Air France-KLM S.A.

Benjamin Smith – Chief Executive Officer Frédéric Gagey – Chief Financial Officer

James Hollins – Exane Neil Glynn – Credit Suisse Andrew Lobbenberg – HSBC Jarrod Castle – UBS Daniel Roeska – Bernstein Research Damian Brewer – Royal Bank of Canada Michael Kuhn – Societe Generale

Everybody thank you for attending this presentation of the third quarter 2018 and we are pleased to here with Benjamin Smithto welcome you and before I go through theusualpresentation I would like to hand over to Benjamin, who will start this conference call. Benjamin please?

Okay thank you Frédéric, and good morning to all of you. It was important for me to take part in this call today and to introduce myself.

As you know, I joined the group in Septembercoming from Air Canada.Aviation is my passion.I have exclusively worked in the Aviation sector since the beginning of my careeralmost 30 years ago,and I have been fortunate tohelp jobsin almost each sector of our business.

What I have seen over these first weeks atAir France-KLMis about that.I have been to thehubs atParis-Charles de Gaulle and Schipholand thatwith pilots, crews and ground staffs. Their passion, their pride, and their dedications to their work is undeniableand incredibly valuable for the group.The Air France-KLM groupreflects both Airline strengths,the creation of a European group,building a leadership position through two main European connecting hubswas extremely forward thinking back in 2004.

Another strong conviction is that the value proposition is key in such a competitive industry. It relies on each brand strengths and values.

It should be clear, constant, and reliable so that we do not disappoint our customers. This is how we will meet and exceed their expectations.I will not commiton an agenda regardingthe dealing ofa new strategic initiativeforAir France-KLM, but I can tell youthat we are currently defining our prioritiesand that we will get back to as soon as we are ready to move forward quickly.

Finally as you know I have spent a lot of time discussing with Air France's social partnersin order to solve our differences.I would like to thank all the parties involved for their spirit and responsibility,and their mutual trust as a first step.Thanks to this way of working together. We have been able to reacha solution that bothmeets thestaff expectation andprovideAir FranceandAir France-KLM with a new perspectivegoing forward.

We will keep this approach to peruse discussions with ourAir France pilots and other professional categories within categorical discussions. Before handing over to Frédéric, I would also like to thank all our group employees for their strong involvement in the summer quarter operations and for their contribution to our solid performance.

And I’ll be available afterward to take some questions together with our financial team here.

Thank you, Ben. And I will now present the result of the third quarter.

I go Page 2 of the presentation where we have the main message we would like to give you today. We think that the quarter is characterized by the good resilience of the operating results.

That is also characterized by the very good performance of the sales force in all the main businesses of the group, as we will see later. The number of passenger if I take the network plus Transavia, together, increased by 2.3%.

And the RASK unit revenue corrected for the currency has improved by 2% this quarter, which is we think very good performance. Altogether, in spite of the increases assumed here by more than €200 million, you see the good resilience of the operating results for the quarter.

We have an operating result above €1 billion, €1.065 billion more precisely, which is a slight decrease compared to last year in the range of minus 6%. Also, adjusted operating free cash flow across to the row, minus 14.

But the adjusted operating free cash flow is positive over the nine months since the beginning of the year, and you will see later on that adjusted net debt of the group is decreasing compared to the beginning of the year. So all in all, as the fuel bill increased, the unit cost decreased slightly by minus 1%.

And thanks to the good commercial and sales performance, we are able to keep the operating result not too far to what it was in 2017. Another quite important achievement of the quarter is success of the labor wage negotiation in Air France, but also in KLM.

Concerning Air France, Ben just gave you the information about the fact that 19th of October, the company and the union representing more than 75% of the total staff have signed agreement concerning the wage increase for the period going from beginning January 2018 up to the end of 2019 October to be precise. And you know the terms of this contract.

In the same weeks, KLM has also achieved a round of negotiation with the ground people with the acceptance by the unions representing ground people for the proposal concerning the CLAs. So which means that for both cabin, ground and cockpit, we have also in KLM a full set of CLAs labor agreement, which will be effective until June 2019.

I move Page 5 of the presentation with the financial number. I would like to insist to the development of the revenue, which is increasing by 4% compared to the third quarter 2017.

