Air France-KLM S.A.

Thank you, operator. [Foreign Language] Good morning, ladies and gentlemen.

Frederic Gagey and I are very pleased to welcome you to this presentation of Air France-KLM’s 2019 Annual Results. I would like to reiterate how happy I am to lead a group like Air France-KLM with five strong airlines and such immensely talented teams.

Before coming here, I could never have imagined the amount of progress we would have made in just over a year. It’s truly incredible.

And I’m so proud of all of our 85,000 employees for their continued dedication and commitment. For those of you who are following by video and looking at the slides, I’ll just walk through the pages, so it will be easier for you to follow.

So I’m moving now to Page 3. I’d like to briefly review the highlights of 2019, which are fundamental to our new strategy.

Firstly, the social dialogue has dramatically improved between management and the elected employee representatives. As you know, we have been working diligently to embed four new key pillars in our relationship with our employees at every level of the organization; that is trust, respect, transparency and confidentiality.

Relationships we have been building with our employees have proven to be fruitful in several ways. First, we were able to maintain labor stability during a prolonged period of nationwide industrial action in France concerning pension reforms.

Whereas the services of other transportation companies were severely impacted with extensive disruptions and cancellations, for the first time, Air France was able to operate a full schedule during such nationwide disruptions, outside of the mandatory measures, we were obliged to take due to industrial action on the part of air traffic controllers. I’m very proud of the commitment from our staff to our company and to customers during this period, especially, since unlike other national companies affected in our industry, we operate in a fiercely competitive marketplace with other global carriers looking for any opportunity to go after our customers.

Our employees doubled down and worked hard to ensure that vital customer trust remained intact. Second, in 2019, we signed 37 labor agreements across Air France and KLM, and these are of huge value to the group because they give us the necessary flexibility that is so vital to our transformation plan.

We were able to remove the cap on the fleet size of Transavia France, which, in 2020, we forecast will grow beyond 40 aircraft. We now have full flexibility when selecting and optimally configuring our aircraft.

The natural productivity gains this fleet renewal will bring are enormous. New efficient aircraft optimally configured to court the most profitable traffic will provide Air France the necessary tools to embark upon its transformation and will secure unit cost improvements.

This presents a significant opportunity to improve from today’s complex and non-optimized fleet situation where Air France is unique amongst the European carriers. Operational reliability has also been a strong focus for us as the fundamental building blocks must be in place before embarking down more ambitious paths.

At Air France, we laid the foundations for a significant improvement through a very successful program called Cancel the cancellations. The program included restructuring our network and schedules and increasing flexibility and spare capacity during peak periods.

Operational teams at both airlines worked relentlessly to ensure we got aircraft off the ground on time. Collectively, operational measures drove a major improvement in our KPIs, including a very high completion factor, nearing 99% for all flights and a big increase in our On Time Performance.

KLM remained quite strong in operational performance throughout 2019, despite being negatively impacted by unforeseen events, and Air France finished 2019 ranking fifth in Europe and seventh globally. This is a big upswing from previous years.

This is good, but I believe we can do better at both airlines. Despite these significant achievements in 2020, I strongly believe we can drive further progress, and we will start the phase-out of the Airbus A380 at Air France.

In tandem, we will redesign our bank structure at Paris-Charles de Gaulle to become more operationally robust, and we will continue in our quest for simplification. The third and final highlight, I would like to stress is an enduring commitment to sustainability.

Over the course of last year, we met with several analysts and with our investor base and shared our thoughts on the importance of sustainability in our industry. It is our goal to make every trip a responsible one by steadily reducing our environmental footprint.

Since 2011, we have achieved a near 22% reduction in our CO2 emissions per passenger kilometer and a 23% reduction in the energy consumed by our ground processes. In 2019, we stepped up our efforts by embedding sustainability in our culture and launching a wide range of new impactful initiatives to create awareness and reduce our environmental footprint.

And last but not least, the major fleet orders for next-generation aircraft for our long-haul and medium-haul fleets placed in 2019 will drive a substantial reduction in emissions over the coming decades. I’m now moving to Page 4.

The primary financial KPI targets were achieved in line with our guidance. The group carried over 104 million passengers in 2019 and saw its revenues further increased to over €27 billion.

In 2019, the Air France-KLM group posted an operating result at €1.14 billion after a fuel bill hit and with particularly strong pressure on cargo unit revenues. Frederic will go into further details later.

Moving on now to Page 5. Our value creation model shows the critical resources we rely on in order to fly our customers around the world and create value for our stakeholders.

It highlights the importance of our amazing assets. One, our people; two, our three very powerful brands; three, our network with France as the number one inbound destination worldwide, and Schiphol as the best-in-class European connection hub; our strong partnerships across the globe, number four; and number five, a robust financial structure; six, our commitment to sustainable development goals by integrating sustainability into every aspect of our business model and operations.

We are committed to creating different forms of value for each of our key stakeholders in everything we do, including our planet and our society. These forms of value are, of course, intimately connected.

As we develop more integrated thinking within the company, we will be better able to demonstrate how these forms of value relate to each other. Moving on to Page 6.

The first stakeholder I’d like to address is our 85,000 dedicated and passionate employees. I can’t stress this enough.

Our staff are the group’s number one asset. Air France-KLM strongly believes that a diverse and inclusive workforce has a positive impact on the performance of the organization.

We continue to support all forms of action to encourage equal opportunity; one, seeking equality between men and women; two, celebrating LGBT pride; three, benefiting from the global perspectives of our culturally diverse employees, the employment of young people and seniors and the transmission of knowledge and skills; four, the employment and recruitment of persons with disabilities. Secondly, we want to make sure that we remain the best place to work every day.

We continuously invest in skills development with a yearly average of 40 training hours per employee. We are monitoring our efforts through our Employee Promoter Score, which soured by 15% over the course of 2019 as well as with very strong appreciation scores being awarded by our customers to our front-line staff.

Lastly, our employees want to work in a company that is responsible. They are our ambassadors, advocating hard for sustainability.

Over 5,000 of the group’s employees are actively involved in volunteer work, skill sharing and donation projects via the Friends of the Air France Foundation network, KLM’s Wings of Support foundation and Transavia’s Peter Pan Holiday Club. It is amazing how many innovative ideas we get from our 85,000 employees on what we can do to remain sustainable over the long term.

