Action. : the new Air France company. New Air France and KLM offers for travel in Europe. Air France-KLM s Shareholders Newsletter April 2013

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1 Action Air France-KLM s Shareholders Newsletter April 20 Jean-Cyril Spinetta Chairman and Chief Executive Officer of Air France-KLM Dear Shareholders, When I reassumed my executive positions in October 2011, it was to put Air France-KLM back on the road to recovery and to set up a new, more-integrated organization at the level of Air France-KLM was the year in which solid foundations for our Group s turnaround were laid. Our working practices have been overhauled with the signature of new collective agreements and action plans have been launched in each of our businesses, of which the most important is the restructuring of medium haul. The Group is also focusing on cost savings and a reduction in debt. : the new Air France company See page 2 New Air France and KLM offers for travel in Europe See page 3 Taking part in the Annual General Shareholders Meeting See page 6

2 Highlights Jean-Cyril Spinetta editorial continued The Transform 2015 plan implemented at Air France and KLM is starting to bear fruit. It is imperative to pursue it and this will be one of the priorities of the Air France-KLM group s new organization which will be up and running as of July this year. Under these circumstances, I felt the time was right for a new management team to take over to ensure the continuity of the Group s economic and financial recovery and the implementation of its new governance. I shall therefore be stepping down from my current functions as Chairman and Chief Executive Officer and Board director of the Air France-KLM group on July 1 with Alexandre de Juniac as my successor. Hop! Take off for the new Air France group company Born of the synergy between the three French regional airlines in the Air France group Brit Air, Regional and Airlinair HOP! aims to become the reference airline for inter-regional travel in France and Europe with a competitive business and leisure offer which can adapt rapidly to changes in the market and competition. HOP! operates 530 daily flights to 6 destinations in France and across Europe. This new company with more than 3,000 employees will be headed by Lionel Guérin, Chairman and Chief Executive Officer of HOP! A new organization for Air France s short and medium-haul network Within the framework of Transform 2015, the Group has restructured its short and medium-haul operations around three complementary business units: Air France, HOP! and Transavia France. The flights operated by HOP! are an integral part of this new organization: The short and medium-haul activity operated by Air France in its own aircraft comprises the flights feeding the longhaul flights at the Paris-Charles de Gaulle hub, the routes in France and across Europe with a high proportion of Business passengers together with the flights on departure from the provincial bases in Marseilles, Toulouse and Nice. HOP! operates the point-to-point flights on departure from Paris-Orly and the domestic network together with flights to the Paris-Charles de Gaulle hub on behalf of Air France. The leisure division, comprising Transavia France, will operate flights to European destinations and the Mediterranean rim on departure from Paris-Orly and the French regional capitals. As shareholders, you have supported us over the long term and I would like to thank you for the loyalty you have shown throughout the happy and sometimes painful events that the Group has traversed. I shall be stepping down with confidence in the future of your Group but, before this, I look forward to seeing you at our forthcoming Annual General Shareholders Meeting and welcoming you for the last time. 02 Action AIR ApRil 20

