THIRD QUARTER 2017 RESULTS 3 rd of November 2017

Transcription

1 THIRD QUARTER 2017 RESULTS 3 rd of November

2 THIRD QUARTER 2017: STRONG OPERATING RESULT DRIVEN BY SOLID TRAFFIC AND INCREASE IN UNIT REVENUE Robust Group traffic statistics +5.1% +4.1% Strong operating income and free cash flow +38.7% % 737 1, Passengers RASK (1) At constant currency Operating income M Operating free cash flow Trust Together strategic execution on track Good strategic and commercial momentum > Further advances in strengthening network of alliances: Vietnam Airlines > Implementation of a new distribution strategy > Upcoming launch of revamped Flying Blue program Further strengthening the financial structure > Soft call exercise of the OCEANE 2023 bond > Finalizing the implementation of de-risked pension schemes for pilots and cabin crew in KLM > On track to implement IFRS16 in (1) Group Revenue per Available Seat Kilometer (RASK) Passenger + Transavia at constant currency A I R F R A N C E - K L M

3 FINANCIAL REVIEW

4 THIRD QUARTER 2017 STRONG PERFORMANCE IMPROVING THE LEASE ADJUSTED OPERATING MARGIN BY 3.4 POINTS Q Change Change at constant currency Revenues ( bn) % +5.1% EBITDA ( m) 1, % +32.0% Operating result ( m) 1, % +42.9% Operating margin 14.1% +3.5 pt +3.7 pt Lease adjusted operating result (1) ( m) 1, % +37.5% Lease adjusted operating margin 15.3% +3.4 pt +3.6 pt Net result, group share ( m) % 4 A I R F R A N C E - K L M (1) Operating result adjusted for the interest portion (1/3) of the operating leases

5 FIRST 9 MONTHS MAIN KPIS SHOW STRONG IMPROVEMENT 9M 2017 Change Change at constant currency Revenues ( bn) % +4.1% EBITDA ( m) 2, % +32.2% Operating result ( m) 1, % +65.8% Operating margin 7.0% +1.9 pt +2.6 pt Lease adjusted operating result ( m) 1, % +51.0% Lease adjusted operating margin 8.4% +1.9 pt +2.6 pt Net result, group share ( m) % Operating free cash flow ( m) m ROCE 10.5% +0.6 pt Net debt at end of period ( m) (1) 2, m Adjusted net debt ( m) (1) 10, m Adjusted net debt / EBITDAR (1) 2.4x -0.5x 5 A I R F R A N C E - K L M (1) Compared to 31 December 2016

6 (1) Change in segment reporting as per Q to Network result : Passenger (Air France, KLM and HOP!) and Cargo GROUP RESULT IMPROVEMENT DRIVEN BY NETWORK AND TRANSAVIA, MAINTENANCE STABLE Third Quarter 2017 Revenues Change Operating Result Change ( bn) (%) ( m) (%) Network (1) % % 86% Transavia % % 8% Maintenance 6% % % Total % 1, % 6 A I R F R A N C E - K L M

7 NETWORK: ROBUST THIRD QUARTER TRAFFIC NUMBERS CONFIRMING IMPROVEMENT IN PASSENGER UNIT REVENUE Confirmation of the improvement in unit revenue Passenger unit revenue at constant currency Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 8.3% 4.9% 5.3% Premium classes -2.5% v 1.9% 3.1% Economy class -0.5% 1.5% Total 3.7% LF: 87.5% Q Capacity (ASK) Q3 activity ASK: +1.9% RPK: +3.9% LF: 89.2% Q Traffic (RPK) LF: Load Factor Ancillary revenues 160m, +20m Ancillary revenues versus last year at constant currency Q Q % +12.4% Q % RRPK Q3 Unit Revenues 3.2% 1.8% 1.2% RASK 3.7% Reported At constant currency 7 A I R F R A N C E - K L M Passenger network: Air France, KLM and HOP!

