Air France-KLM S.A.

Frédéric Gagey - Chief Financial Officer, Air France-KLM

Jarrod Castle - UBS Michael Kuhn - Société Générale Oliver Sleath - Barclays Capital Neil Glynn - Credit Suisse Securities Andrew Lobbenberg - HSBC Bank James Hollins - Exane BNP Paribas Johannes Braun - MainFirst Bank Damian Brewer - Royal Bank of Canada Daniel Röska - Bernstein

Yes, good morning to everybody. Thank you to join this conference call on the Air France-KLM Q1 results.

I propose to make a short presentation and, after that, to be available with the team to all your questions. I will refer to what we said in the presentation of the last year in February when we had indicated that we had, at that period, a feeling that the market was moving into the right direction, with an evolution of the unit revenue less negative than what we had in 2016.

And I will say that probably one of the most important data from this quarter is that up to now this trend is well confirmed. When you look at the evolution of the passenger network unit revenue per seat kilometer, ex-currency, what we have posted for this quarter is minus 0.5%, so which is clearly, we think, a totally different trend compared to what the industry and Air France-KLM also have experienced in 2016.

So, clearly, this is a positive news, we think. And I will comment on it a bit later.

Second point, in terms of traffic connectivity, there is demand. When you look at the number of passengers carried by the group, it is up 5.2% during the quarter.

In terms of RPK, also it is up 4% in spite of capacity only up 3.3%. So, it means that, of course, the load factor increased in Q1, reaching – we will see that later – a remarkably high level for the winter period.

In terms of KPIs and economic results, we have an operating income which is close to the last year one. We had minus €143 million, which is lower than last year, but higher than last year when you correct for the forex impact.

It is minus €44 million compared to last year and plus €28 million when you correct like-for-like for the impact of the currency. Good news also concerning the unit cost reduction, which is on track, with what we have discussed during the full-year presentation in February.

We are posting for this quarter a reduction of unit cost by 1.7% when you correct for fuel, currency and pension. And a last point we made during the presentation of February was a focus on the operating free cash flow.

And this operating free cash flow is positive, plus €329 million, which is above the level we have posted during the first quarter of 2016. I go to slide three when you have the main data for this first quarter or the KPI I just described.

You also see the ROCE. The reduction of the financial net debt at the end of the period which is down minus €277 million compared to the same period of the last year.

The adjusted net debt also is going down, a bit less than the financial net debt, of course, which is linked to the impact of the dollar to the operating lease, which allows adjusted net debt on EBITDA ratio to be stable at 2.9 as it was in Q1 2016. I go to slide four to indicate the strong and positive contribution of the unit cost to the development of the operating result.

You see, in the meantime, the negative impact of the unit revenue, even if the trend has changed and has improved. Of course, we are still posting a negative unit revenue, which explains the minus €72 million of impact of the unit revenue in the development of the current operating income between 2016 and 2017.

And you see also the currency impact I just mentioned before, which is minus €72 million. As you know, we have more costs in dollar than revenue, which explains that when the dollar is stronger, we are seeing a negative impact.

Slide five, the unit cost reduction. It is lean and direct.

We have reported change in unit cost minus 0.2%, explained largely – if you correct, sorry, for the currency effect and for the fuel price effect, which is relatively limited, you see that we have, in total, a reduction of the unit cost of minus 1.7%, which is mainly explained by the increase in labor productivity. The fact that we have well-controlled the labor costs, which are down and even below what we had in our budget, and also the commercial cost.

If I go to slide six to see the development of the productivity, the headcount of the group are down by 400 FTEs. It is even more if you consider the fact that KLM has outsourced its handling subsidiary in London called Cobalt.

So, in absolute number, you should increase by 700 FTEs, which means that thanks to this reduction of FTEs when capacity are increasing, we have improved the productivity of FTEs by 1.7% into Air France and 5.2% into KLM. The difference between the performance of the two companies being linked, of course, to the fact that, in terms of growth, we have also different pattern for the two subsidiaries.

In KLM, capacity increased by 5.4%. In Air France, the capacity measured in EASK increased by only 0.8%.

And also, keep in mind that, at the end of the quarter, we had the end of the Voluntary Departure program launched last year in Air France. 1,600 people have left, at the end of Q1 2017, the group.

Slide seven, it is also something we announced during the press conference on the 2016 results, the fact that we were expecting the fuel bill relatively stable in 2017 compared to 2016. It is the case, of course, for the first quarter, the fuel bill is stable in US dollar and slightly up by 24 million in euro.

It is mainly, of course, explained by the fact that last year, the group has been negatively impacted by the fuel hedging results, when this year the impact of the fuel hedging is close to 0 for the first quarter. Slide eight, the split of the operating result between the three main businesses of the group.