3 Highlights Europe for less than 100 with KLM A new product, a new pricing strategy and personalized service for KLM passengers on its European network. Since April 22, KLM has extended its network of low-cost destinations in Europe by offering customers 11 additional destinations for 99. More than 30 European destinations are now eligible for this fare. AND the launch of Air France s New Economy Offer Air France is launching its New Economy Offer to 58 destinations on the short and medium-haul network as part of the Transform 2015 offensive aimed at repositioning the customer at the heart of its growth strategy. There are two options: - the all-inclusive Classic offer, and - MiNi, a simplified offer without checked baggage or Flying Blue miles at fares starting from 49 including taxes. Like KLM, Air France s ambition is to adapt to changes in purchasing behavior and passenger expectations On this network, passengers who are members of Flying Blue or BlueBiz, passengers under corporate contracts and those holding fully flexible tickets can check in a piece of hold baggage for free (other passengers are asked to pay 15). Paid-for options such as a choice of seat, a higher standard of in-flight comfort (Economy Comfort) and, in time, paid-for lounge access complete this à la carte offer. Through these innovative new offers, KLM is responding to changes in customer behavior with more passengers choosing to travel without checked baggage and seeking increasingly personalized services. while attracting new customers with complementary offers accessible all year round at fully combinable fares. This New Economy Offer makes Air France quality accessible to everyone since, once on board, all the customers benefit from the same services. On the ground too, all customers benefit from Air France assistance, mobile services enabling their trips to be managed from A to Z from a smartphone and numerous innovations which save time when checking in and boarding. A revamped World Business Class On March 20, KLM presented its new World Business Class cabin interior equipped with a new full flat seat. With this revamped interior, KLM is putting the emphasis on increased comfort and more privacy for Business passengers. Manufactured by B/E Aerospace, this seat reclines to a fully flat position and has storage compartments beside passengers and under the television screens. The 22 Boeing B s in the KLM fleet will be the first aircraft equipped with 35 full flat seats whose inaugural flight is scheduled for next July. FOCUS Montevideo, a 15 th destination for the Group in south America Starting from April 16, Air France will be offering five flights a week to Montevideo, the Uruguayan capital, by extending the Buenos Aires scheduled service. In South America, Montevideo is the fifteenth destination served by Air France-KLM, the leader on the continent with 14 South American destinations and 125 weekly flights on departure from Paris-Charles de Gaulle and Amsterdam-Schiphol. In summer 20, the service between Paris-Charles de Gaulle and Amsterdam-Schiphol will be operated in Boeing B s equipped with 308 seats (34 full sleep seats in the Business cabin, 24 seats in Premium Economy and 250 in Economy). Declaration on KLM.com KLM continues to improve its services by enabling passengers whose baggage is missing on arrival at one of 21 eligible European and American airports to make their lost-baggage declarations online at KLM.com. Following last year s successful trials at Schiphol, Roissy-Charles de Gaulle and Frankfurt airports, the service has since been extended to other airports. 41 million Messages exchanged on air france s Facebook page in 2012 Air France has an active presence on the social media and is steadily increasing the number of messages exchanged with its fans and followers on Facebook (more than 1.3 million fans), Twitter (more than 300,000 followers), Instagram (more than 6,900 followers), YouTube (more than 2,200,000 views), Google+, Linked In and Pinterest. In 2012, 41 million messages were exchanged on Facebook, more than 44,000 tweets were received and more than 21,000 were sent. APRil 20 Action AIR 03

4 Results to December 31, % increase in revenues Revenues in billion Revenues by business line in billion Passenger Cargo Maintenance Others Income/(loss) from current operations in million Net income/(loss), Group share in million ,192 > 2012 annual results The 2012 results were in line with our expectations, with the first effects of the Transform plan enabling us to reduce the operating loss. Most importantly, it was a year in which our fundamentals were restored as the first, necessary step towards the recovery of our Group. Our working practices have been overhauled and new action plans have been determined for each of our businesses while reducing costs and improving our financial position. 20 will see the implementation of all these action plans. It is therefore a crucial year for the success of the Transform plan, and the return to sustainable profitability. On behalf of the Board, I would like to thank the employees of the group for their commitment, and the work they have accomplished during the past 12 months. Jean-Cyril Spinetta, Chairman and Chief Executive Officer. > Revenues: billion (+5.2%) The Group posted a 5.2% increase in revenues to billion. The passenger activity was driven by the long-haul segment which remained positively oriented. The cargo business is still facing a difficult environment and is thus seeing a deterioration in profitability. The maintenance business continues to develop in the high-valueadded engine and component support segments. The leisure business with Transavia also posted an increase in revenues. > Reduction in the operating loss While 2012 was characterized by a slow-down in global growth, it nevertheless saw higher oil prices. The first results of the Transform 2015 plan did, however, enable a reduction in the operating loss ( -300 million versus -353 million at December 31, 2011). After restructuring charges of 471 million mainly linked to the voluntary departure plans, the net loss stood at 1.19 billion. Excluding restructuring charges, the net result, while still negative, would have seen an improvement on the previous year. > A 550 million reduction in net debt The Group generated operational cash flow of 851 million and made 1.47 billion of investments. Disposals stood at 745 million. Net debt amounted to 5.97 billion ( 6.51 billion at December 31, 2011). The Group has cash of 3.9 billion and credit lines of 1.85 billion. In December, Air France-KLM successfully issued 500 million of bonds with a coupon of 6.25%, maturing in > 20 outlook 20 has started amid an uncertain environment with further volatility in the oil price and currencies. Against this backdrop, the group will maintain strict control over capacity and investments. At the same time, the Transform 2015 plan will be fully rolled out. In these conditions, the group s objective is a continued reduction in both the unit cost at constant currency and fuel prices, and in its net debt. 04 Action AIR APRIL 20

