiently profitable.

We plan a range of measures to remedy this situation. The group is going to reinforce its measures to improve the operational efficiency of its CDG and Schiphol hubs and support the economic performance of the medium and long-haul operation to and from the hubs.

CDG hub will also gain renewed dynamism through the launch of the new company on the medium-haul network, with a simple, modern and innovative offer. The Schiphol hub will be reinforced by closer coordination between Transavia and KLM, particularly in terms of investment in the fleet and the development of the network and new joint commercial approaches.

The third priority, develop the point-to-point markets on departure from the French and Dutch home market. It’s slide five.

Our point-to-point operations – that is the short and medium-haul flights without connection in a hub – are currently operated by Transavia, HOP! Air France, Air France and KLM.

With the project, the development of Transavia will be focused on its French and Dutch home markets. In France, Transavia will reinforce its position on some routes to compete with the TGV and the low-cost carriers and will develop its European route from Orly and from French provinces.

We shall rationalize the brands and optimize the network in the French market. Starting from 2017, HOP!

Air France and Transavia will be the only two brands in point-to-point. The commercial cooperation between Transavia and the group’s other airlines will be stepped up to expand the offer for customers.

Concerning the ground operation at Paris-Orly and in the French stations, Air France will redefine an operational model on a station-by-station basis to reconcile changes in the profession and activity. The fourth priority, slide six, is to accelerate the growth of our maintenance business.

The maintenance market is growing fast and our Air France-KLM maintenance ranks global number two amongst the airlines with third-party revenues of more than €1.5 billion in 2015 and an order book amounting to more than €9 billion at September-end 2016. To generate the resources to accelerate its growth, the group will launch a review of its business industrial model and its possible corporatization, a move that would give it the means to sight future opportunities and increase the valuation of the group.

Trust Together also includes cross-cutting projects, focused on increased competitiveness, customer relations, and organizational optimization. Slide seven.

To improve its competitiveness, the group plans to act on all levels by pursuing and amplifying the initiatives already underway in terms of unit cost reduction. Air France-KLM will focus its efforts on reducing fuel cost by optimizing the utilization of its aircraft.

In terms of customer relations, Air France-KLM plans to step up its action plans, directed at personalizing the customer experience and increasing customer intimacy, thanks to big data and the ongoing product move up-market. Concerning the organization of the companies, the group plans to streamline organizational structures, roll out digital tools for its employees, and accelerate the digitalization of processes to facilitate collaborative working across the group and gain agility.

The implementation of Trust Together must guarantee Air France-KLM financial flexibility. Slide eight.

We must pursue efforts to improve our competitiveness by confirming the Perform 2020 competitiveness objectives and by improving the cost of fleet utilization and financing. The unit cost transaction target for the 2017-2020 period is in excess of 1.5% per year.

The group will also maintain strict CapEx discipline, by targeting annual positive free cash flow before disposals and by limiting its investments. For 2017 and 2018, the CapEx forecast is between €1.7 billion and €2.2 billion per year.

Deleveraging will remain the priority, with the mid-cycle adjusted net debt to EBITDA ratio target of below 2.5 by the end of 2020. The imperative for Air France-KLM as reflected in Trust Together is ambitious, profitable growth.

I am convinced that this will enable Air France-KLM to maintain a leadership position. To implement these different projects, I have asked the CEOs of the two companies to pursue or launch the required initiatives and negotiation in each of the companies.

In the 2017 second quarter, we shall provide you with more detailed information on the various operational and financial components of Trust Together. Thank you for your attention.

We shall now open the Q&A session.

Operator, can you please open the Q&A?

Yes, good morning. A few things, mostly on your strategy update.

You have shown us a sales target today. Nevertheless, there was no profit target.

Understandable, if you focus, let’s say, on the single year, but it would be interesting what you think what is achievable on a through-the-cycle view and what margin target you might have in mind. Secondly, on the new long-haul entity, you plan to reach a size of about ten aircraft by 2020, which is relatively small if you look at the overall fleet size of 435.