But if you correct for the currency impact, this evolution will be in the range of plus 6%, plus5.8% to be precise. We have been hit, of course, by headwind coming from the move in currencies.

Explanation is different, but, clearly, if you correct for currency, you see a dynamic growth of the group revenue. EBITDA is slightly decreasing, minus 4%, but at a good level of €1.771 billion.

And again, if you correct for the currency impact, the EBITDA will have increased by 0.3%. So stability of the EBITDA.

Operating result, I said that before more than €1 billion, €1.465 billion, decrease of minus 6% compared to last year, and again, because of the hit of the currency movement. If you correct, we would have an operating result slightly increasing, plus 1%.

Compared to last year, operating margin at 14%, 14.1%. During the quarter 2018, net income close to €800 million, slightly increasing compared to last year.

But last year, if you remember, the net result was hit by some one-offs, one of them being the impact of the new deal with the KLM cabin pension plan. In terms of net debt, we have a decrease of the net debt since January of €222 million.

On top of that, you have the impact of the reimbursement of the hybrid. You know that we have bought back part of the hybrid, which was in the market.

We have bought back €211 million, which means that this €211 million have increased the net debt, which means that without hybrid impact, the reduction of the net debt should have been in the range of minus €400 million. And thanks to the evolution of the net debt, we continue to keep the net debt-on-EBITDA ratio at 1.4.

Going to Page 6, we have description of the contribution of each business to the evolution of the group result. I say that the first characteristics is the very good development of the unit revenue for all business.

Concerning the network, we are at plus 1.8%. Concerning the cargo, still quite positive in terms of unit revenue, plus 6.7%.

In Transavia, plus 4.5% in unit revenue in spite – or together with capacity increasing by almost 6%, which means that, in total, the capacity of the group has increased by 2.3%, unit revenue by 2.4%. And the revenue, which is more or less the combination of the two, increased by 4%, as I told before.

I would like just take the opportunity to emphasize the very good result of Transavia. You see both the capacity and the unit revenue quite positive development.

Then the revenue increased by almost 11%. And also quite important, the margin during the summer period is extremely high, close to 30%.

And important also, it is almost the same order of magnitude for Transavia France and Transavia Holland. And we now expect to have the two companies being, of course, profitable by the end of 2019 with the same order of margin for the two Transavias, the one based in Holland, the one based in France.

Concerning the maintenance, commercial result are good. You see the revenues increasing by 9%.

The maintenance of the book also increased. It’s now at $10.7 billion, which is an increase of $300 million compared to the end of 2017.

You see, however, a slight evolution of the margin. We already indicated that to you before that the margin of the maintenance is a bit under pressure due to the high level of competition in sales activity, and we are addressing more and more carefully this new order intake in order to be focused on margin optimization.

I go to the Slide 7. You observe very good behavior of both capacity traffic and unit revenue in almost all served network with one being exception during the summer, which is Latin America.

We have increased capacity by 7%. And due mainly to the difficulty in Brazil and Argentina, you see the unit revenue decreasing by 2.4%.

Although the main situation is still difficult to manage, the medium-haul point-to-point, which is mainly the French domestic market, when you see that in spite of relatively a slightly increasing capacity, plus 1%, we have a RASK, which is negatively oriented at minus 3%. But on the other hand, you see the very good result of the two hubs where the RASK for the European flight was in Air France and in KLM the RASK are positive, 2% at Charles de Gaulle and in the range of 5% at Schiphol.

Concerning the cost, I move Page 8. We have reported change in terms of unit cost of plus 2.4%.

If you correct for the currency effect, which accounts for 0.6%, and for the fuel price effect, which is 4%, we have in total unit cost at constant currency, fuel and pension expenses, which is minus 1%. So we are still, of course, consistent with our target in terms of unit cost for the full year 2018.

Part of the good performance in terms of unit cost is coming from the productivity and the change in staff costs.

So basically, the stability of the labor cost. As you know, just a technical remark.

Agreement signed in Air France has been negotiated and signed after the closing date, after the 30th of September, which means that the provision concerning the retroactive impact of the deal for the period January-September will be taken at the beginning on Q4, but have not been taken in Q3. It is a postevent treatment that we have adopted.