Moving now to Page 7. Our customers are at the forefront of everything we do.

We are accelerating improvements to our onboard product. The Air France long-haul business class cabins are all being equipped with full flat beds as quickly as possible.

And Wi-Fi connectivity is currently being installed on the entirety of the KLM and Air France fleet. We forecast the completion of both fleets next year.

These product upgrades are an absolute milestone to retain our position in operating best-in-class customer products. We strive for excellence by providing our customers with a seamless travel experience.

This was reflected in a record high level of customer satisfaction in 2019 for Air France with a Net Promoter Score of 27 and KLM in a steady state with a superb Net Promoter Score of 41. And finally, we are continuing to challenge the status quo by addressing the growing awareness of customers in our home markets and around the world.

Some examples, KLM is the first airline in the world to have introduced the fly-responsibly concept, while Air France has implemented drastic measures to reduce its environmental footprint, like the replacement of all single-use plastics on board as well as full CO2 compensation for all French domestic flights. Moving to Page 8.

A reminder of the strategic plan that we outlined in detail during last November’s Investor Day. Underlying this is an ambitious investment plan with €20 billion being invested over the next five years, much of which is earmarked for our fleet renewal program and products for our customers.

This is also vital for the career prospects of our employees as well as to maintain our leadership position in terms of sustainability. Ultimately, our strategic plan drives the financial trajectory necessary to reach top financial performance.

We have set a strategic financial target for ourselves to reach in five years' time an operating result of €2.5 billion and an operating margin of 7% to 8%, with part of the excess returns to be paid out to shareholders in the form of a dividend. I fully recognize that shareholders should be rewarded for their investment and thank them for their trust in our people, company and our strategic plan.

Moving to Page 9. We have already spoken about how integrating sustainability into our different businesses and operations contributes to achieving our sustainable development goals.

I’m truly proud of the leading industry position we have taken as a group. A benchmark of the leading rating agencies on sustainability, clearly shows that the Air France-KLM group has the highest ranking amongst its European peers.

This is also recognized through our number one position on the Dow Jones Sustainability Index worldwide. We are meeting the needs of the present without compromising the ability of future generations to meet their own needs.

For Air France and KLM, this means that we care about our customers and the people we work with. We aim to minimize our environmental footprint, and we strive for sustainable business results and development.

Moving now to Page 10. My views on 2020.

We have seen relatively modest industry capacity growth with sensible behavior from the key industry players, the prolongation of the Boeing 737 MAX groundings and the collapse with several smaller market players. This led to a good performance with positive unit revenues in January.

However, recent developments regarding coronavirus have impacted the demand outlook, especially in the Asian network. Our sympathies are with our employees in China as well as with our partner, China Eastern in these very difficult times.

It will come as no surprise that our Asian traffic flows have been impacted. Our flights to the Chinese mainline – Mainland have been suspended and demand to other regional destinations has softened, though we are doing all possible to accommodate our customers affected.

Our team’s estimate the impact on our operating result at between €150 million and €200 million through the end of April 2020. Frederic will give further details on the financial implications of coronavirus.

The fuel price has recently decreased, linked to coronavirus, and the fuel bill for 2020 is now expected to be €300 million below 2019. So three key priorities for 2020.

First, the execution of the transformation underlying the strategic plan. Frederic will explain the structural measures at Air France are on track for implementation this year.

We are also pursuing our fleet renewal program with the phase-in of four Boeing 787s and five new Airbus A350s, two of which are linked to the recently announced fleet order to replace two Airbus A380s. In 2020, we will exit the last of our Boeing 747s at KLM, contributing to the simplification of our fleet portfolio.

We will also continue to restructure the French domestic market as planned, while phasing out the remaining ATR turboprops within the op fleet. The evolve transatlantic joint venture between Air France-KLM, Delta and Virgin Atlantic took effect January 1 of this year, and I expect to see the first positive results from our reinforced partnership now that our joint commercial and revenue production teams are going full steam ahead.

In conclusion, I’m very proud of our progress we achieved in 2019. While we start 2020 with a challenging situation surrounding coronavirus, I firmly believe the Air France-KLM group is nevertheless in good financial shape to withstand this unfortunate global epidemic.

We continue to make sure that everything we do is logical and in line with our future plans. We are focused on following our ambitious road map, and we are fully committed to delivering on the key initiatives underlying this plan in 2020.

I’d now like to hand over to our CFO, Frédéric Gagey, for a presentation on the 2019 financial results.

Hi, everybody. So I propose you move on the Page 12 of the presentation, to speak some minutes about the Q4 results and the global result for the year 2019.

First, Q4, an operating result, €96 million, an improvement of €43 million compared to last year. The most important point is, of course, the unit revenue development.

We have indicated at the beginning of this quarter that we were expecting a slightly negative unit revenue for the network passengers and it is, in fact, the case. We have, during this last quarter of 2019, network passenger unit revenue of minus 0.2%, so slightly negative accordingly to the expectation.

Since last quarter of the last year is good in terms of unit cost, unit cost decrease is minus 1.5%, which is supported by cost efficiency measures and the first impact of the transformation plan into Air France. So all in all, this is good performance in terms of unit cost, which the target we gave you beginning of 2019 to have a unit cost for the full year between 0 and minus 1%.

Globally, the number is at minus 0.9%, which is in the best part of the range. The last quarter, we see the evolution of the net debt between December 2018 and December 2019, as expected also.

And I think as we promised to you at the beginning of the year 2019 that we’re seeing net debt under control, there’s a very slight decrease of €17 million. To be also noticed during this quarter, the good development of the unit revenue in Transavia at plus 10%, so clearly, a very good result.

And – but I will comment on that a bit later on, the disaster in Cargo. When we have a unit revenue of minus 17%, which is, of course, a [indiscernible] for this industry.

I go Page 13. The global number, EBITDA, €867 million for the quarter, an improvement of 8% compared to last year.

Operating result, 96 million compared to €53 million last year. Operating margin from 0.8% last year to 1.5% for this quarter of 2019.