As you know now, we are presenting cargo and passenger together under the name of Network and we have Maintenance and Transavia. You see that there is slight decrease when you look at the reported change in terms of operating result by €32 million for Network, minus €2 million for Maintenance, minus €14 million for Transavia.

And when you correct like-for-like for the forex, you have an improvement in the Network performance, which is relatively small, plus €37 million. Maintenance is quite stable.

And we have a deterioration of Transavia, but I will come back on that a bit later. Page nine, the development of the passenger unit revenue.

So, it is minus 0.5%, as indicated before, confirming the improvement in trend. We’ve indicated month per month, which is an exception, but just to show that it is not only one month, but it is really a change in the trend we have observed during this quarter, with the unit revenue, minus 0.7 in January, as we indicated during the last year presentation, minus 0.2 in February and minus 0.4 in March.

You have to note two things. First one that there is a change in the schedule of the Easter holidays, which has probably had a negative impact on the unit revenue in March and we expect some compensation for that in the month of April.

Second element, I have indicated before the fact that the load factor is increasing. It moved from 84.5% to 85.3%.

So, it is a significant improvement in the context of the winter period. So, clearly, the performance of the revenue management team into the group allow us even in the weakest period of the year to post extremely good performance in terms of load factor.

And we’ve also a traffic up 2.8%; for capacity, up 1.9%. Important to note is that there is a strong performance in the premium class.

You see the premium unit revenue, which is up 4.9% during the quarter. The economy unit revenue is down minus 2.4%.

So, again, the effectivity of our premium services is well illustrated by this performance in terms of development of the unit revenue. And also, consider that it is a strong change in terms of trend compared to what we had in 2016.

The two airlines are contributing to this improvement of the unit revenue trend. In Air France, the unit revenue is down minus 0.1%.

In KLM, minus 0.5%. So, the performance is not so different, which can be also explained by two things.

First, the capacity are less growing in Air France compared to into KLM. So, this strong discipline in terms of capacity, KLM had a positive impact in terms of unit revenue.

And also, you have all in mind that, last year, the French market was hit by the impact of the attacks on Paris, which can explain also that there is a compensation, now that the market is coming back and happily the tourists are coming back to visit the beautiful city of Paris. Slide ten, you have a split of this performance among the various sub-networks of the group.

I will just indicate the good performance in Asia. Asia was extremely weak last year, especially out of Paris, and you see that we have now both a positive development of the ASK and a positive development of the RASK.

You observe also in Latin America a performance in terms of RASK far better compared to what we had last year, which is partly explained, we think, by the stabilization of some countries in South America. North America is going not too bad.

We increased ASK by 1.6% and the RASK is minus 1.7% in spite of the development of the competition that you know. Slide 11, a question mark, what is happening with cargo.

We have been positively surprised by the fact that it is probably the first time since many, many quarters that the traffic is up slightly, to be honest, 0.5%, but it is something extremely new compared to what has been experienced by the cargo people during the last two or three years, which means that the load factor even is slightly improving from 59.2% to 60.2%. The Q1 unit revenue can be split month per month.

You have that in the middle of the slide. And you see that there is this trend, probably not yet totally significant, but we have to observe that quite carefully in the next quarters to see if there is a real turnaround in the cargo activity or if this quarter will remain one exception.

However, we are very cautious, but a bit positive, when you look at the JPMorgan PMI index, this is a red curve on the graph down and left. You see the red curve, which is improving, I would say, significantly since the beginning of the fourth quarter of 2016.

It could be the positive signal that something a bit more positive is happening in cargo. But as you can imagine, we are extremely cautious.

Slide 12, Maintenance. During the last year presentation, we have indicated that one of the target of the Maintenance was to continue to improve and to enlarge the order book with a target to be at $10 billion before the end of 2016.

I would say that the trend is positive. This order book has increased from $8.9 billion to $9.5 billion between the end of December and the end of March.

So, we think that the target of $10 billion we gave you in February will be easily reached over the year 2017. Keep also in mind that the third-party revenue is, during the quarter, up 6.7%.

Slide 13, Transavia. We continue to develop capacity quite aggressively, both in Transavia France and Transavia Netherlands.

The capacity up plus 27% in France, plus 28% in the Netherlands. As you know also, we have announced – and, of course, we will close the Munich base by the end of this summer.

The revenue is following more or less the capacity. We have revenue which is up 24% and the number of passengers is up 29% with the two Transavia’s company serving now more than 100 destinations.

The unit revenue is down minus 3.4% during the quarter, but with the monthly pattern extremely unbalanced. You see that in January and February, we are close to 0.

And the month of March, strongly impacted by the Easter holidays calendar. We’ll be, we think, well compensated in April when the holidays occurred this year.

Good performance also in terms of CASK for the two Transavias with a constant currency decrease of minus 6.3%. Slide 14, the development of the net debt.