8 NETWORK: DEVELOPING A NEW DISTRIBUTION STRATEGY AND A REVAMPED LOYALTY PROGRAM Personalized offers New distribution strategy Air France KLM implements a new distribution strategy: > Taking back control of offer for all channels, allowing creation of: Dynamically built product bundles Enhancing distribution capabilities to all channels Rich offers and content Effective April 1st 2018, Air France-KLM will implement a Distribution Surcharge on GDS sales Loyalty program A complete re-engineering of the Flying Blue program will be launched on 1st April 2018 > It will enrich the travel experience, offering the members more simplicity and flexibility, a clearer earning scheme, more options to spend their Miles on flights and flight-related services > New tools will be implemented to analyze and rationalize the economics of the program and to optimize the financial steering The announcement of the new program and all related features is scheduled on 6 th November A I R F R A N C E - K L M

9 NETWORK: Q3 STRONG RECOVERY IN ASIA AND LATIN AMERICA 1.9% Q3 Total 3.9% 3.7% ASK RPK RASK ex cur. Medium-haul point-to-point Medium-haul hubs Total medium-haul 0.7% 3.6% 6.1% 8.6% 4.6% 5.1% 7.8% 2.6% -4.2% ASK RPK RASK ex cur. ASK RPK RASK ex cur. ASK RPK RASK ex cur. 4.0% North America 6.6% Caribbean & Indian Ocean 1.3% 1.7% Asia 8.8% -0.5% -0.9% -1.5% -0.3% ASK RPK RASK ex cur. ASK RPK RASK ex cur. ASK RPK RASK ex cur. -3.9% Latin America Africa & Middle East Total long-haul 12.1% 5.1% 6.5% 3.0% 1.2% -0.6% -1.5% 3.4% ASK RPK RASK ex cur. ASK RPK RASK ex cur. ASK RPK RASK ex cur. 9 A I R F R A N C E - K L M Passenger network: Air France, KLM and HOP!

10 NETWORK: CARGO TURNAROUND CONTINUING Improved demand Q3 activity > Positive traffic (RTK) and load factor ATK: -0.3% > Unit revenue increasing in Q3 Cargo unit revenue at constant currency Q Q Q % LF: 56.5% RTK: +0.6% LF: 57.1% -4.9% -1.3% Q Capacity (ATK) Traffic (RTK) Q LF: Load Factor Investing in the future Q3 Unit Revenues > Simplified product portfolio & multiple digitalization solutions like Quote to Book and customer portal My Cargo RRTK 2.8% 2.0% RATK 3.8% 1.1% Reported At constant currency 10 A I R F R A N C E - K L M Passenger network: Air France, KLM and HOP!

11 TRANSAVIA: BOTH FRANCE AND NETHERLANDS SHOW OUTSTANDING PERFORMANCE IN Q3 AND WILL HAVE POSITIVE OPERATING RESULT IN million passengers, capacity growth 3.9% driven by entire network > Capacity France +6.2% > Capacity Netherlands +2.6% Revenues up 13% at 555m > Transavia unit revenue is strongly increasing by 9.3% Unit cost continuous improvement: Transavia unit costs at constant currency, fuel and pension expenses Q Q Q Q3 activity ASK: +3.9% RPK: +5.7% LF: 91.3% LF: 92.8% Q Q Capacity (ASK) Traffic (RPK) LF: Load Factor Q3 Unit Revenues RRPK RASK 9.3% 9.3% 7.4% 7.4% -5.4% -4.2% -3.8% Operating result 164m, up 72m Reported At constant currency 11 A I R F R A N C E - K L M

12 MAINTENANCE: ORDER BOOK IN LINE WITH TARGET Strong increase in order book of $1.5bn year to date, securing future growth > Reached target ~10% growth, driven by increase in both Engine and Component order book > New contracts signed in the quarter include various Next Gen components and CFM56, GE90 engine deals In $bn $8.4bn Order book +16.9% +6.0% $8.9bn 31 Dec Dec 2016 $10.4bn 30 Sep 2017 Margin remaining at a solid level > OEM supply chain under pressure in engine business > Change in product and business mix from mature to new contracts In m Q Q Change At constant currency Total revenue 1,050 1, % Third party revenue % -1.5% Operating result m +0 m Operating margin (1) 7.1% 7.4% -0.2 pt -0.1 pt 12 A I R F R A N C E - K L M (1) Operating margin: operating result / total revenue

13 OPERATING RESULT DRIVEN BY SOLID TRAFFIC AND UNIT REVENUE PERFORMANCE In M , Revenue: -53m Cost: -32m -72 Q Activity change Unit revenue Fuel price ex-currency +20 Unit cost at constant currency, fuel and pension expenses Change in pension-related expense (non-cash) Currency impact Q A I R F R A N C E - K L M