Is there a potential for more? Is this is a minimum target?

Or is this, let’s say, what you can realistically achieve? And also, on this one, what cost structure do you plan to achieve with the new entity?

How much below do you want to be below the mainline? And lastly, on the unit cost reduction target, north of 1.5%, is that regarding all group entities or is that for the mainline and what – yeah, what initiatives are underway to improve the profitability, especially at Air France?

Thank you.

Maybe I can take the – I can try the third one and take the first one. Just on the third one, it’s clear that the target to decrease our cost at least of minus 1.5% per year is a global target.

It includes actions within the mainline, but it also includes the mix effect that we expect from the growth of our Transavia operation and of the new group. So, it’s a total number, global number, adding up everything.

And I think it’s a bit too early to enter into the details of each and every action that needs to be implemented in each airline. That’s exactly what we want to discuss now with [indiscernible].

What is very important that was flagged by Jean-Marc is that the Perform 2020 operation and projects, which are ongoing have to be pursued and they will contribute immediately in the next quarter through this cost cutting which is not new. On the mid-term profit target, I think this is something we should keep for the update that will come after the discussion.

There is no sense to post targets today which are dependent upon many points that need to be discussed. And that’s clearly part of this project which is not a detailed plan.

However, you see that we have this target to be at adjusted net debt to EBITDA around 2.5 below – actually, 2.5 mid cycle. And you know that this is consistent with return of capital employed, which is in the region of 10% mid-cycle.

And I think that this is, of course, compared to, what we call, a bit challenging at mid-cycle. But this is consistent with the earnings capacity of the group that we see today.

So, it’s even slightly above this 10%. So, as a minimum, 10% return on capital employed.

Regarding the number of aircraft in the new company, it’s a forecast; ten is minimum. For the moment, we have these figures; afterwards, we can increase.

But it will not be very different from ten. But ten is a minimum.

And it’s a number that allows us to reduce notably the losses on the heavy loss-making routes.

I’d like to use the chance to wish Pierre-François all the best. And thank you for your great cooperation over the last two to three years.

Thank you.

Hi. Good morning, everyone.

Three questions, if I may. Maybe the first question more broadly on the strategy, which points would you highlight that differentiate this strategy compared to the other airline groups in Europe because it seems there are a lot of the common levers in there that we’ve seen so far also from other airline groups around?

Secondly, you didn’t touch upon distribution strategy that much. Maybe you could elaborate just a little bit more what your thoughts on distribution are going forward, especially in terms of direct sales, distribution costs, and possibly the GDS negotiations coming up next year.

And thirdly, a more detailed question on the comments you made on KLM and Transavia where you said there will be increased cooperation between those two. Would that also include connecting passenger between the two platforms?

And if so, what impact does that have on KLM’s value proposition and Transavia’s cost base? Thanks.

For the differentiation with other European airlines, we pursue, I guess, the same goal, which is to reduce our cost structure by different ways in order to be able to compete against Gulf carriers and the European low cost carriers. So, we have chosen to – or we have planned to make it through the creation of this new company.

Others have used other ways. But, I guess, we have the same strategy which is to defend our model by being able to offer to the passengers, to the client the same kind of long-haul service and connecting up with a lower cost structure.

For the distribution cost, we are working right now within the group with a plan to vary our distribution channels and to use the MDC in order to be able to have a more direct link with all our clients to lower our costs. And right now, we are in the phase of studying the plan and the calendar and we should be able to be more precise in the implementation dates and the different channels in the first half of 2017.

Okay, great.

No, I can answer that. In Transavia, they are working very hard on reducing the cost by 15%.

We’re well underway to go to the magic €0.04 per ASK. So, you see that Transavia is approaching the lower cost levels.

The cooperation with KLM, we see more and more the two models are converging. It’s no longer only leisure with Transavia.