It is a reduction, as I indicated before, but largely explained, to be frank, by the change in working capital. Where the working capital which is plus €661 million during the quarter, it is €140 million better than what we had in the first quarter of 2016.

It is, of course, a good thing now also for the bookings for the next quarters and especially for the summer. Pension update, slide 15.

Thanks to the evolution of the interest rate and also of the discount rate we use for the calculation of the defined benefit obligation, we have an evolution in the balance sheet, which was minus €657 million at the end of 2016 and which is, by the end of this quarter, positive at plus €330 million. Contribution per airlines, page 16.

The EBITDA of the two companies, EBITDA is slightly down into Air France and up into KLM. When you look, so we have the lease-adjusted operating result, you’ll see that there is a decrease in both Air France and KLM, less into KLM than in Air France, which is, for technical reason, also explained by the fact that I will not give too much detail that, in KLM last year, the hedging was a bit more negative proportionally than in Air France.

So indeed, we have a better evolution of the fuel cost into KLM, thanks to this technical aspect. And second, because, as you know, KLM has anticipated the phase-in of the Boeing 787, we see also into KLM a better evolution of the fuel efficiency of the fleet compared to Air France.

But, of course, with the progressive phase-in of 787 into Air France, we will also have later this positive impact into the French airlines. If I go to the outlook, page 18, it is an interesting slide.

We have put together the long-haul forward booking we presented to you in February and the long-haul forward booking of today. And you see that, in February, we were indicating that the forward booking for long-haul was minus 2 in March, plus 3 in April and plus 1 in May.

And now, at the current date, also in actual number for March, we had a long-haul forward booking of plus 0.8 in March, plus 3 points in April and plus 4 in May. And we have added two months of June and July, which is a period on which we consider that these forward bookings are significant.

And you see that for these two months of the peak summer period, we have forward bookings which are in advance compared to what we had last year at the same date, which is thus indicating that there is some positive news, we think, coming from the trading environment. Page 19, nothing new.

The fuel bill in dollar, it is slightly down in 2017 based, of course, on the current forward prices. Last year in dollars, the fuel bill was $5.1 billion.

It is now, for 2017, expected to be at $5 billion; and for the year 2018, it is expected at $5.1 billion. Of course, there is a sensitivity you all know to the fuel price.

You have probably in mind that the fuel price was $54 two weeks ago. It is today $50.7.

And also that the dollar is moving a lot. It was at 1.6 some weeks ago.

It is now at 1.49. So, clearly, still an environment which is clearly volatile and which makes the exercise of forecast extremely difficult.

So, it means if I go to the last slide 20 that contains the outlook, we still emphasize the high level of uncertainty regarding the geopolitical environment and the fuel price, even if in France, it seems that the political environment has some chance to be a bit more stable after the next week. We can just confirm what we told you during the last presentation concerning the resilient trading start for 2017, which is confirmed for the first quarter and also confirmed for April, but if you look to the forward booking, it seems also going into the duration for the summer months.

We continue, of course, to grow according to the plan, with ASK between 3% and 3.5% in 2017. Of course, we confirm the unit cost reduction.

We promised you to do at least minus 1.5%. We are a bit ahead for the first quarter and we will continue to work hard on that issue.

Fuel bill, I just discussed it before. And of course, we continue to commit to a strict CapEx discipline and to a further net debt reduction over the year 2017 compared to 2016.

So, this is the end of my presentation. And now with all the team, we are ready to answer your questions.

Thank you and good morning, gentleman. I was just wondering – three if I may.

One, if you can give any update in terms of the employee negotiation situation, where things stand? Secondly, any color on your relationship with Alitalia now, just given the events over the last couple of weeks?

And then thirdly, can you say anything just in terms of the trends on the North Atlantic, if it’s been stable around the levels that you saw in Q1 or have you seen a deterioration or an improvement? Thanks.

Thank you. For the employee negotiation and mainly the pilots, there have been the long discussion and negotiation over the last four months between the management of Air France and the pilots of the company.

A text has been finalized in the last days and is now proposed by the management for signature to the unions representing the pilots. And it is proposed for signature between now and the end of the month of May.

So, we have just now to wait for the reaction of the union, and also, of course, of the all population of the pilots of the Air France company. Concerning Alitalia, we are just looking at the events which are now developing into Italy.

As you know, on our side, we have close cooperation into Europe. You know that we had in the past some JVs between Alitalia – sorry, between Italy and Amsterdam, Italy and Paris, so this contract is finished.

We had also a cooperation in cargo which has also ended, but it was according to a letter sent by Alitalia to us already among a year ago. And Alitalia is still, for the time being, of course, a member of the North Atlantic JV, which is linking Air France-KLM, Delta and Alitalia and we have not yet clear information about the position of the administrator Alitalia company’s JV.

And, of course, we have to wait for the [indiscernible] company to see really what will happen. I will say that we are mainly a spectator of the same Italian Alitalia story to see what will happen in the next months.