And net income from minus €200 million last year, fourth quarter to plus €156 million for the year 2019. Part of the explanation in the net income is reverse of some temporary stronger dollar impact, which have been taken at the end of the Q3, but you remember probably that the value of the dollar at the end of October – September, sorry, 2019, was extremely strong.

So it has impacted the net result for the third quarter, and we have now the revert of that. I move to Page 14.

When you have these things in the quarter, the development of the performance business per business, Maintenance is more than okay. Compared to last year, the improvement of the operating result is plus €43 million.

The operating margin at 7.7%, improving by 3.8. So I think it is a good end of the year 2019 for the Maintenance business unit.

Transavia, I have already indicated good performance in terms of unit revenue, plus 10%. Capacity a bit disappointing, but you know that we had some operational issues, mainly at Transavia France due to the training of the pilots.

This problem will be progressively solved during the year 2020, which means that at the mid of 2020, Transavia France will resume two-digit growth, around 10% for the summer. But all in all, if you manage together the two Transavia, Holland and France, you see that the operating margin is improving compared to 2018 by 6 points, which is also more than satisfactory result.

The Network, clearly two different evolutions. Very difficult for the Cargo with unit revenue at minus 17%.

And as expected, a slightly negative unit revenue for the passenger activity. All in all, and the operating margin is almost stable.

But clearly, it means that the margin is improving from the passenger and decreasing for the Cargo. I move Slide 15.

The split of the unit revenue during this fourth quarter. Some elements which are important to be noticed.

I think first one, very good performance in terms of RASK concerning the French domestic network, of course, partly explained by the reduction in the capacity. We have already indicated to you that we are planning from 2019 and 2020, a reduction of capacity in the range of minus 7% for each of the two years.

So it explained why for the Q4 2019, you have this reduction, impressive reduction by the way of minus 12% in the capacity for the French domestic network. And of course, such integration is supporting the positive welcome evolution of the unit revenue at plus 8%.

This is the same also for the medium-haul hubs, which is both activity at Schiphol and Charles de Gaulle concerning the feeding of the long-haul flights when we have a stable capacity, minus 0.2%, but a very good performance in terms of unit revenue at plus 4%. Total long-haul RASK is slightly negative, minus 1%.

It’s mainly explained by North America and Latin America. Latin America, this is not new.

It was impact of the long-lasting crisis in this part of the world. In North America, a bit of tension, to be honest, between the growth and the development of the unit revenue.

Asia was still not too bad. But of course, it has changed since now.

And Africa, Caribbean, Indian Ocean are okay. To also to be considered is the fact that the premium RASK is at negative 3% when the economy is at plus 1%.

It is a scheme, a bit different compared to what we had in the last quarters, which is clearly explained. First, there is a mix effect in terms of network because the short-haul is growing less than the long-haul, so you have the normal mix effect in terms of unit revenue and it is also true RASK.

So it explains probably 1 point out of the 3 points of decrease and the rest is clearly explained also by the level of competition during this quarter, mainly on the routes to North America and Asia, and mainly also out of Paris rather than out of Amsterdam. I move Page 16, just to – and you see the crisis in the cargo industry during the last 12 months.

With an industry which is developing, if you look at the traffic between Europe and the rest of the world, a decrease of 5% of the freight, the chargeable weight of the freight, so – which is clearly one of the worst year in terms of evolution. In such a year, you must not be surprised to see the unit revenue going down.

It is the case for the Q4 with minus 17%. The unit revenue of Air France-KLM is not so bad.

We have been able to keep or even to increase slightly our market shares in such a difficult environment without having unit revenue worse than the rest of the industry, which means that our strategy in terms of pricing and connection to clients is not so bad. But all in all, this cargo market is extremely difficult during the year 2019.

Transavia, I think globally, the Q4 and the global year are both positive, apart of the small issue concerning some operational difficulties in Transavia France which will be solved quite soon. The unit revenue is positive in Q4, is also positive on the full year and the margin is solid for the two carriers.

On top of that, as you know, some traffic rights have been granted to Transavia between France and Algeria, which is also giving to this company, good opportunities for development in the next year. Maintenance.

I told already, it was a solid Q4 with the margin at 7.7%, improvement of 3.8% compared to 2018. So clearly, it is a good performance.

When speaking for the full year, the performance of the Maintenance is more than okay. Operating result is at €260 million, an improvement of €46 million compared to the year 2018.

It is true for all the segments, it is true for Air France, from engine and also for components. So I think it is really a real and remarkable improvement with no one-off behind this improvement.

The order book is still quite high, of course, above €11 billion, which is close to four, five years of activity for the third-party activity of the Maintenance of Air France-KLM and the ROCE is estimated at 7.6%, which is better also than the year 2018. So globally, Maintenance ready to continue to move into the right direction.

Q4 unit cost, minus 1.5%. Clearly, it is more coming from Air France than for KLM, but it is normal due to the cost basis difference between the two companies.

So because we can see the first effect of the transformation plan, launched by Anne Rigail in Air France. And we expect, of course, a similar evolution for the year 2020, but I will come back and see the unit cost view we have for the next year in some minutes.

So all in all, for the Q4, Page 20, the normal waterfall, how to explain distribution of the operating result in 2018, 2019. It is a bit changed from previous distribution because you see a very big impact of the Cargo, I would say, not – so the Cargo impact is negative, close to €100 million.

Passenger is slightly positive. And in fact, it is thanks to the very good performance in terms of unit cost that we are able to compensate, to more than compensate, the impact of the Cargo, the deterioration in 2019.

I move Page 21. Just to give some indication for the full year.

So for the full year, operating result is €1,141 million. It is decreased compared to last year, explained in some means; fuel cost, cargo, mainly, which had the most negative impact for the year 2019 compared to 2018.

Operating margin is at 4.2%, net income at €280 million €290 million. The ROCE is at 8.5%.

We continue to control current leases. My favorite ratio of adjusted net debt on EBITDA which is at 1.5.

It was in line with what we gave as a guidance at the beginning of the year 2019 and the same for the unit cost. Page 22, the split of the margins between Air France and KLM for both the Q4 and the full year.

If I go first to the Q4, we have Air France with an operating result of minus €20 million and KLM at plus €120 million. The improvement is a bit higher in Air France.

