Air France-KLM
INVESTOR ROADSHOW PRESENTATION FULL YEAR 2019
MARCH 2020
Overview
Resilient operating results in a challenging macro-economic context
Net improved operating performance since 2012
Leverage successfully taken down to investment grade like levels
Group guidance for 2020-2024: Capacity growth +2 to +3% p.a.
Commitment to Global Environmental Sustainability
Group numerous unique strengths
- France #1 world inbound destination
- Schiphol Best-In-Class European hub
New 4-pillar strategy recently unveiled
- Optimize the operating model: Reduce operating costs and increase efficiency
- Refocus growth of passenger revenue on most profitable segments by leveraging hubs and powerful brand identities
- Continue to grow other group's businesses and leverage customer data, Flying Blue, Cargo, and Engineering & Maintenance
- Continue to pragmatically evaluate consolidation opportunities
2
3
A I R F R A N C E - K L M | G R O U P |
Results 2019 FY
2019 highlights
Labor stability
- Improved social dialogue based on trust, respect, transparency & confidentiality
-
37 staff agreements signed in
2019 for Air France and new CLAs for all KLM staff categories
Operational reliability
- Air France operational measures resulting in strongly-improvedArrival-punctuality.
- Customer satisfaction scores (NPS) at a record level for Air France and at a steady-state high level for KLM
Sustainability
- A step up in sustainability, launching new impactful initiatives by Air France-KLM
- Regaining the world leader position 2019 in the Dow Jones Sustainability Index
4
2019 KPI targets achieved
Guidance 2019 | Full Year 2019 | |
Unit cost | ||
ex-currency at | -1% to 0% | -0.9% |
constant fuel price | ||
Capex | €3.2bn - €3.3bn | €3.3 bn |
Net Debt / EBITDA at/below 1.5x | 1.5x |
Passengers carried | Group revenue | ||||
+2.7% | +3.7% | ||||
101.4m | 104.2m | 26.2bn | 27.2bn | ||
FY 2018 | FY 2019 | FY 2018 | FY 2019 | ||
Operating result (1) | Net debt | ||||
-18.8% | - €17m | ||||
1,405 | 6,164 | 6,147 | |||
1,141 | |||||
FY 2018 FY 2019 | 31 Dec | 31 Dec | |||
2018 | 2019 |
(1) 2018 and 2019 results restated (with a similar impact in both years) for LLP componentization
5 accounting change. For details see slide 36 and/or notes to the consolidated financial statements paragraph 2, page 12-15
Full Year operating result at €1,141m,
with revenues +3.7% and fuel expenses +11.2%
FY 2019 | FY 2018 | Change | Change | ||
at constant currency | |||||
Revenues (€ bn) | 27.19 | 26.23 | +3.7% | +2.2% | |
Fuel expenses (€ bn) | 5.51 | 4.96 | +11.2% | +5.5% | |
EBITDA (€ m) | 4,128 | 4,293 | -3.8% | -3.3% | |
Operating result (€ m) | 1,141 | 1,405 | -18.8% | -17.7% | |
Operating margin | 4.2% | 5.4% | -1.2 pt | -1.0 pt | |
Net income - Group part (€ m) | 290 | 420 | -130m | ||
Adjusted operating free cash flow (€ m) | -385 | 115 | -500m | ||
ROCE 12 months sliding | 8.5% | 10.4% | -1.9 pt | ||
31 Dec 2019 | 31 Dec 2018 | Change | |||
Net debt (€ m) | 6,147 | 6,164 | -17m | ||
Net debt/EBITDA 12 months sliding | 1.5x | 1.4x | +0.1x |