Accordingly to the news, we are considering, at this stage, that Alitalia will continue to operate during the summer. Concerning the trends on the North Atlantic, I will just confirm what we have indicated in the slide.

It is developing hopefully. We have load factor – booking load factor which are up both for Air France and KLM.

If you take the period May, June and July, we have booking – forward bookings, sorry, which are positive. And for the RASK, difficult to say for the time being if it will follow or not the development of the forward booking.

But we know, as you know, that there is an increasing competition of the North Atlantic [indiscernible] first quarter and at least activity in terms of number of passengers for the summer period seems positively oriented.

Okay, thank you very much.

Good morning. Also one from my side.

On the pilot negotiations, you mentioned you proposed this document for signature, but in press articles it sounded like the pilots want to continue the negotiations because there are, in their view, open points, whereas management seems to think it’s finished and wants to finalize the thing. So maybe a few more comments around that topic.

One on Transavia. You mentioned the closure of the base in Munich.

In the first quarter, we saw, let’s say, following the seasonality, the loss widening. We had a breakeven result last year.

Maybe a bit more color on what you expect results-wise for the remainder of the year? And then lastly, on April and pricing trends, we see underlying pricing trends continue to be positive, which is clearly a good thing.

If the traffic normally is somewhat diluted because holidays, lower unit revenue than business, so could you give us little more details on the latest unit revenue trends and maybe also a few initial comments for May as the month has just started?

Okay. For the pilot negotiation, of course, I suppose that the two parties are disappointed at the end of the negotiation because nobody get – or got, sorry, absolutely what he was looking for, but which is the rule, I would say, in any negotiation.

But in terms of timing, I think that there is one more month when we have to stop the discussion because then it can be an endless process. So, there is already many months since the negotiation opened.

And it has been the decision, but also the feeling of the management that now it was possible to stop the negotiation and to consider that we were close to what was a good equilibrium point. So, I suppose the management of Air France is not surprised, of course, by the reaction of unions, at least what they say in the press.

But I think that factually where we are is that the text has been proposed for a signature to the union. We will, of course, explain to the population of the pilots.

And after that, the union has to take its own decision before the end of the month of May. For Transavia, you’re right.

[indiscernible] Transavia is a problem. But, as you know, it is a highly seasonal activity, which means that when you increase capacity to prepare the summer period, you have a bit more capacity during the winter.

And you are more direct or hit by the seasonality, which explain partly the fact that the performance of Transavia is slightly below last year, even if, as you have seen, in terms of unit cost performance, the situation is not going too bad or is going into the right direction. I will also indicate two things which are important.

For Transavia, if you go back to the slide 13, you see the impact of the holidays on the 2017 Easter holiday calendar. The month of March last year was pushed by the Easter holiday and this year there has been this move from March to April.

So, clearly, Transavia, the two companies, have been hit during this first quarter by the change in the Easter holiday calendar. Second, but I could have made this comment not only for Transavia, but for all the group, just remember that February in 2017 had only 28 days, and not 29 as in 2016, which means that you have the cost for one month, but the revenue for one day less, which is also a negative impact on the economic performance of Transavia, but totally – in fact, all the group [indiscernible] first quarter.

So, which means that we expect and we know that there will be for Transavia a good compensation in terms of future revenue in April in order to compensate for the negative unit revenue we had in March concerning Transavia, both in France and in the Netherlands. For May, to be honest, we have only three or four days of info concerning the bookings, so I cannot say more than what we had in the slide number 18.

I confirm that the forward booking in May is higher than last year. But, of course, to see if there is not dilution of the traffic and what can be the impact on the unit revenue, it is a bit too early to make any assumption.

Okay, thank you. Just one thing more on Transavia, will the base closure in Munich cost any significant cost?

No, the reason that we did it [indiscernible] October to minimize costs. So, fleet will be transferred to other activities quite smoothly.

And our personnel, we have made some agreements with especially cabin staff to come to a good closure. But minimal cost.

Okay, thank you.

Good morning, everybody. Thank you for taking my questions.

Three please as well. Firstly, on Boost, assuming that the unions do sign the agreement by the end of this month, could you confirm the time frame for both the long-haul and the short-haul airline within Boost after when you plan to launch operations?

Secondly, on the trading outlook, it’s very encouraging to see the long-haul forward bookings up 3% to 4% into the summer. I just wondered, some of your competitors have mentioned a strategy of deliberately building higher volumes in the advance bookings with lower prices.

Is this part of the reason for your own higher bookings that you are pursuing a similar strategy and, therefore, we shouldn’t get as excited about the RASK as we do the forward bookings? And finally, we’ve got your Investor Day coming up next Friday.

I guess you may not want to say too much here, but can we expect some update to the medium-term financial targets, and in particular, ROCE targets or margin targets for the key segments within the group?