But as you know, the gap is still quite large between the two carriers. You remember the discussion we had during the Investor Day presentation concerning the full year Air France is at €280 million of operating result, KLM at €853 million.

Deterioration is stronger into KLM, minus €238 million. But you have also to keep in mind, of course, that in 2018, Air France has been hit by the strike for a global impact in the range of €250 million, if you take into account the impact of the strike on variable income.

So all in all, I will say, if you take into account this correction, we can almost think that the performance between the two companies in terms of evolution between 2018 2019 is similar. Page 23, the waterfall in terms of operating result between 2018, 2019.

Again, a very large impact of the Cargo, which I would say is the new configuration. We hardly see something like that in the past, I will say.

The fuel price ex currency impact, which is also for €200 million, impacting negatively the operating result. And again, we are mitigating these two quite strong negative impacts by the good performance of the unit cost, which is providing €200 million positive in terms of operating result evolution between the two years.

Page 24, concerning the evolution of the net debt. As I indicated at the beginning of the presentation, we have a net debt which is stable between December 2018 and December 2019, only €17 million of difference between the two years.

So it’s really – it’s really stability and the ratio adjusted net debt on EBITDA, moved slightly from 1.4 end of 2018 to 1.5 to 2019, but it was exactly what we promised to the market in our guidance. I come to probably the most difficult part of the presentation, which is the outlook.

Concerning the outlook. I am Page 26.

And I will try to speak a bit about the impact of the virus. We were, first, relatively happy with the Jan results.

In terms of January results, we had – you have seen press release on the traffic. So the traffic was going well and the first calculation concerning the unit revenue also show a positive unit revenue for the first month of the year.

So clearly, the situation was relatively, I would say, woozy, and in line with the first indication we gave to you concerning the situation of the balance between demand and supply for the first quarter 2020. Of course, everything has changed beginning of Feb with the first news coming from China.

And we have seen, which is not a surprise, progressively, the long-haul forward booking load factors deteriorating progressively, and they are now clearly negatively oriented. You see that on the slide, where accordingly, to the last data available, we are making long-haul forward booking of minus three for Feb, minus five for March, minus four for April, and minus three for May.

Clearly, research data going into the wrong direction. And we have, of course, restated our estimation of the unit revenue for the first quarter, which will be, of course, negative.

But what is really strange is to absorb such a move in our expectation after the first info concerning that there was lot of the virus. Second, we definitely are trying to estimate the impact – economic impact of the epidemics on our revenue and on our operating result.

So we have taken assumptions because we cannot evaluate many scenarios. And we are taking assumption that we will continue to suspend the operations to China in Feb and March, and there will be a progressive resumption of the operation starting from April.

So based on that, we set this assumption. We estimate for the time being, the economic impact at the operating result level of the crisis to something which is between minus €150 million and minus €200 million.

When we make this calculation, we take into account the loss of revenue both in China, but also to Asia because, of course, it is not only China which is concerned but we also see some impact in China. We see also some impact in connection and connectivity at both Air France and KLM hubs, and we are also taking into consideration measures like revenue.

When you stop operation, you have some savings in terms of cost and taking all that into consideration, we have the impact between minus €150 million and minus €200 million at the operating result level for the period Feb-April 2020, which is more or less, if you consider that the period is 2, 2.5 months, something a bit lower than €100 million per month if you want to make your own calculation based on different assumptions. Second, we have also to take into consideration, you should build your model for the full year 2020, the fact that, as indicated already by Ben, the fuel bill has changed a lot during the last weeks.

You remember that we were initially, when we discussed the results of the third quarter, were initially having in mind an increase of the fuel bill between 2019 and 2020, not so large, to be honest, it was I think something in the range of €100 million. But at least, the fuel bill was expected to increase between the two years.

And now, as you see, Page 27, based on the very last forward curve on the 15th of Feb, we have a fuel bill, which is decreasing between 2019 and 2020. In dollars, it is from $6.2 billion to $5.8 billion.

And in euro, you have that on the left part of the slide. 2019 was €5.5 billion for the fuel bill, and for the time being, we have accordingly to the forward curve, a fuel bill of €5.2 billion in 2020.

And you have in the tables of data, the contribution of the fuel hedging and also the levels after hedging for the year 2020. So I don’t create any link between the two, but I think we have clearly to keep in mind that this is estimate of the impact in terms of loss of revenue and cost saved because of the operation being stopped concerning the virus and also the fact that the fuel market has strongly changed since the end of the month of Jan.

Then I go Page 28, concerning the unit cost. Concerning the unit cost is three main points.

One, during the Investor Day, we have indicated that the target will be at minus 1% every year between 2020 and 2024. First element, we think that Air France will reach or even do a bit better than this target.

At least, it is already the case for 2020. And it is clearly one of the big result of the transformation plan initiated by the Air France management.

KLM, for the time being, it should be a bit more difficult for two reasons. First, there is some one-off impact at the pension cost level and there is, of course, also the impact of the new CLAs, which means that probably KLM will be a bit lower compared to the target we have given to you during the Investor Day.

And last element, of course, but difficult to quantify right now is the fact that coronavirus cases will impact our capacity compared to what we had planned initially. And depending how much capacity will be lower than the planned one, we will have an impact in terms of unit cost, which means that for the time being, we are still positive about unit cost control, of course, but we stick to a relatively large range in terms of target.

So same as the last year, to be honest, with unit cost ex currency, between zero and minus 1% for the year 2020, so – which drives me to the Page 29 with the global guidance for the year 2020. Capacity for the time being estimated for the passenger between 2% and 3%.

Transavia, 4% to 6%. Of course, Transavia would not impacted by the crisis if it is longer than what we expect today.

But of course, for the passenger, it will be more true. Fuel, based on the last forward curve, €minus 300 million.

Currency, this is headwind of €50 million compared to last year. Unit cost, as explained, between 0% and minus 1%.

CapEx at €3.6 billion, so lower than what we presented during the Investor Day when we gave you the number of €4 billion. But, of course, it is now a CapEx post operating lease and again, the net debt on EBITDA expected Circa 1.5.

So I have finished my presentation and with Ben and all the team around the table, we are available for all your questions.

Three questions, please. First, thank you for the breakdown between premium and economy seats.