6 (1) 2018 and 2019 results restated (with a similar impact in both years) for LLP componentization accounting change. For details see slide 36 and/or notes to the consolidated financial statements paragraph 2, page 12-15
Operating result at €1,141m with cost-efficiency measures
offset by pressure on Cargo unit revenue and a higher fuel bill
FY 2019
Operating result evolution in € m
1,405 | +40 | -300 |
+203-188
-191,141
Passenger -80m
Cargo -220m
FY 2018 | Activity change | Unit revenue | Unit cost | Fuel price ex-currency | Currency impact | FY 2019 |
2018 and 2019 results restated (with a similar impact in both years) for LLP componentization accounting change. For details see slide 36 and/or notes to the consolidated financial statements paragraph 2, page 12-15
7
Revenue growth for all businesses, margin
decline in Passenger airlines and a positive margin trend in Maintenance at 5.6%, +0.7pt
Full Year 2019
Network
Transavia
Maintenance
Group
Capacity | (1) | Unit Revenue | (2) |
Constant Curr. | |||
+2.5% | -0.4% | ||
+1.7% | -10.7% | ||
+6.5% | +3.0% |
+2.9% | -1.2% |
Revenues | Change | Operating | Change | Operating | Change |
(€ m) | result (3) | margin (3) | |||
(€ m) |
23,272 | +2.6% | 749 | -293m | 3.2% | -1.4 pt |
1,744 | +9.3% | 131 | -14m | 7.5% | -1.6 pt |
2,138 | +11.3% | 260 | +46m | 5.6% | +0.7 pt |
27,189 | +3.7% | 1,141 | -264m | 4.2% | -1.2 pt |
(1). Capacity is defined as Available Seat Kilometers (ASK), except for Network Cargo capacity which is Available Ton Kilometers (ATK). Group capacity is defined as Passenger ASK (Network Passenger ASK + Transavia ASK)
8
(2). Unit revenues = revenue per ASK, Cargo unit revenues = Cargo revenue per ATK, Group unit revenue = (Network traffic revenues + Transavia traffic revenues) / (Network Passenger ASK + Transavia ASK).
- 2018 and 2019 results restated (with a similar impact in both years) for LLP componentization accounting change. For details see slide 36 and/or notes to the consolidated financial statements paragraph 2, page 12-15
Growth in traffic +3.2% underpinned by load-factor improvements, mitigating yield pressure on unit revenue at -0.4%
Total | RASK ex cur. | ||||||||||
FY 2019 | 2.5% | 3.2% | -0.4% | ||||||||
Premium | Economy | ||||||||||
1 | |||||||||||
ASK | RPK | RASK ex cur. | -0.7% | -0.3% | |||||||
French domestic | Medium-haul hubs | Total short & medium-haul | ||||
1 | 2.9% | 4.7% | 1.0% | 2.8% | 0.1% | |
-0.3% | 0.6% | |||||
1 | 1 | |||||
-7.5% | -7.3% |
ASK | RPK | RASK ex cur. | ASK | RPK | RASK ex cur. | ASK | RPK | RASK ex cur. | |
North America | Caribbean & Indian Ocean | Asia | ||||||||||||||||||
5.2% | 5.8% | 0.6% | 4.2% | 3.3% | 3.3% | |||||||||||||||
0.4% | ||||||||||||||||||||
-0.6% | 1 | |||||||||||||||||||
1 | 1 | |||||||||||||||||||
-1.0% | ||||||||||||||||||||
ASK | RPK | RASK ex cur. | ASK | RPK | RASK ex cur. | ASK | RPK | RASK ex cur. |
Latin America | Africa & Middle East | Total long-haul | ||||||
6.4% | 5.3% | 2.9% | 2.9% | 3.3% | ||||
1 | 1 | |||||||
1 | ||||||||
-7.2% | -2.3% | -1.3% | -0.4% | |||||
ASK | RPK | RASK ex cur. | ASK | RPK | RASK ex cur. | ASK | RPK | RASK ex cur. |
9
Network: Strong improvement in Air France operational and NPS performance, steady solid appreciation in KLM