Okay. So, I will link the first and the third question.

As you all know, we have the Investor Day, which is next week, Friday. I think that for more question on Boost and for the outlook, I think it is better to wait for the next Friday.

But for Boost, however, just to answer your first question, yes, if it is signed very, very quickly, it means that by the end of May and without any further discussion, which is clearly the plan we have, then it will be possible to stick to the current time frame we have already indicated. Concerning the trading environment, frankly, no.

I think that our guys in the revenue management system have pooled in the last years, I would say. And especially since we use the new KARMA software we have in-house built in 2014 and which is now, I think, coming to high maturity for the analysis of the unit revenue, there is – the idea is never, I would say, to dilute the unit revenue by accumulating passengers in an uncontrolled way.

So, I think that we have, of course, many discussion with Peter Bootsma, which is managing this team. And he will never support the idea to accumulate passengers and to increase the forward booking by diluting the unit revenue.

So, it doesn’t mean that we know today what is the unit revenue for the next month because, as you know, it is something extremely sophisticated to know it. So, you cannot control totally in advance the unit revenue.

Of course, the strategy to accumulate bookings, whatever is the unit revenue, has never been the strategy of the revenue management team of Air France-KLM.

Thank you. Very helpful.

Good morning, everybody. If I can ask two, please.

The first one on Air France within the group. The margin went backwards in the first quarter, as was touched on earlier.

But I’m just wondering was this pretty much all FX? And interested, given the demand rebound, are you ambitious enough to think that Air France might achieve mid-single-digit operating margins in 2017 to get closer to KLM?

The second question, you mentioned working capital management improvement helping operating cash flow in the first quarter, which I was trying to see in the cash flow statement. But can you give us some elaboration on the structural changes, if any, significance that you’re making to working capital management and how these should influence cash flow generation in the future?

On Air France and KLM, for this quarter, I just indicated before that, from my point of view, the small difference in trend concerning the lease-adjusted operating result, you have page 16, is mainly explained by something a bit technical. It is a fact that last year the hedging in KLM was a bit less efficient than in Air France, which means that, this year, we have the opposite impact.

For example, to make it even more simple, the fuel bill is increasing in Air France with capacity 0.8 and decreasing into KLM with capacity plus 1%, which is explained by this technical point of difference in hedging efficiency last year and the fact that with the new aircraft there is a more fuel efficiency per ASK. In terms of difference compared to last year, the difference is larger into KLM than into Air France.

But it is just to make bit smaller the argument that the difference in the operating income corrected for operating lease is different between the two companies. Having said that, it’s clear that the performance in absolute terms between the two company is today different.

It is not new. It was extremely large in the year 2009, 2010, 2011.

The gap between the two has been reduced significantly. But if you want my personal opinion, I think that, of course, we have still to see this trend of services gap going down and the performance between the two company progressively to be aligned.

So, having said that, there is also some good explanation why we cannot perfectly request necessary the same performance into the two companies. But it’s clear that [indiscernible] mainly made by Air France to progressively align to the recurring performance of KLM, of course, will go into the right direction.

Sorry, sorry, sorry. Yeah, sorry.

There is your second point, mainly it is explained by the tickets sold. If I compare [indiscernible] sold this year compared to last year, it is mainly explained by the fact that we have – it is exactly what is coming from the forward booking.

We are selling more tickets. Today, we have sold more tickets for August than last year, the same period for the month of August.

So, which means that, of course, we are accumulating more cash for tickets to be flown into summer. It is the main impact and there is no other big explanation for this first quarter.

That’s great. Thank you.

Hi there. Can I ask about the EU cargo sign?

Where is that process going from a legal perspective and in terms of further appeal? And equally, where does it go in terms of an accounting perspective for us seeing it on the P&L?

Can I ask about French Transavia? And I think there was some form of labor settlement with pilots, so perhaps it was the Air France pilots who were being lent out to Transavia, which looked like some quite substantial pay increases.

Will we be seeing that later on this year? Is that sustainable?

And then just returning to the broader labor situation, we’ve talked about pilots, but can we talk about the cabin crew, please? I appreciate that you don’t need agreement with the cabin crew unions to advance with your Boost plan for cabin crew.

But still you’re in a place where you don’t have an agreed contract and you can post one on mainline cabin crew. I believe they’re taking legal action against you, where is that going to develop, please?

Okay. For the EU cargo fine, there has been a new decision by the EU.

We have analyzed the decision and we will go for appeal. After analysis of the new decision by our legal team and their lawyers, which means that, technically, in terms of accounting, the decision has no impact.

We have the provision for the fine, of course, and we continue to have this provision in books. And then we will go to the appeal.

We are still some weeks to put the appeal on the table of the EU Commission. And after that, of course, the process will begin again with discussion and judgment, probably, I will say not before 2019.