During the conference call one year ago, you were highlighting measures to optimize the network in order to improve premium products in Air France. Do you see an impact from those measures?

And how do you think that your premium traffic performed relative to the market? Second, on the impact of the coronavirus, what volume decline to Asia, excluding China, have you assumed in your guidance?

And how high is the isolated impact from the coronavirus on transatlantic within Europe? We know that a big trade fair in Barcelona has been canceled recently.

Do you see in some European markets early signs of a potential impact from the coronavirus from point-to-point demand within Europe? And third, at the Capital Markets Day, you were talking about plans to increase utilization level of the accounts fee.

Is that the target for this year? And how long do you think it will take to achieve utilization level for the accounts comparable with KLM ?

Thank you.

For utilization, I don’t know if Mr. Steven Zaat has that data.

So he will provide you the data. It is improving.

It is improving because the idea was, as you know, to try to have more spare aircraft available, but not to – to compensate for the fact that you have more spare aircraft by increasing the utilization of the aircraft, but Steven will provide to you. Steven, you have?

Yes, let me shortly come back on it. So the utilization of fleet, we – actually, we used actually at this moment the spare fleet to optimize our operations, and we did very well on that since the summer.

Now we are looking at how we can optimize our fleet. But of course, with all the current developments, we have other issues which we are talking about.

But we are working on optimizing further our fleet utilization. And of course, all the new fleet will help here also in terms of fleet reliability.

Yes, concerning the impact of the coronavirus. Two things.

Clearly, today, the large is coming from China. I remind you that we have totally stopped operations to China for both the main and secondary cities.

So I will say that the impact we gave you today between the €150 million and the €200 million is clearly a large part, which is coming, from Asia. It’s true that we have also a bit reduced capacity, mainly Hong Kong is impacted and Taipie and Manila.

But if you consider, all in all, I would say that 80% of the impact is coming from China, and the rest is coming from the rest of – sorry, the rest of Asia. There is some impact in – some impact in Europe, of course, you have indicated the story about this big Barcelona congress on communication, I think.

So it will be also impacting the demand for some [indiscernible] of some destinations into Europe. [Technical Difficulty] important is, first, to prepare and to manage.

So I think that to prepare – the first reaction was great. I think that we have followed many other airlines in Europe, the fact that we stopped flying.

It was not an easy decision, of course. Also we have friends in China, but I think it was very difficult to avoid such a decision.

In the same times, we are reconsidering also the network and the schedule for the summer period. We see if accordingly to the development we will have in China, it is possible to redeploy part of the fleet to some other destination where the demand could be a bit higher than what we expect to have in China or in Asia.

So for the time being, no decision yet. Clearly, the network department in the two carriers are working jointly in order to see how to react if the crisis was longer than what we have in mind today.

And one more point on the aircraft utilization progress that’s currently going on at Air France. First step was to stabilize the on-time performance.

So aircraft that were planned to exit the fleet that are unencumbered or kept back a little bit longer to provide additional backup. So on a year-over-year basis, the utilization of aircraft is hard to compare.

And as we work through the rest of the year, we develop the upcoming schedules, future schedules for Q3, Q4. We are on track to get the Air France utilization closer to KLM.

We’re also making some adjustments to the Air France network schedules. There are quite a few Air France aircraft based on the current timing that do spend many hours on the ground away from France.

We have this in South America. We have this in South Africa as well as some destinations in Asia.

We are really looking at the times of those flights to bring back those aircraft earlier to Paris in order to provide opportunities to add additional flights. So that is on track.

But if you look at the year-over-year utilization, in the short term, we are going through a stabilization exercise in part by keeping one or two additional aircraft for backup purposes as we see that – you will see how Air France can sustainably move forward in increased utilization levels. Thanks.

Two questions from me, if I may, please. First of all, on domestic France, you’ve got certainly some capacity reductions in this market, and it looks like that’s now continuing.

With unit revenue looking to be stabilizing, how are you thinking about the attractiveness of that market in the medium term, please? And then secondly, on your narrow-body fleet and specifically the older A320s and A321s, do you expect to be able to replace these in the near term?

Or are you going to have to keep flying them, in which case, how you think about maintenance cost evolution, please?

Concerning the domestic market, of course, Ben can give some an amount if this is a considering with a little bit. Now that the domestic market has to be restructured, it is still a big loss in the Air France economics.

There is good and bad reason for that. We know that there is a high level of competition, the high-speed train development is something which is very specific to France in the sense that that’s [indiscernible].

Still recently, we developed new routes, to Bordeaux, for example. We know that it is route, sorry to say, that’s not making money for the train.

So it is competition against which it is extremely difficult to fight. So we have to adjust, to readjust.

We have done that concerning the route between Paris and Bordeaux, but it is clearly something, which is asking to Air France, a permanent effort of first iteration. And we have to continue.

That’s why the plan has been launched last year to reduce capacity by twice, 7% in 2019, 2020. The plan is ongoing.

Second one, there is also a focus on the cost issue. That’s why, as you know, we are phasing out the ATR-52, 72, which are now out of the fleet of hub.

We are still working on the phase-out of the Embraer 145, which means that progressively, the fleet could be more homogenous with Embraer 190, 170 and the Bombardier CSeries 1000 and 700 – not CSeries, sorry, the Bombardier jet, CRJ1000 and CRJ700. So clearly, there is work on the fleet, there is work on capacity.

And there is also work on the cost with the voluntary departure plan which has been launched last year with the first departure in 2020 for more than 400 people. It will be 350 people leaving the company, but also more people leaving the domestic business unit to move to serve other departments into Air France.

So it is the addition of old seasoned [indiscernible] which we hope will progressively support the improvement of the result of the domestic market. But it’s clear that it is not an easy market.

There is a trend with new ways of traveling for people with coaches and business companies which are also developing into the French market. So that’s why it is not an easy game, to be honest, concerning the 2020.

So your second question with respect to replacement of the Air France Airbus 320s and A321s. We have – as I believe you all know, we have placed an order for 60 Airbus A220 Series 300s and those will replace the Air France Airbus A318s and A319s, starting in September of next year.

Those are on track. And of course, these are the highest unit cost airplanes we operate in Europe.