Net Promoter Score trend | ||||
Air France rated 7th airline in the On Time | ||||
Performance (A14) 2019 worldwide ranking | 42 | |||
40 | ||||
38 | 39 | 41 | ||
KLM | ||||
All indicators improved for Air France, on the back of a | ||||
successful "Cancel the cancellation" program | 27 | |||
22 | ||||
Completion factor | Departure | 17 | 19 | Air France |
% | punctuality D0 % |
12
2018 | 2019 | 2018 | 2019 |
Missing luggage | Connection | |||||
success @CDG % | 2015 | 2016 | 2017 | 2018 | 2019 | |
@CDG ‰ |
2018 | 2019 |
2018 | 2019 |
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Both airlines improved results in Q4 2019, with cost efficiency measures paying off for Air France resulting in a margin increase of +0.8pt
Q4 2019 | Capacity | Revenues | Change | Operating | Change | Operating | Change | |||
change | (€ m) | YoY | result (1) | YoY | margin(1) | YoY | ||||
(€ m) | ||||||||||
+1.9% | 4,056 | +1.9% | -19 | +30 | -0.5% | +0.8 pt | ||||
+2.1% | 2,690 | +1.4% | 119 | +7 | 4.4% | +0.2 pt | ||||
+2.0% | 6,618 | +1.9% | 96 | +43 | 1.5% | +0.6 pt |
FY 2019 | Capacity | Revenues | Change | Operating | Change | Operating | Change | Net debt | Change | Net debt / | Change | |||
change | (€ m) | YoY | result (1) | YoY | margin (1) | YoY | (€ m) | 31 Dec 2018 | EBITDA (2) | 31 Dec 2018 | ||||
(€ m) | ||||||||||||||
+3.7% | 16,588 | +4.6% | 280 | -41 | 1.7% | -0.3 pt | 3,941 | +384 | 1.8x | +0.1pt | ||||
+1.9% | 11,075 | +1.7% | 853 | -238 | 7.7% | -2.3 pt | 2,525 | -301 | 1.3x | -0.0pt | ||||
+2.9% | 27,189 | +3.7% | 1,141 | -264 | 4.2% | -1.2 pt | 6,147 | -17 | 1.5x | +0.1pt |
- 2018 and 2019 results restated (with a similar impact in both years) for LLP componentization accounting change. For details see slide 36 and/or notes to the consolidated financial statements paragraph 2, page 12-15
11 (2) Net Debt / EBITDA: 12 months sliding, see calculation in press release
Net debt stable and Leverage ratio at full year guidance of 1.5x(1)
FY 2019 Free cash flow evolution
In € m | |||
(FY 2018: +3542) (FY 2018: +256) | (FY 2018: -2711) | ||
3,760 | +135 | -3,272 | |
(FY 2018: +1087) (FY 2018: -972) | |||
623 | -1,008 | ||
-385 | |||
(FY 2018: 115) |
Cash flow | Change in | Net | Operating | Payment of | Adjusted |
before change | WCR | investments | Free Cash | lease debt | operating free |
in WCR | Flow | cash flow (2) |
Net debt stable
In € m
6,164 | -1,008 | +607 | -1 | 6,147 | ||||||
+385 | ||||||||||
Net debt at 31 | Payment of lease Adj.operating free New lease debt Currency & other | Net debt at 31 | |
Dec 2018 | debt | cash flow | Dec 2019 |
12 (1) Net Debt / EBITDA: 12 months sliding, see calculation in press release
(2) Adjusted operating free cash flow = Operating free cash flow with deduction of repayment of lease debt
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A I R F R A N C E - K L M | G R O U P |
OUTLOOK
Network: Passenger
unit revenue outlook for Q1 2020 impacted by Covid-19
After a good performance with positive unit revenue in January, recent developments with regards to the Covid-19 have impacted the demand outlook, especially in the Asian network.