5 Economic life Air France s economic impact: 26 billion and more than 356,000 jobs in France Research produced by the EM Strasbourg business school reveals Air France s economic impact at the level of metropolitan France. Three major types of impact were taken into account for this calculation: > Direct impact: spending on the payroll, consumption of goods and services, investments and taxation; > Indirect impact: spending by the passengers carried; > Spin-off impact: spending by the beneficiaries of the direct and indirect impacts. And four major injections from Air France into the economy of metropolitan France: > Remuneration taking into account the breakdown between gross and net incomes, spending from tourism, other commercial expenses, imports; > Purchasing including kerosene; > Taxes and fees paid to airports, civil aviation, control towers and including rents; > Spending by passengers. Oil price Within the space of a few years, fuel has become the main cost item for airlines, representing 14% of costs in 2003 and rising to 33% in In 2012, all the factors combined to drive the oil price higher: renewed tensions in the Middle East and, in particular, the European Union embargo of Iranian crude, monetary expansion from the central banks and the gradual increase in risk appetite. The increase in oil prices nonetheless remained moderate given, notably, the progressive decline in US imports, no major crisis in Iran and the Chinese slowdown in early In 20, the gradual increase in non-opec production (particularly in the United States, Canada, Brazil and Kazakhstan) is likely to introduce more volatility even if the long-term trend remains upwards. Trend in the oil price In US$ per barrel Average price The research reveals that 1.4% of the GDP in metropolitan France is linked to the airline and identifies a total of 356,226 jobs depending on Air France activity: 62,000 employees and 294,541 spin-off jobs. According to the research, each of the 15 million stays linked to an Air France flight leads to an economic spin-off averaging 1,717. It underlines that the regional impact of Air France is significantly higher than that of the low cost airlines which is estimated at 300 per passenger based on research from the Chambers of Commerce and Industry. While the Ile de France totals 44% of the spin-off employment, the company s activity is even felt in regions it doesn t serve with an economic impact of more than 2 billion and 3,200 spin-off jobs. High Low SEEN IN THE PRESS Le Figaro February 23, 20 In 20, Air France-KLM will reap the benefits of its restructuring. Le Monde February 23, 20 The Transform plan is impacting the Air France-KLM numbers but is beginning to bear fruit. Herald Tribune International February 23, 20 Cost-cutting stems loss at Air France. APRil 20 Action AIR 05

6 Focus Taking part in the Shareholders Meeting on Thursday May 16, 20 Irrespective of how many shares they own, all shareholders can take part in the Annual General Shareholders Meeting by attending personally, voting by mail, arranging to be represented by an individual of their choice or giving the Chairman the power to vote on their behalf. Pursuant to the legal provisions, shareholders have the right to vote provided their shares are registered in their name at least three business days before the date of the Meeting at 0h00 Paris time (i.e. Monday May, 20). All the information at your disposal The strengthening of links with you, the Air France-KLM shareholders, is a priority. We want to hear what you have to say and organize multiple opportunities for discussion and dialogue: the Shareholders Meeting, the Individual Shareholders Committee, meetings with shareholders, site visits and cultural events for which we are partners. The Group is committed to maintaining and reinforcing a relationship of trust by involving shareholders in the day-to-day life of the Company. This means providing you with regular, transparent and accessible information on Company developments and on any events liable to influence the share price. For example, the Group posts information notices in newspapers and magazines and issues press releases which are picked up by the press. It makes a wide range of publications and services available to shareholders, dedicated to informing them about the Group, its businesses and results. Regular meetings are also organized in Paris and the French regions so that shareholders can maintain a direct dialogue with the company s representatives. You can access the recorded presentations of the annual and first-half results on our website Ways to take part in the meeting: 1 / Shareholders wishing to attend the Meeting personally can: - Request an admission card by using the form which is sent to them with the convening notice if they hold registered shares. - Ask their financial intermediary for an admission card if they hold bearer shares. NEW The membership form for the Shareholders Club is now on our website. 2 / Shareholders not wishing or unable to attend the Meeting personally have the option to: - Vote by mail. - Give the Chairman of the Meeting the power to vote in favour of the resolutions presented. - Arrange to be represented by an individual of their choice. 3 / Dutch shareholders should ask ABN-AMRO for an admission card. 4 / The Annual General Shareholders Meeting will be broadcast live on the Air France-KLM website: Contact: mail.actionnaires@airfranceklm.com This new functionality enables internet-user shareholders to sign up for the Club using this form and to manage any changes in their contact details thanks to the login and password received with their membership confirmation. 06 Action AIR APRIL 20