However, I would like to insist that even if you integrate in Q3 the effect of the new agreement, which is in the order of magnitude of €12 million, the change in total staff cost would have remained very stable staff cost compared to last year. If I go Page 10, you have the global picture explaining the evolution of the operating results but nothing new if I have been clear before, you see the currency impact, minus €88 million; the fuel in the range of minus €200 million.

And these two negative matter are compensated by the very good behavior of the unit revenue, which is contributing plus €155 million and the good performance in terms of unit costs, which is contributing plus €55 million. And altogether the various elements explain the slight decrease of the operating result compared to Q3 2017.

Page 11, evolution of the operating margin revenue EBITDA for the two company, Air France and KLM. Not a big surprise, KLM has performance higher than Air France, a margin of 18% for KLM, 11% for Air France.

And the evolution compared to last year is similar in the two companies, evolution of the margin by 1.5% for KLM, 1.8% for Air France. Page 12, let us look at the adjusted operating free cash flow.

Then we see at the KPIs over the nine months period and we are posting a free cash flow since January positive of plus €127 million. This is explained partly if you look at the difference compared to last year, of course, by the impact of the strike from the first months of the year into Air France, which explains that the cash flow – the operating cash flow is a bit less compared to last year.

And you see also that we have invested a bit more than last year over the nine months of the year 2018. But more important, and I go Page 17, we continue to reduce the adjusted net debt.

You know that since the beginning of the year, we calculated adjusted net debt accordingly to IFRS 16. Based on this new IFRS standard, the net debt end of the year 2017 was €6.6 billion.

And if you look at what it is today, we have a net debt end of September of €6.3 billion. So it is a reduction in the range of €200 million.

And keep also in mind that this debt is negatively impacted by the repurchase of the hybrid. When you buy back a hybrid, it is increasing your debt because, as you know, it is accounted as equity.

So without the repurchase of the hybrid, the net debt would have decreased by approximately €500 million. The adjusted net debt-on-EBITDA we show is still 1.4, so it is stable since the end of 2017.

And the liquidity situation is a bit lower, €6.4 billion to €5.7 billion. The difference is mainly explained by the fact that the holding, Air France-KLM, as we own both €500 million in January, €200 million recently with the repurchase of the hybrid and the holding itself has not launched any new financing.

So it is just no more explanation why the cash situation has bit reduced compared to the beginning of the year. If I go Page 15 concerning the outlook.

First, concerning the outlook, we show in the slide the evolution of the long-haul forward booking load factor. They are positively oriented in October, November, December compared to last year.

For the time being, January is comparable to January 2018. And in Feb, we have also slight increase of the forward load factor for the month of February.

So globally, based on the current outlook and the demand environment that remain positively oriented, we expect passenger network revenue to increase in the fourth quarter with long-haul forward booking load factor ahead of the last year and passenger unit revenue stable at current currency compared to the very good quarter Q4 2017. If I go Page 16 for the fuel bill.

Not seeing really new issue. Compare now the fuel bill 2018 to 2017, we have now an increase of €500 million, which is a bit more compared to what we told you at the end of half one and concerning the evolution 2018, 2019 today in euro, we move from €5 billion in 2018 to €5.9 billion in 2019, taking into account positive result of the hedging policy, which is estimated at the current forward curve at €550 million in 2019.

Then, in total, as a conclusion, for the full year guidance. Concerning the capacity, we made a bit less development of capacity during summer compared to what we expected, so which means that for the full year 2018, we have now a guidance, which is capacity for the passenger activity between 2% and 2.5%, so a bit is lower, which is mainly the result of what happened in the third quarter.

The development of capacity in Transavia is unchanged, still for the full year between 8% and 9%. For the fuel, as I told before, a bit higher fuel for the total year 2018.

It was expected to be plus €450 million, we expect now plus €500 million compared to 2017. The headwind in currency is unchanged.

Target for the full year in unit cost is unchanged compared to what we told you in July. Concerning the CapEx, we move very slight movement from €2 billion to €2.5 billion, which was the range we gave you in July to CapEx now between €2.4 billion and €2.6 billion, which is mainly explained, to be honest, by technical issue.