They also have business destinations. And it’s no longer only business for KLM.

We also fly, as of December, to leisure destinations. But we see that Transavia is covering a lot of unique destinations where we can connect perfectly on the long-haul flights of KLM.

As you’ve seen also, we do that with Delta. So, that’s the commercial cooperation we foresee in the coming years to strengthen.

Thanks. And if I may clarify, do you expect additional cost at Transavia for building up that connecting capability or is that already there?

No, it’s already there.

Okay. Well, all the best to Matthias and team.

Thanks.

Good morning, gentlemen. And, Pierre-François, thank you very much for all the years of help and service.

Three, if I may. One, any initial comments from the unions in terms of these plans?

And also, how they’re thinking about this new initiative at Charles de Gaulle with the ten airplanes? Secondly, is there any kind of cost involved in terms of ramping up this plan, either 2017 or beyond in terms of the cost of implementing this plan?

And then, I think you said you’d give a bit more color on the timetable in terms of exactly how it ramps up. But one of the topics you talk about is kind of improving hub efficiency.

Could you give initial color on what that means in terms of some of the initiatives you would implement at Charles de Gaulle and Schiphol? Thanks.

Maybe I will just pick up the question of the cost of implementation. I think that the cost to implement Trust Together initiatives is already factored in in our – on the CapEx side and it is definitely within the envelopes that we have in terms of capital expenditures over the next few years.

And if you look at the cost side, you know that we have been managing the company with a run rate, yearly run rate of restructuring of about €150 million a year, probably a bit more this year because we have also significant KLM contribution. So, let’s say, €200 million in 2016.

I think that you can expect that there would be still some cost for – the cost attached to the cost-cutting measures, but they should not be significantly different from the ones that we have already incurred in the past. So, we believe that we can manage implementation of Trust Together in the bandwidth of both our restructuring costs on one side and the capital expenditure on the other side.

Jean-Marc, on union’s reaction?

I spent two hours with the Comité Central d’Entreprise with Air France. I think that people or the unions were waiting for a move.

Afterwards, we are going to have to enter a discussion. But there was not rejection at all of this project.

They want precision. We are going to have to enter discussion.

But I think it’s kind of rather – not negative. I cannot say that it’s positive because it’s French unions.

So, it should be, I think, a bit worrying if it was positive, so it was not positive. They didn’t applaud it, but it was a feeling of we have to work together and we have a project and we have to work on it.

So, I would say, it’s as good as it could possibly be.

Efficiency?

Hub efficiency. What about…?

The question was about the hub efficiency, how we can improve the hub efficiency in CDG.

There was a lot of projects which are already ongoing. They’re all driven by the digitalization of the airport where we introduce automatic system for the distribution of the boarding card.

Now, there is automatic system for the luggage. We’re now also introducing an automatic gate at the boarding.

So, we work hard also together with Aéroports de Paris in order to totally digitalize the process of the passenger from the arrival to the boarding, first point. So, then, there is also some – we had last year some negotiation with unions concerning the reorganization of the work, mainly at the ramp, introducing new ID, new way of working and extension of the subcontracting.

So, it is all of these projects which are ongoing now and which are producing relatively good results in terms of unit cost control. There is a lot of ideas and already a lot of projects, which are managed at the Charles de Gaulle hub.

Okay. Thanks very much.

Good morning. If I could ask two questions, please.

The first one, despite new initiatives, unit cost guidance hasn’t really changed from Perform 2020. That was a 1% to 1.5% annual saving target.

And, yes, it is slightly better now, trying to exceed 1.5%. But you seem to be proposing what is a far more radical proposition.

So just interested, in terms of – despite your boldness, why aren’t you more ambitious that more costs can come out? So, simplistically, what is the key drag there?

And then the second question, since Perform 2020, CapEx, relative to the plans announced two years ago, has had to be restrained, given trading challenges in the interest of cash flow, of course. But to what extent has this held the business back in the meantime?