Just so you are informed, I am not the only one. I think there is already three or four companies concerned by this cargo story, which have indicated that they will go for an appeal.

Concerning the cabin crew, again, we had quite long discussion between the Air France management and the cabin union. After the discussion, a text – and again, it will be the same process as for pilot – has been presented by the management, indicating that after many months of discussion, it was now time to finalize.

And this text has been signed by one union, UNAC, but the union UNAC is not representing – it is more or less one-third of the cabin, which is not sufficient for the agreement to be approved by unions in the normal way. So, what has been decided by the management is to say we have negotiated, it’s absolutely necessary to go for a new working condition agreement because the last one has expired.

We consider that one union approved or signed the text which is proposed, which is a result of all of the discussion we had with the three unions of cabin crew. And because there is no agreement anymore and the last one expired, it is necessary to move on, which means that the management is proposing to apply this agreement unilaterally, which is legally perfectly correct because there is no more agreement, so there is no full agreement on what we proposed.

We can apply unilaterally the new rules, which has been discussed with the unions during the last months. So, it is where we are.

Before, to ask if unilateral application today approved, you have to go to some administrations, which is a process where we are now. Concerning the discussion for the cabin crew of Boost, then it is different.

We have not negotiated with these unions and I would say the process is totally different. Concerning the French Transavia, you’re right that there has been some negotiation concerning mainly some rules of remuneration for the second officer into Transavia, but in exchange for that, we also have made some – smoothed the rules concerning the time they stay into Transavia.

So, the rules before were a bit more strict and we think that the last part of the cost increase in their payroll will be compensated by the fact that it will be easier in the future to manage the way the people are moving from Air France to Transavia and back to Air France, which means that we’ve made some significant savings in terms of technical qualifications.

Okay, thanks.

Our next question comes from James Hollins of Exane. Please go ahead.

Hi. Morning.

Two for me, please. Just on the forward book load factor.

I was wondering if you can give us any, if not numerical, just speaking on the short-haul book load factors we’re looking into the next few months and maybe some indication of how you’re seeing summer? And then on premium unit revenue, obviously up 5% in Q1 against a comp last Q1 2016 of plus 0.2.

Comps get easier in Q2. I was wondering if you could let us know if you would expect a similar significant increase year-on-year as you look at pricing on sold tickets.

And perhaps, which regions are doing well. My estimate, obviously, would be Asia Pacific as one of them doing well, I was wondering where else you’re seeing that strength?

You will be disappointed by my two answer. First, for the short-haul, we never give forward booking because it is, of course, far less significant.

We use the forward booking in long-haul because people are booking far in advance, which means that you have for flights in July or June, there will be a significant volume of bookings, which have been made by passengers, which – so explain why we consider a significant factor to compare advanced forward booking load factor at one date this year to the comparable date of last year because, in long haul, it makes sense. In short-haul, absolutely not.

A large part of people in short-haul are booking some days before their flight, which means that it is extremely difficult to speak significantly today, but I would – load factor in, I would say, in June or July for some short-haul flights. Concerning the premium, it’s clear that the performance on premium unit revenue for the first quarter is quite good.

As explained, it is also partly due to the fact that we are compensating the bad situation of the French market in 2016. So, of course, month after month, you will see this compensation effect going down.

So, I cannot tell you if we’ll continue to post such a performance in terms of premium unit revenue. Again, part of the explanation is, of course, a compensation for the last year situation, which was extremely bad also for the premium.

Okay, thanks.

Yeah, hi. Good morning.

Thanks for taking my questions. I have three questions as well.

Firstly, on Transavia, as you refocus Transavia away from the previous target to create a pan-European short-haul carrier with smaller vehicle for defending your home markets, how are the main challengers reacting, especially AirAsia, to a less extent Ryanair? Do you see them putting in even more capacity?

And if yes, how will you deal with that increasingly oversupplied market? And related to that, do you still expect Transavia to breakeven this year?

Second question, do you expect restructuring to become easier under new French President Macron and lobbying efforts against Middle East carriers maybe a little bit harder as he seems to take a more liberal approach? And lastly, you already mentioned your new revenue management system, KARMA, I was just wondering if you could tell us what the KARMA system is doing better or different to the old system?

So, concerning the second question, okay, I will not make any political analysis. Let us just say that, in the last quarters or months, as you know, your market, what you are managing, were putting a spread on some political risk in the French political life.

I would say that, progressively, we have seen some of these risks, at least two, probably losing progressively their chance to be elected from that point of view. I think that the situation is going into the right direction, to be honest.

You can have, of course, other candidate, Mr. Macron, to be elected, but at least some worst-case now a bit far from statistically to getting a position at the Élysée Palace.

So, we have to wait what will be the decision of the new president and of its new government, if I may, because, okay, in France, nothing is really simple because after that you know that there will be some elections in June concerning the national assembly. So, it is the first step, but we have not yet the full picture.