And so we are looking forward to bringing in those aircraft as quickly as possible. On the A320, A321 side, the majority of those aircraft were earmarked or are earmarked to stay in the fleet for the medium term.

There is no urgent requirement to replace them. We are, however, studying options on what the replacement aircraft options are.

As we’ve said previously, that would – should Airbus decide to introduce a larger version of the A220, we would be very interested in that aircraft. And we do have just a few very old A321s.

And in the short term, we will figure out how best to replace that capacity. These are the original aircraft from [Technical Difficulty] which are still in the Air France fleet.

We have five of these, out of a total of 115 Airbus A320 family airplanes. So in terms of short-term capacity decisions, we’ll be really looking at only those five airplanes that we need to deal with, which we’re fully comfortable on the options that we have.

Just a couple of questions from me. The first is just a clarification on the Covid impact assumptions.

Just wondering if you could provide a little bit more, but even high-level color over the split between Passenger and Cargo? And then also just between 1Q and 2Q?

And then second question, just on your comments on kind of long-haul and entering the transatlantic and Lat Am, I’m curious what the trend is into 1Q and what your – is the kind of the softness – sorry, the transatlantic is perhaps better given some of the failures? And maybe where some of the seat capacity is being redeployed in the transatlantic or any other areas?

On the first question, I will say, it is not few more, but almost the Cargo is already so low that I suppose that when we give the number, €150 million, €200 million, it is first explained by the Passenger business, of course, because there is a deterioration of the Cargo, was even present before the crisis of the coronavirus. Concerning the transatlantic, you’re right.

The end of the year 2019 was not, let us say, fantastic in terms of the development of the unit revenue. And you can have some risk that if a lot of airlines are redeploying the part of their capacity, it will be big, big volume.

But anyway, if there is some redeployment to the North Atlantic, it can exert a new pressure concerning the unit revenue on to a specific network.

So just a follow-up on the impact. Is that mostly in 1Q?

Or is there some of that, that’s related to 2Q as well? And then on the North Atlantic, is that where your capacity is being redirected today?

The – by definition, the €150 million, €200 million is given for the period, Feb, March and April and May. And because in Feb and March, we have almost stopped everything to China.

Of course, a lot of the ramp-up of the impact is concentrated during the first quarter. During the first quarter, in which Europe resized data, the fuel bill will not decrease.

If you will get the strong position because of fourth quarter. In the first quarters, it should be not down compared to last year.

So it means that you will have probably a big hit for the first quarter. And in the second quarter, accordingly to assumption concerning the traffic, of course, you will have less than in the Q1, but then you will also beneficiate from the indirect impact of the fuel bill, which is lowering compared to last year, which is not the case for the first quarter.

And then on the redirection of the capacity?

As I told you, for the time being, we have religiously. In the current period, it’s clear that because the decision to stop the traffic to China has been taken [indiscernible] because we’re obliged to do that.

We have not immediately disclose the capacity. And we have used this flexibility so that will be given to us to increase the nine months operation and to take care of the airplane in order to prepare for the summer.

So we have reduced capacity because we have not redeployed the available capacity for the summer and accordingly to what will happen to the Chinese market, then we can consider, and we are working on some scenario where it could be possible to redeploy part of the fleet made available if – by chance or not by chance if the crisis in China will still be present and to severe what everybody – nobody wish.

Got it, all very helpful. Thank you.

Good morning. A few for me, please.

Ben, it’s first time we’ve heard from you since your Investor Day. I was wondering if you could just run us through any pushback you’re getting on the transformation plan.

I think when we heard about it was when staff heard about it as well. Secondly, just following up on transatlantic, you talked about adding capacity, I think, in Q4 to defend market share.

Just wondering if you could run us through exactly what you mean by that in terms of in terms of traffic flow and whether it succeeded? And third is on the KLM CLAs.

Are we all done on that, maybe a bit of detail as well on the quantum? Thank you.

Okay. James, thanks for the questions.

So on the Air France transformation side, we’re quite pleased with how things are going on at Air France mainline. So the main Air France brand, as I mentioned earlier, what we saw during the extensive transportation strikes here in France for about six weeks, for Air France to be in a position to operate 100% of its schedule, without the impact of the air traffic controllers and how that affected us.

Very, very happy and proud of our employees stepping up to that. So in terms of the cooperation and alignment with all our major groups here in – at Air France mainline, very, very happy.

And one thing I would like to point out for the first time, the main pilot union at Air France, the SNPL, has proactively asked to join our financial teams in going on financial road shows to ensure that analysts and our shareholders clearly hear from them upfront their belief in our strategy and their alignment with management. So that has taken place two times over the last month.

On the rest of the transformation plan, we are on track. We are getting some pushback in the regional market with the HOP pilots.

This is an ongoing discussion. The demands that we’re getting out of the HOP are – they’re not realistic.

They could what they’re asking for is up to 1/3 of the revenue that we receive from HOP. So this, obviously, is not possible, would not be sustainable.

So these talks continue. And then throughout Air France, we have a small group of ground employees of France that’s having an emotional trouble accepting the real – situation in domestic France is not sustainable.

We are being very responsible to all of our employees affected by reduced activity. As to France, we have no forced layoffs.

We do have voluntary departure profiles which we do see a strong uptake. We do have very good options for our staff to move to other positions throughout the network.

But apart from these two isolated cases, as I said, HOP regional pilots and very small impact on the part of some ground agents in Southern France, we do foresee no material impact to our operation in the near term. In terms of CLAs, all major CLAs have been negotiated and are now final.

At KLM, those were concluded at the end of last year. I don’t think there’s anything that has not been extensively covered in the press.

There were increases between 5% and 6%. In these, we will do everything we can to mitigate those going forward.

On the Air France side, it goes off well documented and we believe these were done a little earlier than KLM. And as you see in the unit cost improvement at Air France, the wage increases are more than being offset by the new flexibility that has been provided by those contracts, to ensure that we have a better cost structure going forward.

So we’re very happy with the way those two things are balancing out overall.

Good morning. Basically, one follow-up.

First, on coronavirus, the €150 million to €200 million impact was well explained. Beyond that, and that would be more kind of a worst-case scenario analysis, if you have a prolonged crisis, until or into the summer period, what would be the financial impact in such a scenario?