14 UNIT COST REDUCTION IMPACTED BY INCREASE IN LOAD FACTOR AND PROFIT SHARING Q3 unit cost evolution +1.1% 0.0% +0.6% -0.3% -1.8% -0.8% +0.3% -1.6% Reported change Currency effect Fuel price effect Change in pension related expenses At constant currency, fuel and pension expenses Load factor effect Profit sharing effect Total First 9 months unit cost evolution -0.4% -1.0% +0.9% 0.0% -0.4% -0.3% -0.8% -1.5% Reported change Currency effect Fuel price effect Change in pension related expenses At constant currency, fuel and pension expenses Load factor effect Profit sharing effect Total 14 A I R F R A N C E - K L M

15 IMPROVED EMPLOYEE PRODUCTIVITY Q3 average headcount down 700 FTEs > Pilots +100 FTEs, Cabin crew +600FTEs and Ground -1,400 FTE Average FTEs, including temporary staff Staff numbers (1) 84,800 84,250 84,150 83,550 83,250 82,850 83,450 Q3 Productivity +2.7% (capacity measured in EASK +1.9%) (2) > Air France productivity +4.0% > KLM productivity +0.6% Net change employee costs -0.1% before profit sharing + 99m Q1 Change in total employee costs In m, including temporary staff 1, Q2 Q % Net change Q4 1,928 Q Pension related expenses Net change Profit sharing Other (Cobalt) Q (1) 2016 FTE headcount restated for the sale of Cobalt Ground Solutions in December FTEs FY2016 (2) Productivity measured by EASK/FTE 15 A I R F R A N C E - K L M

16 Q FUEL BILL DOWN 100M EUR COMPARED TO LAST YEAR In M m 1, , Q Fuel price excurrency and hedging Fuel hedge impact Activity change (capacity and efficiency) Currency impact Q Fuel hedge result 16 A I R F R A N C E - K L M

17 NET DEBT REDUCTION SUPPORTED BY IMPROVEMENT IN EBITDA AND WORKING CAPITAL Adjusted Net debt / EBITDAR at 2.4 In m 3,655 +2,414 Change in net debt Operating free cash flow: +793 (9M 2016: +250) -1, , (9M 2016: +1870) (9M 2016: +45) (9M 2016: -208) (9M 2016: -1457) 1,769 Gross investments Net debt at 31 Dec 2016 Cash flow before VDP, and change in WCR Change in WCR Voluntary Departure Plans Net investments Other Net debt at 30 Sep A I R F R A N C E - K L M

18 FURTHER STRENGTHENING THE FINANCIAL STRUCTURE 30 September 2016 Pension Assets Liabilities 20.6bn 22.8bn De-risking pension plans Asset and discount rate revaluations & change in cabin crew scheme (Aug 17) 30 September bn 17.9bn After expected change in pilot pension scheme Continued reduction in leverage 31 December December 2017 Forecast 2.9x (1) 0.75bn (1) Adjusted net debt/ebitdar Reserved capital increase (2) Before acquiring 31% of Virgin Atlantic shares Pension Assets Liabilities 0.52bn Early redemption of the OCEANE x (2) December 2017 Forecast Pension Assets Liabilities P&L impact : non-current (and noncash) of 233m after tax at Q3 for the KLM cabin scheme. Impact to be calculated at implementation for the KLM pilot plan Cash : 194m lump sum several annual installments Significant reduction of the volatility of the annual pension contributions and of the Group s exposure to sizeable plans Reserved capital increase of 751m completed on October 3rd 2017 Soft call exercise of the OCEANE 2023: > Further deleveraging up to 520m per November 15 th 2017 > At October 31st, conversion requests for 340 m > Conversion rights up to November 6 th 2017

19 CONTRIBUTION BY AIRLINE TO FIRST 9 MONTHS RESULTS In m EBITDA EBITDA margin 1,121 1,395 1,012 1, % 11.6% 13.6% 16.2% M M M M M M M M In m Lease adjusted operating result (1) Lease adjusted operating margin (1) % % % 4.1% M M M M M M M M 19 A I R F R A N C E - K L M (1) Operating results adjusted for interest portion (1/3) operating leases

20 OUTLOOK

21 OUTLOOK Q PASSENGER NETWORK: CONTINUATION OF THE POSITIVE TREND Long haul forward bookings (change vs 2016) +3 pts +2 pts +1 pts +2 pts +2 pts + 0 pts Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Actual Long haul load factor Long Haul Forward booking load factor Q capacity of Passenger Network +3-4% and Transavia +6-7% Long haul forward booked load factor ahead of last year for coming two months October 2017 unit revenue compared to last year at constant currency is positive Based on current outlook, Q unit revenues compared to last year are expected to be positive at constant currency 21 A I R F R A N C E - K L M