Concerning KARMA, it has been the decision from the group to consider that the yield management system was a core of the engine for any airlines and that probably in order to try to develop a competitive advantage compared to our competitor it was important to build this system internally using the know-how of the French and the Dutch teams. So, it has been a quite good project.

And finally, it has been put in place in 2014. As usual, when you introduce this type of project, the team, at the beginning, reacted a bit negatively because they’re not totally used to the new rules and new way of working.

And, progressively, we have seen the use of KARMA getting more and more mature. And we think – I discussed that recently with the head of the revenue management team, he’s now considering, since the mid of 2016, sorry, we are at full maturity for the team.

What is original in KARMA is clearly the full treatment of the O&D approach, which is that we were fully from origin to destination, whatever is the number of connection between the point of departure and the point of arrival. And we try to really optimize the pricing system by optimizing really all the O&D demand coming from the passengers.

And I will say that it is probably here that the system is more brilliant, I would say, compared to some others. The first question was – I missed [indiscernible].

Transavia [indiscernible] competition …

Yeah. No, difficult to say that easyJet and Ryanair are slipping.

To be honest, if you look, for example, the competition at Schiphol Airport, you have seen during the last year the good development of easyJet, which is now representing a significant part of the activity of Schiphol Airport. So, of course, I will say we are in a full competition.

The situation in France is a bit different, as you know, because of the TGV. I’m not so sure that the high-speed train is a low-cost way to transport people, but at least, from time to time, it is low fare offered to the client.

So, I will say that, in France, it is already four years that there is this competition between the high-speed train and Air France. In KLM, it’s true that in the last, I will say, quarters, the development of easyJet out of Schiphol has been quite dynamic.

And yesterday, Pieter Elbers gave me the percentage of [indiscernible] made by easyJet out of Schiphol, but I think it is now significant. But what is remarkable is that when you see Transavia Boost in France and the Netherland developing capacity by more than 20%, you see that the traffic is following and the turnover also, which means that there is a demand which can be created by this new offer, but which is also, I think, the demonstration that its two subsidiaries are efficient.

When those on the market [ph], they have now a quite great reputation. It was true for years into Amsterdam because Transavia Holland is, I will say, quite old compared to Transavia France.

But we are also considering that in terms of reputation, in terms of product and quality, the standard of these two company are extremely good, which can explain why they are able to attract so much clients.

So, you still expect Transavia to breakeven this year?

To what to?

To breakeven.

Yeah, yeah. Yes, we expect the total of the two Transavia to be breakeven in 2017 as it was the case in 2016.

Okay, thank you.

Good morning. Thank you for the detailed presentation and detailed answers to the Q&As so far.

I’ve just got one question there remaining and that’s back to Transavia. In particular, with the margin flat year-on-year, could you elaborate a little bit more?

And you’ve given some of that in the presentation. A little bit more what the Easter timing impact was not on RASK, but on EBIT, by how much the swing between Q1 and Q2 could be?

Secondly, within the results in Q1, but also through Q2 and Q3 last year, what the drag of Munich losses has been on the business and i.e., what should wash out by the end of October this year? And then very finally, with such a strong growth rate, it actually looks very surprising you’ve managed to hold margin flat.

Could you give us an idea, even if just indicatively of, on the routes that are over 12 months old, what the margin development there was, i.e. without the immature routes, what would the margin have looked like?

Thank you.

Concerning Transavia, yes, indeed, the move of the Easter holidays has a significant impact. I think that we are at least in the range of €10 million.

Just look at the evolution of the unit revenue into Transavia France, so into the two Transavias in March, you see how much can be the impact in terms of EBIT. So, it is not only a question of revenue, it is also a question of EBIT.

Then your first question was on…

The impact of this one on...

So, I will say that…

[indiscernible] the impact of Munich. Could you please repeat your second question?

It was about the Munich base.

Yeah. On Munich, what was the drag of Munich on the Q1 result?

And just for comparisons into the summer, with Munich still there in Q2 and Q3, what was the drag of Munich losses in Q2 and Q3 in 2016 on...?

Sorry, we don’t give the details, but bear in mind that we operate three aircraft from Munich compared to a total of 35 for Transavia Netherlands, so it’s not very material.

Okay. And then finally, just the relative performance of different route maturities within the business?

Transavia? I have not a precise answer here.

I will try to answer differently. When you speak with a guy already, by the way, of Transavia, generally speaking, they consider that would need between two-and-a-half and three years to come to maturity, which means that to have a unit revenue comparable to the unit revenue of the mature routes, which means that, in fact, when you look at Transavia France performance within the last year has grown significantly, but by opening a large number of new routes.