7 Committee Life The Committee met At its November 29 meeting, Committee members were able to talk to Ms Sophie Virapin, Head of Sustainable Development at Air France. Ms Virapin gave a detailed presentation on Air France s commitment to positioning the principle of sustainable development and ethical business behavior at the heart of its strategy. Air France-KLM s commitment to Corporate Social Responsibility is based on respecting fundamental rights as enshrined in a series of major international principles: The Universal Declaration of Human Rights, The International Labour Organization s (ILO) Declaration on Fundamental Principles and Rights at Work, and The Organization for Economic Cooperation and Development s (OECD) guiding principles. Air France-KLM aims to set the standard for corporate social responsibility and maintain its leadership position within the air transport sector by organizing its action around four key priorities relating to the environment, its customers, its employees and the development of the regions where the company operates. The Group works with all its stakeholders to: >> achieve a sustainable balance between activity growth and its overall environmental footprint; >> make a difference for its customers thanks to a pro-active, personalized approach while offering responsible and innovative products and services; to maintain a corporate social responsibility strategy and encourage personal development to ensure the motivation and high professional standards of its employees; >> contribute to the economic and social development of the territories in which the Group operates. The Group has set specific objectives for these key priorities which are factored into the individual targets for each company. The company s efforts are also supported by a leadership position and a commitment to setting an example. The Air France-KLM group raises the awareness of its commercial partners and encourages them to adopt a sustainable development approach and policy. To guarantee the monitoring of its commitments, Air France also monitors the work of its sub-contractors and suppliers by supporting them in a sustainable development approach. This commitment finds its concrete expression in the implementation of different measures across the company such as recourse to the sheltered sector or the deployment of eco design enabling, with all the contributors, the identification of solutions which are the most respectful of the environment in terms of product manufacturing, transportation and endof-life-cycle. Again reflecting its determination to set the standard in terms of corporate social responsibility, the Air France-KLM group has developed four major ambitions which are outlined in the annual Corporate Social Responsibility Reports. During the meeting, Ms Virapin gave some examples of these ambitions in action: >> The first ambition concerns a reduction in the environmental footprint. This involves reducing waste, preserving the air quality surrounding operations and cutting greenhouse gas emissions through a reduction in fuel consumption. >> The second ambition concerns the establishment of long-term relationships with customers. This is manifested on board aircraft through the products offered (blankets, meal trays, seats, headsets, etc.) which are the subject of environmental analysis, and by involving customers in asking them to collect newspapers for recycling when leaving the aircraft and by the distribution on request of some articles which used to be systematically provided with a view to significantly reducing waste. >> The third ambition concerns applying a responsible human resources policy by promoting, in particular, equal opportunity and diversity. This commitment is reflected, for example, in the recruitment of employees with disabilities. Disabled employees represent more than 4% of staff and Air France sources a significant level of procurement from the sheltered sector ( 15 million in 2012). >> The fourth ambition concerns regional development through the company s participation in economic activity around the main stations and support for local initiatives, and contributing to humanitarian or environmental initiatives through NGOs or the Air France Foundation. All these efforts are now gaining recognition with the Air France-KLM group having been ranked global air transport leader for the eighth year running by the Dow Jones Sustainability Index (the leading international index evaluating companies on their sustainable development performance) and leader of the broader Transport and Leisure sector for the third time. This year it will be included in the new SRI Euronext Vigeo indices. In addition to the influence exerted by this approach, this meeting enabled the ISC members to confirm that the past efforts and choices in terms of sustainable development and corporate social responsibility are assets which are helping the company to traverse the current period of economic upheaval, rising oil prices and transformation APRIL 20 Action AIR 07

8 My notebook My meetings Next visit Thursday June 6, 20 h45: Visit to the Air France Hub Meeting at Roissy-Charles de Gaulle airport Sign up by airfranceklm.com My shares Share price trend to March 28, 20 base 100 Air France-KLM CAC 40 (relative) Air transport index (relative) Next meeting Thursday May 16, 20 Annual General Shareholders Meeting at the Carrousel du Louvre in Paris Forthcoming announcements Friday May 3, first-quarter results Friday July 26, first-half results Thursday October 31, third-quarter results Forthcoming meetings of the Individual Shareholders Committee (ISC) Wednesday June 5, 20 Wednesday September 18, Analysts recommandations (Source: Bloomberg, Reuters at March 28, 20) 11 Buy _Add Sell _Lighten Hold Stock information _Dual listing NYSE Euronext Paris and Amsterdam Code ISIN: FR _included in the following indices CACmid60 and Euronext 100. Sustainable development indices: DJSI World and STOXX, ASPI Eurozone and FTSE4Good _NUmber of shares 300,219,278 _Market Capitalization at march 28, billion Forthcoming meetings in the French regions Monday April 15, 20 Lyon with Investir Tuesday May 28, 20 Metz with Le Revenu Club members in these regions will receive a personal invitation My space on the website By mail: Air France-KLM Bâtiment Altai AFKL.FI 10-14, rue de Rome Tremblay-en-France By mail.actionnaires@airfranceklm.com Head of publications: Dominique Barbarin - Chief Editor: Christine Machard - Printing: Air France Publications - DBAC - Financial Communication - Photos credits: Air France and KLM photograph librairies