We have reviewed recently the way we are looking as a shop visit for the operating lease aircraft. We have decided finally to go for capitalization, which is contributing to the slight increase of the CapEx compared to the guidance given before and concerning the debt.

If you look at what I told concerning the debt development, we continue, of course, to have reduction of the net debt over 2018. So this is the end of the presentation, and together with Benjamin and the team around me, we are ready to answer your question.

Thanks a lot.

Hi good morning. A few for me, please.

First one, just on your full year 2019 capacity plans. I was wondering if you could quantify them and whether they can perhaps come back a bit?

Obviously, your friends in Germany brought those back. I was wondering if you were changing those plans.

The second one is on the premium cabin. Your Q4 comp is 9%, but your Q3 comp was over 8% and you’ve delivered premium at over 4%.

I was wondering if you could comment on the Q4 premium cabin trends and whether that would still be expected up in Q4 on the premium aside. And as I’m first on, I’d like to welcome you, Ben, and also I’d love to get your thoughts on what you’ve seen particularly as we go into the pilot negotiations, perhaps what they want above and beyond the cabin and ground and just your thoughts on what you like and what you don’t like.

Thanks very much.

Okay. Well, thank you.

It’s Ben here. Thank you for those comments.

I’ll let Frédéric answer the specific financial questions that you post, and then I’ll follow up.

Concerning what we have today in our plan for the capacity in 2019, if I correct for the strike, which is probably the best way to compare, in long-haul we are in the range of 3%, so which is accordingly to what we said before. Concerning the medium-haul, between 1% and 2%.

And concerning hub as well as the domestic network in France, for the time being, we are at minus 6%. But clearly, it’s characterized by growth in long-haul, which is accordingly to what we said before.

So we are not considering today compared to what was announced by Lufthansa yesterday to drastically reduce capacity. But it’s also true that Lufthansa was higher in terms of plan – or announced capacity.

And also the capacity for 2019 are also characterized by the continuation of the restructuring in the French domestic network. Concerning the – so is unit revenue, so it’s true that if you go back Page 6 of the presentation, you see the high contribution of the premium to the development of the unit revenue during the quarter.

For the time being, when we look at the forward load factor, we are not differentiating the premium versus the non-premium. I cannot give you precise information on the development of the premium cabin for the Q4.

Let us just say that I have not received any warning at that stage from the sales team and from the revenue management team.

Okay. I’ll just add some comments here.

So what has impressed me and what has – what have met my expectations now that I’ve been here just slightly over six weeks. So following KLM and Air France my entire life, very impressed with these brands.

That was obviously one of the major reasons why I decided to join the group in mid-September. Very clear that both major brands have extremely proud, very professional and experienced team members throughout both organizations.

Specifically, here at Air France, we are spending a lot of time to build trust and respect, which, I think, needs some work here doing as much as we can to increase transparency, and we saw some early positive results out of – adding some focus on those three items in the first four, five weeks. And then, specifically, with the talks we’re currently having with our pilots, we have official talks or discussions and negotiations with this group at Air France starting on the 5th of November.

And I’m optimistic that we can continue this hyper dialogue we’ve had with the – with all the teams that took place from week one of when I started as I’m optimistic that we can make some progress on the type of discussion that we’ve had in the past and come to a successful conclusion of those talks. It’s a bit early, we’re starting on November 5.

And I’m sure based on how things are relayed to the public here that you’ll be up to speed very, very quickly.

Okay, thanks very much.

Good morning everybody. Neil Glynn from Credit Suisse.

Also, welcome, Ben. If I could actually pick up where you left off there, just a couple of questions on labor and I’ll follow up with one additional, if possible.

And I recognize clearly you’re somewhat limited in terms of what you can say for now, but just interested in terms of high-level thoughts. I followed what you’ve done at Air Canada and been a part of.

But how do you think about growth, investment and profit sharing as a carrot for labor, in general, in terms of trying to get things done and agreed? And second, following on from that, just interested on your take in terms of operational culture differences Europe versus North American markets and how that impacts what is achievable within Europe broadly?

And one final question, just on new business models, low-cost short-haul, low-cost long-haul, Transavia has had another very impressive performance I thought today care of unit revenues leading the way there. But interested in your thoughts on the margin thresholds that would be – would represent success for Transavia and Joon over the medium term to be classified as creditable long-haul or short-haul low-cost carriers or value carriers, to use your terminology, given I think the market’s credibility there is still somewhat limited?