22 OUTLOOK Q FUEL BILL: +100M USD, STABLE IN EUR 2016: fuel bill 4.6bn 2017: fuel bill 4.5bn (2) (1) $ Bln (1) (1) (1) (1) MARKET PRICE Jan-Dec FY Q1 Q2 Q3 Q4 Brent ($ per bbl) (1) Jet fuel ($ per metric ton) (1) % of consumption already hedged 60% 22 A I R F R A N C E - K L M (1) Based on forward curve at October 27 th Sensitivity computation based on October-December 2017 fuel price, assuming constant crack spread between Brent and Jet Fuel (2) Assuming average exchange rate of US dollar per euro 1.18 for October-December 2017

23 OUTLOOK 2017 Unit cost evolution at constant currency, fuel and pension charges expected slightly negative, and between -1.0% to -1.5% excluding load factor and profit sharing effect Capex plan in planned range at 2.2bn in 2017 Operating free cash flow before disposals above last year Adjusted net debt to EBITDAR exceeds target: (1) Target < 2.5 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017e Strike adjusted 23 A I R F R A N C E - K L M (1) Before acquiring 31% of Virgin Atlantic shares in 2018

24 FIRST ESTIMATES 2018 Forward bookings for the first 2 months of 2018 are positive compared to last year, based on current outlook Fuel bill first estimate +300m USD, stable in EUR in 2018 versus 2017, based on current forward prices IFRS 16 early implementation in 2018 expected, in a first assessment, to result in a consequential reduction of net debt of at least 1.5 billion euros compared to adjusted net debt (based on 31st December 2016 figures). +2 pts Jan-Sep 17 $ Bln Long haul forward bookings (change vs previous year) +2 pts Q4 17 Actual Long haul load factor 5.1 (1) 5.4 (1) +1 pts Jan-18 Fuel estimates +3 pts Feb-18 Long Haul Forward booking 1.3 (1) 1.4 (1) Jan-Dec Q1 '18 Q2 '18 Brent ($ per bbl) (1) Jet fuel ($ per metric ton) (1) % consumption hedged 61% 62% 24 A I R F R A N C E - K L M (1) Based on forward curve at October 27 th 2017

25 APPENDIX

26 NEW DISTRIBUTION STRATEGY: AGILITY AND INNOVATION ARE KEY TO RESPOND TO CHALLENGES AND OPPORTUNITIES Competitive pressure reinforces the need to adapt, innovate and differentiate. Need to become even more efficient and fight commoditization of our product through value selling. More than ever, customers expect time to market, flexibility, and tailor made offers. Need to be at the source of offer creation, to best address individual needs through personalization. There is an increasing range of ways for customers to purchase travel products Need to be where the customer is and to distribute freely our products on most relevant channels. A I R F R A N C E - K L M 26

27 NEW DISTRIBUTION STRATEGY: A CHANGE IN THE DISTRIBUTION MODEL IS REQUIRED, EMBRACING NDC WILL UNLOCK OPPORTUNITIES Air France KLM NDC Offer Management Taking back control of offer creation for all channels, allowing creation of: Each channel carries its own cost dynamics. Therefore, effective April 1 st 2018, Air France KLM will implement a Distribution Surcharge effective on GDS Sales. Personalized offers Aggregator Dynamically built product bundles Enhancing distribution capabilities to all channels Direct connect or Booking Tool Rich offers and content GDS are a key component of Air France KLM distribution. However their model represents higher costs than other options do and comes with more constraints. The Distribution surcharge covers the cost difference created by the GDS model in compared with corresponding costs of Air France KLM direct sales. Travel agent Travel agent AFKL direct sales A I R F R A N C E - K L M 27

28 A NEW FLYING BLUE PROGRAM TO BE LAUNCHED ON 1 ST APRIL 2018 Implemented in June 2005, Flying Blue has proven its strong value to the airlines, with > A highly qualified database of nearly 15 million members, > A very significant revenue of the total Air France- KLM revenue generated by Flying Blue members > An attractive program with 135 partners A new program will be launched on 1 st April 2018, offering the members more simplicity, more flexibility, a clearer earning scheme, more options to spend their Miles on flights and flight-related services It will be based on a complete re-engineering of the program, with the purpose to enrich the travel experience, to stimulate the loyalty towards the airlines and to maximize the attractiveness thanks to the development of partners > New tools will be implemented to analyze and rationalize the economics of the program and to optimize the financial steering, while improving the program towards customers 28 A I R F R A N C E - K L M