Due to Covid-19:
- Passenger network unit revenues now expected to be down for Q1 2020
- Cargo unit revenue under pressure in the first part of the year
- Impact on operating result (Feb-Apr 2020) estimated at between -€150 to -€200m, with:
- Suspension of China operations in February-March and
possible resumption of operations starting from April 2020(1) - Negative impact for connecting traffic and weakness in rest of Asia taken into account
- Variable cost savings as no redeployment so far is taken into account
- Suspension of China operations in February-March and
Long-haul forward booking load factor
(change vs previous year)
-3 pt | -3 pt |
-4 pt
-5 pt
Feb-20Mar-20Apr-20May-20
14 | (1) All flights to China were suspended as of 30 January 2020. Air France-KLM Group Mainland China network ASKs at 16.5 billion in |
2019, representing 5.5% of the total Network Passenger activity | |
Fuel bill to decrease by €450m in 2020
$ bn
6.2
2019: | (1) | |||||||||||||||||||||
2019 | ||||||||||||||||||||||
Fuel bill €5.5bn(2) | 5.6 | 5.3(1) | ||||||||||||||||||||
2020: | ||||||||||||||||||||||
2020 | ||||||||||||||||||||||
Fuel bill €5.1bn(2) | (1) | 1.4(1) | 1.4 | 1.5 | (1) | (1) | ||||||||||||||||
1.5 | ||||||||||||||||||||||
(1) | ||||||||||||||||||||||
2021: | 2021 | 1.3 | ||||||||||||||||||||
Fuel bill €4.8bn(2) | ||||||||||||||||||||||
2019 | 2020 | 2021 | ||||||||||||||||||||
Q4 19 | Q1 20 | Q2 20 | Q3 20 | Q4 20 | ||||||||||||||||||
Market | Brent ($ per bbl)(1) | 64 | 52 | 51 | 62 | 56 | 50 | 50 | 50 | |||||||||||||
price | Jet fuel ($ per metric ton)(1) | 682 | 549 | 565 | 680 | 608 | 520 | 532 | 542 | |||||||||||||
Price | Jet fuel ($ per metric ton) (1) | 678 | 619 | 583 | 692 | 664 | 612 | 605 | 601 | |||||||||||||
% of consumption already hedged | 60% | 66% | 34% | 61% | 63% | 63% | 70% | 70% | ||||||||||||||
after hedge | ||||||||||||||||||||||
50 | -650 | -50 | -50 | -100 | -200 | -200 | -150 | |||||||||||||||
Hedge result (in $ m) | ||||||||||||||||||||||
15 | (1) Based on forward curve at 28 February 2020. Sensitivity computation based on 2020 fuel price, |
assuming constant crack spread between Brent and Jet Fuel. Jet fuel price including into plane cost |
- Assuming average exchange rate on US dollar/ Euro of 1.11 for 2020 and 1.12 for 2021
Currency impact
on operating result
Currency impact
on revenues and costs In € m
-19
FY 2020 guidance update 2 March 2020
Currency impact FY 2020: +€100m, based on spot €/$ 1.11 Net operational exposure hedging for 2020:
USD ˜58% | JPY ˜57% | GBP ˜69% |
122 | 141 | Revenues and costs per country | ||||||
108 | ||||||||
92 | 87 | |||||||
70 | FY 2019 | |||||||
65 | 68 | |||||||
REVENUES | COSTS | |||||||
Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | US dollar | US dollar | |||
(and related | ||||||||
Currency impact on revenues | 26 | currencies) | 38 | |||||
Currency impact on costs, including hedging | 54 | 62 | |||||
20 | |||||||
Euro | Other | ||||||
-XX | Currency impact on operating result | Other | currencies | ||||
currencies | (mainly euro) | ||||||
16
Unit cost ex-currency at constant fuel price between -1% and 0%
- 2020 unit cost trend for Air France foreseen to be more than at target
- KLM unit cost performance impacted by Pension plan(1) and new CLAs
- Negative cost implications related to Covid-19 are foreseen due to lower-than-planned capacity growth and expenses for disruptions
- Simplification plan measures on track for
2020: - Transformation well underway in Group and Airlines, foreseen to deliver over €90m of structural savings in 2020
- Over 150 identified simplification and optimization projects started in 2020
17 (1) Lower discount rate for KLM Ground Pension fund (2019: 1.85%, 2020: 1.15%) €70m