Thank you.

Thank you, Neil, also for your welcoming comments. In terms of our discussions, our negotiations with the various team members here, specifically at Air France, and whether growth is being used as one of the carrots, as you described, to try to come to better conclusions, I would say, it’s not a – it’s not the major tool that we are using.

As I said in my earlier response, it’s – what I think is much more important is improved transparency, trust and respect and understanding that a stable environment within our group will be an extremely important component of being more comfortable with the level of risk that is in this business that entails any type of growth. And that any type of growth that we’d be looking at doing is much more difficult if we don’t have stability.

And with – I think with transparency – improved transparency, at least now I think we can have a more fruitful discussion with many of these groups and that is – I think that’s the most important. To actually dangle, are we going to add two, four, five airplanes, if we don’t have those three items, I think it’s not a great tool to use at this point.

In terms of low cost and margins, obviously, with our Transavia unit, the closer we can get to our competitive low-cost carriers would be a start in terms of margins. Opportunities for the group to look at other parts of the market, long-haul, further medium-haul, what would be acceptable with Joon, how we’re going to react to the existing low-cost long-haul that are operating to our two major markets still to be determined.

I think we want to ensure that both main brands that we have are solid and have a well-thought out future, but at the same time, ensure that we are observing and coming to a clear assumption within the group on what our competitors are going to be doing in and out of our major hubs and also in the surrounding areas and do we have what we need in the various options to compete effectively, or in some cases, defend areas or preempt other carriers from coming in. So in terms of long-haul, low-cost specifically, I get asked that question a lot, I think it’s a bit early for me and for the team to publicly state what our position is on that and what our plans are.

Understood, many thanks Ben.

Hi, good morning and thanks, welcome to Europe. Can I ask about how you’re thinking about solving the wound that existed between the French and Dutch arms, and how quickly you can look to try and build the group into one?

And then, secondly, with regard to the latest situation, how do you see the pilot – the overall union elections? And specifically, the elections within the SNPL playing out and influencing your ability to bring this social situation forward?

Thanks.

Okay. Your first question there on the relationship that we have within the group, I would say that a huge portion of the people I’ve come across, I’d say the majority of the combined teams are working actually quite well.

They’re what I would have expected, actually, in some cases, better. So I think it’s a good characterization that there’s – there are major wounds or issues.

Yes, we have some differences of opinions and lots of outside views on what doesn’t work between our thoughts and KLM. Obviously, a very unique setup, the way we have it here.

There’s no comparable around the world. But the more we can do to optimize and do what most major groups do when they consolidate, that’s obviously our goal.

And any internal struggles should be addressed as quickly as possible. So merging two cultures also with different types of competitive environments in the two major hubs, challenging.

But at the same time, future opportunities. So I think as long as we are aligned within the group on how we’door like to prioritize our future, I don’t expect that to be insurmountable.

I think we have way more assets than we do liabilities from an opportunity perspective and from a cultural perspective. That is what we’re going to focus on.

In terms of the pilot election and specifically, the SNPL, this is – I think it’s clear our pilots at Air France want a more stable airline. They want to win.

They do want a sustainable future. And I think more and more, there’s a common belief that ways of the past have not helped anybody.

So again, if there’s good transparency, there’s a belief in what it is we’d like to do, it’s been well demonstrated in many other airlines that the pilots here at Air France optimistically will take the same view. As I said, we have a great group of experienced pilots here who are extremely professional, love this airline.

We’re just going to find a way to ensure that, that gets focused into a good way forward.

Thank you.

Welcome, Ben, as well. Just a couple of questions.

Firstly, one for Ben and maybe once for Frédéric. Any views in terms of gaps that you see in terms of senior management in terms of adding additional resource at that level?

And your thoughts of kind of the current team, if you’re prepared to give any thoughts. And then just in terms of the stable constant currency unit revenues you’re kind of talking about in Q4, can you give a bit more color in terms of some of the specific markets because obviously you saw some very good constant currency unit revenue growth.

So just to put more geographic color? And then in terms of next year, Frédéric, any thoughts in terms of refinancing?