29 NEGATIVE CURRENCY IMPACT ON THE OPERATING RESULT In m Currency impact on revenues and costs FY 2017 guidance FY 2017 FX headwind FY 2017 estimated around 125m based on spot /$ 1.19 in Q Hedging policy on USD, GBP and JPY: ~50% net operational exposure Q1 17 Q2 17 Q3 17 Currency impact on revenues Currency impact on costs, including hedging -XX Currency impact on operating result FY 2016 Euro 61% Revenues Revenues and costs per currency US dollar (and related currencies) 24% 15% Other currencies 62% Other currencies (mainly euro) Costs US dollar 38% 29 A I R F R A N C E - K L M

30 FIRST 9 MONTHS 2017 ADJUSTED NET RESULT 9 Months 2017 adjusted net result Unrealized foreign exchange result: -168 Net result group share Discontinued operations Non current result Value of hedging portfolio Balance sheet valuation De-recognition deferred tax asset Adjusted net result 30 A I R F R A N C E - K L M

31 PENSION UPDATE GROUP LEVEL In m Net pension balance sheet situation Dec 2016 Evolution of net pension situation Change in actuarial assumptions Change in asset value 30 Sep 2017 Liabilities: 21.2bn Assets: 20.5bn Cash out: 183m P&L expense : -192m Change of scheme: -296m Change in discount rate > 15 yrs 1.9% to 2.1% Liabilities: 17.9bn Assets: 18.3bn Other: -26m 31 A I R F R A N C E - K L M

32 PENSION DETAILS AT 30 SEPTEMBER Dec Net pension balance sheet situation 30 Sep In m Net balance sheet situation by airline +960 In m Net balance sheet situation by airline +1,985-1,617-1,615 Air France Air France end of service benefit plan (ICS): Pursuant to French regulations and the company agreement, every employee receives an end of service indemnity payment on retirement (no mandatory funding requirement). ICS represents the main part of the Air France position Air France pension plan (CRAF): related to ground staff affiliated to the CRAF until December 31st, 1992 KLM Defined benefit schemes for Pilots and Ground staff 32 A I R F R A N C E - K L M

33 NETWORK: FIRST 9 MONTHS PASSENGER NETWORK RECOVERY IN ASIA AND LATIN AMERICA 9M Total 2.7% 4.5% 1.7% ASK RPK RASK ex cur. Medium-haul point-to-point Medium-haul hubs Total medium-haul 0.8% 5.6% 7.3% 6.1% 4.3% 2.1% 1.1% -0.9% -1.2% ASK RPK RASK ex cur. ASK RPK RASK ex cur. ASK RPK RASK ex cur. 4.7% North America 6.5% Latin America 0.2% 9.0% Caribbean & Indian Ocean 3.3% 3.2% -1.6% ASK RPK RASK ex cur. -2.7% ASK RPK RASK ex cur. -3.4% ASK RPK RASK ex cur. Africa & Middle East 4.3% 5.0% 0.8% Asia 3.8% 7.0% 2.3% Total long-haul 4.1% 1.7% -2.4% ASK RPK RASK ex cur. ASK RPK RASK ex cur. ASK RPK RASK ex cur. 33 A I R F R A N C E - K L M Passenger network: Air France, KLM and HOP!

34 DEBT REIMBURSEMENT PROFILE AT 30 SEPTEMBER 2017 The % convertible bond will be redeemed on 15 th of November 2017 following the soft call by Air France-KLM. The bondholders have the right up to 6 th of November 2017 to exercise their conversion rights, for which new shares will be issued % convertible bond ( 550m) Debt Reimbursement Profile (1) % undated hybrid bond ( 600m) Call: October and beyond Convertible bond Other long-term debt mainly asset-backed (net of deposits) Plain vanilla bonds January 2018: Air France-KLM 6.25% ( 500m) June 2021: Air France-KLM 3.875% ( 600m) October 2022: Air France-KLM 3.75% ( 400m) December 2026: Air-France KLM 4.35% ($145m) Hybrid bond (recognized as equity) 34 A I R F R A N C E - K L M (1) In million, net of deposits on financial leases and excluding KLM perpetual debt ( m)