And should you need to restrain CapEx further in the future, where would these likely savings come?

On the unit cost reduction, yes, of course. We would all be very pleased to achieve minus 3% a year over the next four or five years.

That would be very good. But I think that one of the key ambition of the plan is to restore confidence and trust.

And I think it’s very important that we post ambitious, but also realistic targets. And we believe that, within the framework of that plan, we can build something that will deliver consistently a strong unit cost reduction, over 1.5%.

You remember that, during the best years of Transform, we touched once minus 2%, but it has been a struggle to maintain such a heavy unit cost reduction, and that’s not what we have achieved in 2015. We were rather in minus 1%.

And this year, we’ll be again around minus 1%. And it’s not doing nothing.

So, if we want to maintain consistently over the years the unit cost reduction, indeed, we believe that being above minus 1.5% is already an ambitious, but realistic target. And we will, again, focus on execution and delivery more than on seeing better targets.

It doesn’t mean that, if we have to face massive headwinds for some reason, we will not have to add something new. You know that we are in a very cyclical industry and it may happen, that unit revenue development or the fuel price change, and then we may have to add up that part of the story.

But in the current circumstances, we believe we can build a plan around this minus 1.5% plus in cost reduction. On the CapEx plan, thank you first for noting that we have some flexibility on the CapEx.

We took a very strong commitment vis-a-vis our investors, but also our creditors – that is, to be free-cash positive every year. We believe that given the current status of the company, it’s a no-brainer and we want to stick to that growth.

Indeed, CapEx is part of the story. I think we have proven, over the last few years, that we were also able to manage our asset base, and we did that to give us some leeway on the CapEx.

We are very pleased, this year, in 2016, to be able to CapEx in the region of €1.82 billion – let’s say, €1.9 billion – which is €300 million above the depreciation. So, we are now catching up, after the few years of CapEx – not holiday, but CapEx slowdown – we are catching up.

We wish to maintain a significant CapEx number, but we have some flexibility. Where, we want to keep that flexibility because, again, we have to face a highly cyclical environment, and that’s very important for us to keep a few things open.

That’s why you have a big range in 2017 indication. What can we do?

It’s clear that we want to maintain our product investment. That’s very important.

We want to maintain digital investment. It’s clear that one of the flexibility is on the fleet.

We have been able, in the past, to manage fleet efficiently. And we will do it again if it is necessary depending upon operations.

Also, it’s very good to challenge CapEx every month and to make sure that you don’t spend €1 which is not totally necessary. And that’s also what we do, I can tell you, in any business review.

And I’m sure that, Frédéric, who is smiling next to me, will carry on.

Understood. All the best for the future, Pierre-François.

Good morning, everybody. Three questions, if I can, please.

First of all, just turning to the more immediate outlook. If you’re looking for sort of unit cost to fall about 1% per annum, fuel is looking flat next year, where do you see bookings in terms of trending for unit revenues going next year?

I notice unless unit revenues improve to a deterioration of 2% per annum or less that there’d be continued profit pressure. So, is there anything missing there or are you seeing something that’s looking a lot better in terms of the fall booking?

Secondly, if I could come back to the sort of fleet of about ten long-haul aircraft, how did you reach this number? And what has been labor representative reflections on it as you put that idea to them?

It seems to suggest that it could be seen as a stalking horse by the unions for further growth in that division and reduction in, if you like, the legacy Air France business. Is that the plan?

Or are the unions happy with that as you re-move the growth platform of Air France? And then, very finally, you talked a lot about digitization, also the redefinition of the Orly ground operations.

Redefinition/automation suggests a step up in sort of reduction in employee headcount there. Again, what was the labor representative reflections and thoughts on that as you ran that by them?

Thank you.

Thank you. I will start maybe with – I understand that you want to start working out the 2017 numbers.