Let’s say, if you couldn’t fly to China over the peak summer season. And then secondly, you are guiding for a flattish net debt to EBITDA but at the same time, the CapEx is going up.

And I think it’s hard to expect a massive increase in the operating result or cash generation. Do you foresee any asset disposals for the current year?

And if yes, what would you expect to dispose? Thank you.

Concerning the impact, I think that we have to be very clear. We have built a scenario, which is today aligned with the decision we have taken from an operational point of view.

After that, you can build many, many scenarios, one month, three months, 12, 24, but I think that it is not the time to do that. So we have provided you today something which is coherent with the decision we have taken operationally, and we give you the best estimate we have today concerning the financial impact of this scenario, and we will see later, to be honest.

But we cannot build a scenario and scenario without testing first, what is likelihood of the realization. Second, we are – of course, we are managing the situation extremely carefully.

We have not yet decided to launch global reconsideration of our plans for 2020, both in terms of CapEx, in terms of unit cost, in terms of everything. It’s clear that if we are convinced in the weeks to come that there will be finally more chance to see the crisis being far longer than what we expect today, the two managements in both Air France and KLM will have to totally reconsider their plan in terms of averaging capacity, CapEx, whatever is domain where they have to take their responsibility.

We consider that we are not yet there. Big reason is that the crisis is less than two weeks.

I remember that end of Jan, we were positive incidentally, and we have – today is 15 or 20 of Feb, so it is only three weeks. We have – in fact, this coronavirus situation was drastically changing.

So no problem to be flexible. Let us keep some – still some best to look at the situation.

We follow that on a day-to-day basis, of course. And then we will see if we have to totally reconsider or revisit plan.

But for the time being, the situation is what we have tried to describe in the presentation, a possible impact between €150 million and €200 million. And based on that and based on the normal flexibility we have, is the guidance I have given to you.

And of course, okay, in three weeks, situation can be totally changed in both directions. But for the time being, this is where we are.

And perhaps, just to add to that. We do have – I mean, we do have many scenarios that we can look at should this virus continue.

And I think it’s important to mention that the network, KLM and Air France, are extremely well diversified. And of course, as we move in to the seasonally busier part of the year, where in many markets, we are in excess of demand, the opportunities for redeployment are numerous.

We have a strong network in Africa, a very strong network in North America, and there are some big, big volume markets to the Dutch and the French leisure markets. So there are opportunities for redeployment within our group that are perhaps not available to some of our competitors.

Excellent. Thank you.

And maybe one more question on the former Aigle Azur routes, ways that it was stepping in now, can it be assumed that given that those are existing routes and the ramp up to profitability is probably quicker than on normal route openings?

So on the increased activity to Algeria from Paris, predominantly from Paris Orly Airport, this is a very attractive market for us. We do have some presence.

We do expect the ramp up to profitable and activity operations in that market to be faster than normal. So this is a – this is something we lobbied very hard for.

We’re very happy with the allocation of traffic rights and capacity that we’ll be adding to that market, and this should be – this should have a very positive impact on our medium-haul results.

Excellent. Thank you very much.

Good morning, thanks for taking my questions. I have two.

Firstly, again, on the coronavirus. Just a clarification whether the €150 million to €200 million that you guided, this includes the offset from lower fuel prices?

And if so, what is the actual top line impact from corona, if you just take the unit revenue impact? And then secondly, anything you can share regarding your discussions with Aeroports de Paris on the next regulatory period?

Okay. On the first one, just to be clear, the €150 million, €200 million is not taking into account any impact of the fuel price.

It is really, I have tried to be clear, only the impact of the loss of revenue to China but also to Asia and the costs which are saved because when you, for example, stop flying or you reduce your capacity, of course, you have less cost, but we have not taken into account in the €150 million, €200 million estimates of the impact, I’m not taking anything coming from the fuel bill impact. Concerning, Aeroports de Paris, I will give the floor to Steven.

Yes, on the procedure, it is a highly restricted procedure by the French state. We have given our vision on the cost of capital, which is, of course, in our view, going down, given the fact that our interest rates are very low.

And we are waiting now actually first for the outcome on the cost of capital. And then on the second thing, as we discussed on the investments on the capital expenditures, where we are together, looking at our plan to develop a little bit more interaction to support our products.

Okay, thank you. Just one follow-up on the first one.

If we take your assumption that you had at the beginning of the year, with fuel actually rather going up than down and no coronavirus in fact, and you’re now modeling or you now guiding for up to €200 million corona impact, but then some €300 million offset or €300 million relief from fuel. Net-net, we are not though looking at the downside on profitability, if I’m not mistaken.

Again, it is your calculation, but I cannot say that I am totally disagreeing with. It’s clear that if you look at the fuel bill, when we built the budget, the fuel was up.

And now if you look at the forward curves, the fuel bill is down, okay. Second, the time metric is not exactly the same.

And keep in mind that the fuel bill we give you is for the next 12 months or 11 months. So it is a fuel bill between now end of December 2020.

When the coronavirus impact we gave you in the presentation, it’s something which is covering the period of Feb, March, April. So there is not exactly the same time metrics between those two elements.

And at that stage, to be honest, I cannot say more, but your calculation is correct. But keep in mind that it is not exactly the same time metrics.

I told you before, in Q1, the fuel bill is increasing in Q1. So the benefit of it is over 12 months.

And I just had one more comment here, Johannes, regarding Aeroports de Paris. So I can say that the two teams, both at Air France and Aeroports de Paris are working very closely together to look and to develop joint plans to build the new terminal four that is expected to be within the next 15 years.

So that is moving on positively. And of course, that does have an impact on cost of capital and the – potentially our future cost of doing business here at Paris-Charles de Gaulle and – but I must say that the cooperation and joint understanding between two teams are – have become much more positive and are becoming more aligned.

Okay. Great, thank you.

Good morning, thanks for taking my questions. I have three, actually.

One, do you expect any implementation costs from the transformation plan in 2020 to go through your P&L? And if so, what’s the size?

The second question is, if your partnership with China Eastern is impacting the €150 million to €200 million, because it’s revenue sharing, does it help? Or does it – or is it a burden to your – to the coronavirus impact?