You can say that, in spite of the growth, it was difficult for Transavia France to reduce the loss. But progressively, since 2016, it is even more too in 2017, the growth now, it’s more by adding capacity to existing and already mature routes and less by opening new routes, which means that, progressively, then you see the full effect of the maturity of the route on the economic performance.

But it’s clear that when you’re opening new routes at the beginning in this business, it is extremely difficult and you need around two years before to come to maturity.

Okay, great. Thank you.

That’s very clear.

Okay, so we’ll take the very last question, if any.

Hi, good morning, gentlemen. Maybe a very quick comment, please, on your fleet.

Number one, maybe the long-term outlook and especially how you’re thinking about the short-haul fleet as the new 787 and 350s are coming in? And also in the light of your fleet age, which is continually increasing over next years, it kind of looks like there’s some deliberation to be had on your future fleet plan [indiscernible], any comments around that?

And maybe a bit more specifically, could you also comment on your CapEx planning, especially for 2018 and 2019? With the current acceptance of your 50 deliveries kicking in, it seems like the CapEx guidance of €2 billion may restrict those deliveries in some way.

So, any comments on fleet planning and CapEx planning, if you may? Thank you.

Concerning the CapEx, I propose to keep the answer for the Investor Day of the next week. Concerning the fleet, yes, you’re right, I think it is an observation we got from time to the market, which is that during the period of crisis, following 2009 crisis, probably when you were comparing the CapEx to the depreciation, the Air France-KLM group was not investing enough.

But it’s clear that, during the period, group priority was to improve the balance sheet situation and to reduce adjusted net debt. What we have done, as you know, was the net EBITDA on adjusted – adjusted net debt on EBITDA ratio, which moved from 5.4 direct to 2.9 in the last year.

So, it has been a quite important step. We have operated, but, clearly, when you have to reduce the debt, it is a priority.

Since we are back on the CapEx and also on the fleet renewal and when I indicated what has been done by KLM concerning the 787, it is exactly going into that direction. If you take the medium-term fleet plan for KLM, for example, it is mainly devoted to have a junior fleet, more efficient, not increasing dramatically the number of aircrafts, but taking the benefits that we are exchanging into KLM, the famous 747 Combi by the 787, so which means that you gain in capacity in terms of fleet.

You’re aiming newer aircraft and more efficient. You’re not increasing by many of aircraft to your fleet, but you are developing something which is far more efficient, but is typically in [indiscernible] the fleet strategy into KLM.

Into Air France, it is a bit different. We have not the opportunity to exchange a Combi by 787, which means there is – when you look at the fleet of Air France from GOL, a bit more worse, but it is also for the large part of the CapEx they will serve [ph] to introduce into the Air France fleet a more efficient aircraft, to get rid of the Airbus 340 and to introduce the 787 and will be – into Air France four 787 by the end of 2017 and there will be nine 787 – eight by the end of 2017 into KLM.

So, we have to renew. When you are introducing new aircraft, of course, the age of your fleet is progressively going down.

But we are mainly focused into KLM to renew and to have more efficient aircraft, offering more seats. And into Air France, there is two approach when you look at the introduction of the 787 and two more of the Airbus 350.

So, there will be much more [ph] during the Investor Day part of my presentation on the fleet development.

So, that will take some – underway then for next week, but any comments on short-haul?

Yes. On short haul, today, we have a fleet of 320 737s.

These fleet are not yet to be phased out. Clearly, we have to think about what can be the options for the renewal in the long term of the short-haul fleet.

And our plan is to open some discussion with the two manufacturers by probably the end or the middle of 2019. But today, when you look at the age of our 320 737 fleet, which is a bit younger into KLM compared to Air France, by the way, there is no urgency to take a decision concerning the medium-haul fleet, which has already [indiscernible].

As you know now the fleet for the regional aircraft into KLM, the fleet now is totally made of Embraer after the phase out of the Fokker into Air France hub. It is a bit more complex because it was a merger of three companies.

They are progressively simplifying the fleet, but we have in hub still two options as we have some Canadian jet [ph] and also some Embraer. And again, for the medium-haul fleet, we can for the time bein, easily operate the current fleet.

There is no emergency to take any action, but we have to work on it, I would say, in one-and-a-half or two years from now. And, also to be honest, we’re expecting some news coming from the two manufacturers.

What are their plans for the medium-term – sorry, for the long-term concerning the single aisle aircraft. We are now, as everybody, operating aircraft which has been built in, I don’t know, what, 20, 30 years ago.

We have not yet, I think, the clear picture of what will be the short-haul offer by the industry for the year between 2025 and 2030 or 2035. And, clearly, when you look at the fleet plan replacement, it will be something quite long.

Great. Thanks for the comment.

Okay. So, thank you to everybody.

For some of you, which are available next Friday, it will be a great pleasure to meet you again and to be grilled by your precise, accurate, disturbing and difficult question, but it is always a pleasure to answer to you. So, all the best and see you next week.