We have not yet given indication on the unit cost reduction for 2017. This is something to be finalized and we will approve our budget by the end of the year.

But I think that minus 1% is – would be really a minimum. And, probably, given the current environment, we need to achieve a bit more than that.

You will be updated on that, of course, in February. On the unit revenue perspective in 2017, we expect the first half to be difficult.

That’s for sure. Winter will be tough, given the growth of capacity.

There is still major uncertainty on what’s going to happen in summer 2017. And especially, if given the current price of the fuel and the unit revenue development, it remains to be seen what operators, what carriers will do in terms of maintaining all the aircraft in operation.

There’s no doubt that there’ll be new aircraft coming in, but the capacity for summer 2017 is still, of course, a big question mark. Our view is that we’re taking very strong initiatives in commercial terms, also with our partners, to be more resilient in unit revenue.

And if you look at our numbers up to September-end, of course, the Q3 was a bit blurred by the strike. But I think we have not underperformed our peers and this is an understatement.

And we believe that we can maintain a good performance in terms of unit revenue compared to peers. So, it will be seen what, at the end of the day, is the balance of unit revenue and unit cost.

But it’s fair to say that we were used to deliver, over the last six quarters, strong growth of EBITDAR, EBITDA, EBIT year-on-year on each quarter. Of course, it will be much more challenging given the new revenue environment.

We are totally aware of that. That’s also the reason why we need to start first together and kick in the first measure as soon as possible.

2017 will be a challenging year. That’s for sure.

Jean-Marc, the new crew, the ten aircraft and [indiscernible] to unions and…?

For the new crew, the ten aircraft, as I have already – is a goal. And the effect that – it’s 10% and that it will give us the opportunity to defend some routes and to open new ones are positive factors.

And I don’t see major resistance to it.

Okay. And would there be – would you, in any discussions in future with the unions, be happy to agree a cap for the scale of that business or a limit in its scope or scale or is that something that you would try and resist or would seek to discuss with unions?

That’s part of the discussion.

Okay.

On the digitalization, I would just like to highlight that it’s not a brand new idea. We started already with digitalization.

If you happened to travel with us, you would see that we have more and more automatic luggage check in. We have more and more of this digitalization everywhere on the field, also actually with the crew.

And that’s precisely the reason why we have been able to decrease the headcounts very significantly, thousands of people. These people were not doing nothing.

It’s just that we have adapted our workforce to the new productivity tools. And we expect to carry on.

And, of course, there will be even more disruption in the future. And that’s why it’s very important for us to carry on, on one side, adjusting the headcount; on the other side, being more flexible, which is, of course, one of the key feature of Trust Together.

But, yes, definitely, digitalization is a challenge. But it’s also, for us, the opportunity to work in a better way.

And I can tell you also that the feeling of our employees with digitalization is, of course, also very positive because it helps them to have more added value work. At the end of the day, that’s a good bargain for everyone, but we will manage the HR consequences of digitalization.

Right. Thank you very much.

Good morning. Thanks for taking my questions.

Three from me. Firstly, if I could just touch on the Q3 performance, would you be able to provide any color on the premium traffic performance by the different revenue regions?

And secondly, just in regard to the Trust Together program, I'm just wondering if you could just update on the role of Transavia within the group going forward, particularly, just in the context of what you mentioned earlier that Transavia would be used to serve predominantly the home markets on point-to-point. Just to clarify, is this any departure from the previous statement that you'd look to expand it as a pan-European brand outside of the home markets?

Yeah. I’d leave it at that.

Thank you.

On the premium, we have seen it – we already mentioned that it's only minus 1.5% down. So, it's definitely a better number.

I think a lot of this outperformance is linked to the fact that the business planners need to travel and they travel even if there's some fear factors. So, we see less pressure.

However, we see, as you can imagine, a bit more pressure on Asia and North America. That's not a surprise given the current trend.