Summary of Full Year 2020 guidance
In view of the recent evolutions of Covid-19 The Group is monitoring closely the situation and will communicate an updated guidance in due time, but at the moment, there is too much uncertainty to provide a precise direction
Guidance 2020 | ||
Passenger | (1) | |
Capacity | +2.0% to +3.0% | |
Transavia | +4% to +6% | |
Fuel | -€450m | |
Currency | +€100m | |
on operating result | ||
Unit cost | (2) | |
ex-currency at constant fuel price | -1% to 0% | |
Capex | €3.6bn | |
Net debt/EBITDA | Circa 1.5x | |
(1) | Capacity implications due to the Covid-19 related flight suspensions are foreseen to reduce capacity growth to at or below the | |
18 | lower-end of this guided range. | |
(2) | Negative cost implications related to the Covid-19 foreseen due to lower-than-planned capacity growth and disruption cost |
Debt reimbursement
profile at 31 December 2019
Debt reimbursement profile(1)
In € m
600
400 | 600 | 400 | 2,000 | |||
850 | 650 | |||||
600 | 500 | 450 | ||||
2020 | 2021 | 2022 | 2023 | 2024 | 2025 and beyond |
Bonds issued by Air France-KLM | Air-France KLM | ||
September 2021: | March 2026: | Hybrid Unsecured Bond: | |
AFKL 3.875% (€600m) | AFKL 0.125% (€500m, Convertible « Océane ») | AFKL 6.25% Perp Call 2020 (€403m) | |
October 2022: | December 2026: | ||
AFKL 3.75% (€400m) | AFKL 4.35% ($145m) |
(1) Excluding operating lease debt payments and KLM perpetual debt.
19 | New 5 year bond issue for €750m with a 1.875% annual coupon & Tender offer accepted for June 2021 and |
October 2022 bond issues amounting to €350m, completed in January 2020 | |
Other Long-term Debt : AF and KLM Secured Debt, mainly "Asset-backed"
(Net Deposits)
20
A I R F R A N C E - K L M | G R O U P |
Achievements Financial Key
Leverage Successfully Taken Down
to Investment Grade Like Level
Air France-KLM successfully deleveraged post-crisis years | Air France-KLM vs peers |
Net Debt/EBITDA trailing 12 months(1) | Net Debt/EBITDA trailing 12 months |
In € bn
5.4
4.2
4.0
3.4
2.9
1.4x | 1.4x | 1.5x | 1.5x | ||
1.3 | 1.4 | 1.5 | |||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | IAG (2) | Lufthansa | Air France- | Investment |
Group (3) | KLM (2) | grade | |||||||||
indicator |
- Pre-IFRS16restatement as per 2017, Restatement 2018 and 2019 for LLP accounting change, Adjusted Net Debt/EBITDAR, with Adjusted net debt =
Net Debt + 7 times yearly operating lease costs | ||
21 | (2) | Air France-KLM and IAG end of December 2019 (IAG Source: press release 28 February 2020) |
(3) | Lufthansa Group end of June 2019 | |
Strong Focus on Unit cost Reduction and Increasing Productivity
Unit Costs reduction evolution
At constant currency, fuel price
1.0%
0.6%
0.5%
0.0%0.1%
0.0%
-0.5%
-1.0% | -0.7% | -0.6% | |
-0.9% | |||
-1.0% | |||
-1.5% |
FTE reduction and productivity improvement
Average FTE | Productivity(1) | |
105 | 120,000 | 4.0 |
100,000 | ||
100 | 3.5 | |
80,000 | ||
95 | ||
60,000 | 3.0 |
90 40,000
-2.0%
-2.5%
-1.9%
2.5
20,000
85
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
0 | 2.0 | ||||||||
2016 (2) | |||||||||
2012 | 2013 | 2014 | 2015 | 2017 | 2018 | 2019 |
Cumulative change index since 2012 | Productivity 1000 ASK/FTE | |
22 | (1) | Productivity measured as 1000 Available Seat Kilometers / Average FTE |
(2) | 2016 FTE reduction includes partly disposal of Servair |
Improved Operating Performance
Though Not Yet Up to the Level of Peers
Operating result evolution(1)
In € bn
1.9
1.41.4
1.1 | 1.14 |
0.4
0.2
0
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
Operating margin evolution versus peers
Revenues in € bn
40 | ||||||||||||
7.9% | ||||||||||||
30 | 1.9% | |||||||||||