And I guess the third question is probably more for Ben. A few airlines, I think, Delta decided to fully offset its carbon emissions starting this year.

Some of the airlines had increased the blend of biofuels. How do you think about sustainability for the Air France-KLM group?

Yes. Concerning the implementation of the transformation, it is very limited for the moment.

So we don’t expect a very high implementation cost regarding transformation. We are doing it together with all the management teams, and it is a focus also a lot on external spend.

So for the moment, we have – don’t have very big cost for the implementation foreseen for 2020.

Concerning the second question on the impact of the JV between China Eastern and Air France-KLM. Of course, we are taking that into in calculation, but I will say it is very, very minimal compared to the other impact.

All the – the two partners are suffering the same, or more or less the same. It is partly compensated through the settlement into the [indiscernible].

But I would say that clearly, the effect is minimal compared to the global impact of the loss of revenues.

Okay. Regarding CO2 initiatives, the sustainability initiatives, as I mentioned in the initial remarks, of course, Air France-KLM, we’re taking our responsibilities as best we can.

This is not new. We do have the number one position on the Dow Jones Sustainability Index worldwide.

That’s because of our ongoing efforts, which was not started now, that’s been going on for many years and a lot of the initiatives that have been taken and continue to be taken are not well known. So we will be communicating some of the efforts that have already been started and plans to evolve them.

As I mentioned, on the domestic France side, we are now compensating all emissions regardless of the number of customers on board, and we are entering into extensive relationships regarding biofuels in the Netherlands, and we are working hard to find providers here in France to do the same thing.

Thank you for taking my question. Most have been already discussed, but maybe a few points I would like to discuss as well.

First of all, maybe now with Delta stake also in Lat Am and also Lat Am exiting OneWorld. Is there also – are you currently working with them on to a deeper relationship and maybe also developing a joint venture towards Lat Am – with Lat Am.?

And, yes, maybe we’ll take this one first.

Today, we are not working on the transatlantic joint venture with Lat Am. We do have a very successful partnership with GOL in Brazil.

We have recently agreed to expand and that relation is going extremely well. And this is – these are our plans to ensure that our capacity is optimized too in France, South America and working with GOL is right now, the best solution for Air France-KLM.

Okay. And maybe a second question on – sorry, on Italy, with the bankruptcy now of Air Italy and – maybe the market is a little bit more consolidating, how is you stance on Alitalia and potential investment there?

Alitalia, we have, at this time, no plans to invest in Alitalia.

Thanks.

Thank you very much. Kind of three from me.

Good cost control in Q4. If there wasn’t kind of the impact from China, would you be doing actually better than the minus 1% at the top end on the ex per unit costs, do you think in Q1?

Two, just in terms of China kind of – I know you don’t want to say anything about kind of potential scenarios, but when did the Chinese group bookings normally start to come through for the summer? Is it kind of Q2 time?

And how would you think about the profile of Chinese bookings going into the summer? And then just kind of sticking with environmental, the French increase in airport passenger duty, I think was up €1.

Firstly, how that kind of changed? Or if at all, you’re thinking about the short-haul market there?

And looking forward, I guess, as taxes ramp up relating to call CRS, kind of how you plan to deal with these?

So concerning those costs, yes, you’re right. I think that the performance of the unit cost control is more than okay for Q4 and also more than okay for the full year 2019.

So I think it is extremely encouraging. And also because we can easily say that, that is the contribution of Air France where the cost base is a bit higher than KLM, is also a bigger contribution to the cost reduction, which I think is a good news.

It’s always important to see that there is a slow but partial alignment of the unit cost basis between the two carriers. And from that point of view, the transformation plan in Air France is, of course, something which is extremely important.

So difficult to say that what will be the performance in Q1 2020, of course. And we are very clear on that, the corona story is not really helping because even if China is only 5% of our capacity when you – over the full year.

When you go to low for your capacity to China for only some weeks, it will impact necessarily and mathematically, I will say, the unit cost of the group as a whole. So clearly, that’s why we’re a bit cautious concerning the ramp or the unit cost target for 2020.

We were more optimistic before the crisis, but that’s why we have bit enlarged the range from 0 to minus 1%, also to take into consideration the uncertainty coming from the Chinese ship breaking.

And then in terms of the booking curve, inbound from China, it is relatively balanced or smooth curve, starting out one year out and then moving – it’s slightly more advanced than some of the other inbound markets. But if you look at what the situation was last year, at the end of 2018, and particularly, in the middle of 2019 in France with gilets jaunes, this did have a negative impact on inbound tourism and inbound traffic that we experienced into France.

So obviously, not the same thing. But so we do have a reasonably good understanding of when there is some type of unforeseen event, how those traffic numbers can be impacted and what are our options to ensure that our projected traffic does remain above the curve we’ve projected.

In terms of the tax impact, domestically, I think our position is well known. Regardless of any change or increases in tax, we are in the middle of a very aggressive transformation program within domestic France.

Our number one position or number one requirement in domestic France today is based on two fronts. One is there are three or four big volume markets out of Paris Orly to southern part of France, so Marseille, Nice Toulouse.

We do run a Navette product there, hourly or more than hourly, those we’re investing in heavily. These do perform relatively well.

We do have numerous cities that connect our main hub, the Air France main hub at Paris-Charles de Gaulle at – those routes will continue to play an important part. And the bulk of that traffic is flying long-haul.

So there is – any cost that’s imposed on us on those routes will be spread over a much longer distance. And it’s our view that we’ll single sell on those markets as customers will have alternatives through other hubs that may not be impacted.

So we expect no competitive impact on those types of flights. In terms of the other activity that we have within France.

So the non high-volume, Paris Orly to those three big connect routes and to feed traffic to Western Charles De Gaulle. These smaller routes are already heavily, heavily under pressure, as Frederic mentioned, because of the JV and some of the high unit cost airplanes that we have.

The tax does not make that, any increases in tax do not help us there, it just supports us to accelerate the plans, but these will not be new plans that would just – would put us in a position to have to accelerate them even further.

Thanks very much.

Thank you very much to all those on the call for the extensive questions. And thank you again for your interest in Air France-KLM, and we look forward to continuing our dialogue as we go forward.

Thank you.