It's fair to say also that a change in the behavior in terms of forward booking, we have some worrisome numbers out the few weeks before the flight. And then, in the last ten days, we see some late bookings kicking in.

We have seen that in September. We see that in October.

It happened also on the business part. So, that's indeed a bit [indiscernible] for us to be very precise on what we see.

But I cannot tell you that there is one geography that would be especially hit by on the business side. It is a better resilience a bit everywhere.

I will leave to Jean-Marc the comment on Transavia.

Yes. For Transavia, the goal is to focus our – the development of Transavia to and from the home markets, to and from The Netherlands and also from France, expanding the flights from Orly to European destinations, but also the flights from French provinces – to French provinces and to European destination.

And it's what we think we have room to expand Transavia at the same path, the expansion of the last year.

We have five minutes.

No more questions?

Yeah. Hi.

Good morning. Just two from me.

The first one is on the fleet growth to 2020. I think we are looking at 8% overall fleet growth from the current.

Just splitting that out in terms of long-haul fleet versus clearly Transavia would still grow, can you give an indication of what the long-haul fleet will look like 2020 versus today? And ideally, some sort of capacity expansion plans in terms of whether there's seat up-gauge, larger aircraft, and indeed whether there is a big mix flip between Air France and KLM on the capacity outlook into the medium term?

And the second one is just on Transavia international. Is Munich performing any better?

I think, at H1, you said it had started relatively slowly. And are we seeing a clear implication that you're pulling back on international expansion of Transavia, but focusing just on France and The Netherlands?

Thank you.

For the fleet, the goal is to – for KLM, is to stabilize the number of long-haul aircraft. For Air France, is to increase from 102 today to 110 in 2020.

Now, in that, we want also to increase the utilization of Air France fleet, which is not as well used as the one of KLM, for example, and to make from this 110, an equivalent of 115 in terms of ASK. So, it means that the increase of the offer will be a mix of a better utilization of the fleet and of an increase of eight aircraft to the fleet.

On Transavia and the Munich operations, of course, the summer was better with this very seasonal operation. And it indeed was breakeven-ish, but being breakeven-ish during the big summer is not ideal for a low cost.

So, we still need to carry on looking at the numbers. We are building the 2017 budget.

And that will be a part of the review of the year-end to decide about the future of our Munich operation.

Okay, thanks. And good luck, Pierre-François.

Sure.

I think it's the last question that we can take.

Yes. Thank you for that.

I will shorten to two questions. Firstly -- both are on Trust Together.

Firstly, in terms of the still pending Perform target that you haven't yet implemented with Air France pilots yet, productivity, longer working hours, have these been dropped or are they now embedded in the new targets? And then, secondly, you mentioned that the new long-haul venture out of Paris will be staffed with volunteer pilots from Air France.

What happens if nobody volunteers? Would you be able to hire externally as well?

Concerning the second point, we had the same discussion concerning Transavia and was the question two years ago. Is it possible to find pilots from Air France who are willing to move to Transavia?

Indeed, we had exactly the number of people we were looking for. So, we will succeed to find the pilots ready to move from one company to the other one.

Clearly, from Transavia, we have solved that problem quite easily. Perform and the targets?

I think that we try – with Trust Together, we are trying to look forward. So, we try to build some productivity chapters for the future.

And I think that coming back to Transform 2015, that will not add a lot of value. So, we'll be focusing on our target and the targets that we have indicated in the minus 1.5% at least per year is including everything.

So, no catch-up on the last two or three years.

I think that was the last question. I will leave to Jean-Marc to maybe say the shorter conclusion.

But I would like to thank all of you for your support and your attendance and being patient with my long answers. So, thank you for that.

I wish all the best to Frédéric and the team. And, again, it was a very rich experience together with you.

Thank you for attending the call. Bye-bye.

Okay. Thank you very much, Pierre-François, and thank you all of us for your attendance.

And I give you rendezvous at the beginning of the second quarter of 2017. Thank you very much.