You’ve got a bit of debt coming due and what’s your thinking there?

Thank you, Jarrod, for the welcome. In terms of gaps or additions to the senior executive team, it’s just over two weeks for me here.

I’m still meeting everybody in Paris and in Amsterdam. So the teams so far are excellent.

Whether there should be any additions or movement between the groups, it’s a bit early for me to comment on that.

Unit revenue, I’ll just say that a bit like into Q3, there is always a difficulty coming from South America, so it’s an evolution in currency. By the way, you can be surprised to see how we increased capacity in South America together with such decreases in unit revenue.

I just would like to warn you that we are not going to Brazil, to Argentina. We are mainly going to Andean countries, which are not hit by the same evolution of the currencies.

But nobody is facing in the Q4, we don’t expect a very positive – not to be more strong unit revenue coming from South America. For the rest, we expect positive unit revenue from the Middle East.

And also in the two hubs, we are also expecting, as we see in the Q3, positive development of the unit revenue. So all in all, we are back to what I said during the presentation.

We expect growth of the revenue in the passenger activity. You see the forward bookings, which are positively oriented in October and November, December, stable in Jan and a bit increasing in Feb.

And all together, we are – due also to the fact that the last year was a very good Q4 in terms of unit revenue, we are for the time being, expecting a stable unit revenue compared to last year. We also got a question concerning refinancing.

The reimbursement next year is relatively limited. I would say it is €700 million for the two subsidiaries.

There is nothing at the holding level. And I think it will be normally refinanced using operation collateralized by aircraft.

At that stage, we have not discussed at the board level any opportunity to refinance the holding, Air France-KLM, at that stage.

Okay thank you.

Good morning gentlemen. Welcome, Ben, and many happy landings.

Maybe picking up on that debt refinancing and cash flow aspect. Maybe just a more – broader comment, Frédéric, if you would on 2019, 2020, you’ve got several debt instruments coming up.

You’ve also got long-haul which would suggest higher CapEx forward also talked about fleet RFP for short-haul in the past. How would you see your net debt-to-EBITDA are to kind of to hold up in that environment?

Is it fair to expect a little bit of an increase of that ratio again going forward? Second thing on short-haul growth.

We’re already with the fleet RFP and – how are you thinking about short-haul growth next summer looking at your deliveries you have on the book right now? Does that indicate you’re considering some leasing options for next year?

Or how will you kind of secure some growth for Transavia at least in the French B2B market? And then, lastly, Ben, if you would comment a little bit more on the broader sector level maybe where you see the main differences between the North American market and Europe today, and how you think that will develop or should develop in Europe going forward and how Air France-KLM will try to capitalize on that development in Europe?

Thanks.

Just checking, your line broke up a few times there so we’re not sure we caught all of the questions. But we’ll let Frédéric start and maybe reask some of the – maybe for some clarification if we didn’t quite grasp everything there.

Yes, concerning the evolution of the – first, we own both models of debt, I will say that the profile is relatively flat. Every year, you have for the airlines in the range of €700 million, €800 million, which is based on the financing of aircraft.

And in the holding, we have the €400 million of the hybrid, which are coming in 2020and €600 million, which are plain vanilla bonds. If you look at the cash today at the holding level, I will say that up to 2021 there is no difficulty.

So again, I think that the cash level of the companies today – cash level at the holding and so with almost one profile, relatively flat give us a great comfort in terms of financing plan. Do not forget, on top of that, that we have still €100 million in Amadeus shares and that there is also a 50% of Servair to be sold or put to the gategroup, which is also some reserve in terms of asset ready for sale.

Concerning the CapEx and concerning the ratio, we are relatively happy with the level of adjusted net debt-on-EBITDA ratio. We consider that and we spoke with some banks and some rating agencies that in terms of financial structure, when you are at 1.3, 1.4, it, is close to investment grade, but, of course, I let you judge.

Which means that whatever is the plan we present to the board, systematically we try to build something where we are not deteriorating anymore, which is we’re sure adjusted net debt-on-EBITDA. Which means that in all the plan we try to build, we are focused on the sustainability and the financial stability of the group as a whole.

Thank you for the welcoming remarks. So differences from my perspective on the European versus the North American market where I’ve been working for 28 years, so I’m sure you’re aware in the U.S.

we’re down now to two major legacy-type carriers and one major low-cost carrier, somewhat similar setup here in Europe and – but obviously, easyJet and Ryanair are very different to Southwest Airlines. So I’m fully understanding that and looking at various opportunities and slot – the various slot-restricted airports versus gate-restricted airports, and this is going into our decisions on how we’re going to move forward.

Also, the Gulf exposure, Gulf airline exposure obviously much greater for European carriers versus North American carriers and what our expectations and assumptions are for how that will play out going forward. So that’s going into our analysis and decision-making process and how we’re going to move forward.

Paris, one of the top markets in terms of growth, especially on the leisure end and how we want to participate going forward in that – with those opportunities and which specific sectors we believe we can win in. But overall, I’ll just give you a few more thoughts on my initial observations.

I’m very pleased with Amsterdam despite limited opportunities for frequency growth, but we do have opportunities for gauge growth with the airport from a slot perspective being full, the model there started in 60s and refined and optimized every decade. It’s been great to see more of the inside, behind-the-scenes view on how our operation in Amsterdam works and I’m extremely impressed with that.

But Air France, as I said, we have three huge markets here in Paris, but the fact that Charles de Gaulle is not full, that we have an extremely attractive four runway operation here. We had some constraints on the way we operate our hub with, I’d say, somewhat compromised terminal situation.

But having a good relationship with Aeroports de Paris and their desire to grow and to look at a new terminal four and the opportunity for us to play a major part in the design of that terminal, I think, is something that is very good for Air France. And then, of course, joint ventures.

We have, I think, the strongest joint venture with Delta across the Atlantic now being the enhanced with Virgin Atlantic. So this is another area.

So there’s – in a very long roundabout way, there are lots of opportunities how we are going to prioritize those, which ones are best for Air France-KLM, obviously, going to be determined. And also how much flexibility we get with our labor teams, labor partners, to see where we might be able to shift our ability to compete in some of these sectors where we previously would not have been in a position to do that.

Great. Thanks.

Sorry if the line was a little bit sketchy. The second question I put in there was around the short-haul growth next summer, kind of with the – with no new planes coming in on short-haul right now, if I’m not mistaken, how are you thinking about market shares in short-haul next summer.

Thanks.

As I told, concerning the two hubs, we are expecting to grow in 2019. In total for the group, the hub growth will be 1.4 to eliminate the strike effect, which is goes a bit more in Air France than in KLM, but in total for the group is 1.4.

Concerning the domestic short-haul network, as I told during the presentation, we are focused on the restructuration of this activity and the plan today for the year 2019 is to reduce capacity by around 6%. So cautious on the domestic, which has to be restructured and relatively positive concerning the hubs feeding both in Air France, but also in KLM at Schiphol.

Thanks.

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

First of all, just one technical financial one. On the change in accounting policy with the shop visit capitalization, could you elaborate a little bit more on where else that’s impacted the financial statements, particularly if there’s any reduction in charges to the income statement and how that will evolve in 2019?

And then, secondly, given the comments about the stable unit revenue for Q4, could you elaborate a little bit more on how you expect the business to recoup the €900 million extra fuel costs that you see for next year, how you think that will shift? Do you think the industry will move back to more focus on fuel surcharges?

And do you think, as that evolves, we may see more capacity reductions or any other thoughts you can share there? And then the very final question, just the 8 percentage point margin differential between Air France and KLM, is KLM over earning?

Or is Air France under earning? Thank you.

Concerning the accounting, if I may, we have been, I think, already extremely clear since the beginning of the year when we have adopted the three new IFRS standard, so I’m bit embarrassed by your question because I think we have made all the comment on what is the impact of the new standard at the various level of the P&L. But if you have some more precise question, [indiscernible] and we will organize a link with the accounting team.

Concerning the €900 million of the next year, okay. Of course, you’re right.

It would be a question for all airlines both in Europe and everywhere in the world. If I look also to the comments of our colleagues yesterday and the day before, it still has a question is again the same, are all the airlines industry would be able to transfer part or all of the fuel bill to the passengers.

First, we are building our budget right now, so I have not yet a full answer to this question. So again, we are relatively well hedged compared to airlines in other parts of the world.

The hedge next year at the current price of the fuel is expected to bring a positive plus €500 million to €600 million to Air France-KLM. So it gives, I think, a relatively favorable position.

Third, of course, we have plenty of discussion with the revenue management team and we put pressure on them. We explain to them what is the fuel cost impact and they are right now studying and looking at the market, the demand, the capacity development.

And it is at the end of budget that we will have a clear view on what are our expectation in the transfer of the fuel cost to our dear passengers.

And your final question there on the relative performance between our two major brands, KLM and Air France, look, I think both of our units, we need to strive for higher margins. We’re not looking at saying that one is performing at a level that’s adequate and that the other one same situation as accepting that needs to work and operate in the environment that it’s in.

No, I think, clearly, the environments in both France and The Netherlands are very different. I’m sure you’re well aware of that.

But I don’t believe there should be a difference between at least longer term in terms of how these two units perform. But I do believe that with the opportunities that we have, we should be targeting and we should be achieving the types of margins that our major competitors are managing to achieve.

And how we go about doing that and which one of our brands will perform better than the other, from an internal perspective, we don’t – that is not the major objective. It’s how can the group perform better.

And in some sectors, one of the units may be better and others, it may not. But if you look back at the history of the merger since 2004, and I’ve spent some time looking at this, our current situation has not always been the same.

There have been years where it’s been the opposite, and obviously, with different environments at that time between the two carriers. So going forward, we expect and I – we’re targeting that the entire group perform at or above our competitors’ margin position.

Okay. Thank you.

Yes, good morning. Michael Kuhn, Societe Generale.

Also a warm welcome from my side. Two questions, if I may, one on the third quarter and one more strategic.

Third quarter, KLM operating result was pretty much stable. Air France, down roundabout 10%.

You talked about the weakness in regional point-to-point traffic was that the major driver behind that result weakness over the other traffic regions as well. And then secondly, Ben, you talked about cooperations already.

So what’s your broader view on industry consolidation and on cooperations? In which areas would you be willing to play an active part in consolidation?

Where do you see strategic value? And where do you see, let’s say, still open areas for further cooperations both short-haul and long-haul?

Thank you.

Just to remark on the comparison between the two subsidiaries, we look at the variation of the operating result or the operating margin. If I am correct, Page 11, you’ll see that, in KLM, the margin is down 1.5%.

And in Air France, the margin is down 1.8%, which means that for me, the evolution of the performance is more or less aligned between the two. So I don’t think that the percentage of operating result is a good metrics, if I may.

So what for me characterized the quarter is that, of course, we know that and we saw that the margin of KLM is far higher compared to the margin of Air France, which is not new. But I will say that in terms of evolution probably, the evolution is more or less the same between Air France and KLM.

And when you look internally at the various explanation, fuel cost, labor cost, productivity and unit revenue, I will say that the evolution are relatively well aligned between the two companies, what is not a surprise to be honest.

You're welcome. So as I mentioned, we have, and I think you’re well aware, our very strong transatlantic JV with Delta.

We’re very close to finalizing a – our JV with Air Europa, which shall be focused more on the South American market. And then our partner, China Eastern, this is already having a strong relationship there.

We’re going to ensure that, that strengthens. We have strong positions, both KLM and Air France business units, in Africa.

I believe there are further opportunities there. But our main – largest market here in Paris, I think, is our biggest opportunity: how do we optimize our operations at Charles de Gaulle and at Orly.

This – there’ll be further work there. But specifically, how do we participate as best we can in the growth, the significant growth, that’s taking place here in Paris; and in what forms do we – what way can we address and anticipate with our Air France model, with Transavia and perhaps some of the other two models that we have; and do we look at different ways to do that in terms of aircraft type, what is the – do we look at trying to get lower cost into those two?

Or when you look at other various models you’re going to get between Ryanair and easyJet and how they approach the lower cost and how do they get their RASK up, what format, this is – these are the types of studies that we’re looking. But I have to say the number one opportunity for us is definitely Paris and in what form we’re going to participate in the various sectors and with which tools.

Thanks for attending this meeting. And we gave you a rendezvous, the 20th of February, for the presentation of the full year 2018 result.

And we wish you a fantastic day today. Bye.