6.2%(2) | ||||||||||||
0.1% | ||||||||||||
20 | 14.3% | |||||||||||
0.7% | ||||||||||||
10 | ||||||||||||
-
-2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Operating margin (1)
2012 2018
Source: Companies published results
(1) | IFRS16 restatement as per 2017, Pre-IFRS16 Operating result adjusted for the interest portion (1/3) of the operating leases. | |
23 | Restatement 2018 and 2019 for LLP accounting change, | |
(2) | Air France-KLM Group operating margin is adjusted for strike impact €335m in 2018 | |
A I R F R A N C E - K L M G R O U P
Building A European Champion Based on a New Value-Focused Model
24
Air France-KLM has Numerous Unique Strengths
Our Core Assets
Three Powerful | 85 000 Engaged and | Extensive and | Powerful PARTNERSHIPS |
BRANDS | Professional PEOPLE | Complementary NETWORKS | |
Our Unique Competitive Advantages
France: #1 Inbound Destination | Schiphol: Best-In-Class | Joint Commercial Teams |
in the World | European Hub | and Revenue Production |
25
Our Value Creation Model
To be a European Champion
OUR RESOURCES | OUR BUSINESS MODEL | OUR VALUE CREATION | 2019 PERFORMANCE |
PEOPLE
85,000 engaged and professional employees and a diverse culture
BRANDS
Portfolio of attractive, strong brands and a common frequent flyer program "Flying Blue"
FLEET & NETWORK
An extensive network operated with an optimized fleet
PARTNERSHIP
A powerful network
of suppliers and partnerships
FINANCIAL
A stable shareholding structure with the French and Dutch states, Delta Air Lines and China Eastern
ENVIRONMENTAL
An experienced and knowledgeable player in the industry committed to contributing to a positive change
26
EMPLOYEES
Be the best place to work
CUSTOMERS | ||
Exceed customer | ||
expectations | ||
SHOWCASING THE | STRONG | MAKING |
BEST | ||
INNOVATIVE | LOW COST | |
OF FRANCE AROUND | ||
GLOBAL BRAND | FEEL GOOD | |
THE WORLD | ||
SHAREHOLDERS | ||
Reach top financial | ||
performance |
PLANET & SOCIETY
Contributing to UN sustainability goals
EPS
40
HOURS OF TRAINING PER EMPLOYEE
NPS
104M
CUSTOMERS
1.5X
NET DEBT/ EBITDA RATIO
4.2% OPERATING MARGIN
N° 1
IN DJSI
79,9 G / PAX / KM CO2
Our Employees, #1 asset of the Group
EMPLOYEES
Be the best place to work
1 | are proud to work | • Inclusive talent management, a company culture | ||
for the Group | which fosters diversity and equality | |||
2 | are professional and | • Strong increase in the Employee Promoter Score |
engaged | +15% in 2019(1) | |
and are pushing our
3contribution to sustainability
- Social partnerships with 5,000+ employees involved in volunteer work, skill-sharing and donation projects
27 (1) Percentage change in the Employee Promoter Score (EPS) measured among Air France and KLM employees July to December 2019 period compared to last year
Our customers at the forefront of everything we do
Record levels of customer satisfaction in 2019
Best in class Customer Products | Striving for excellence |
CUSTOMERS
Exceed customer expectations
Brands' sustainability commitments
- Installation of Air France full flat beds in Business Class to end in 2021, KLM entire fleet done
- Wi-Ficonnect will be available on 93% of fleet in 2020, 100% in 2021
- Lounge refurbishments, including KLM Crown lounge, Paris-Orly and Terminal 2F
- On Time Performance ranking Air France as 7th airline world-wide in 2019
- Record high customer satisfaction in 2019 for Air France with NPS score of
27 and KLM steady-state with NPS score of 41
- KLM as world's first airline introducing 'Fly responsibly' concept
- Replace single-use plastics on board Air France flights
- CO2 compensation for all French Domestic flights
28
Becoming a European champion reaching top financial performance
SHAREHOLDERS
Reach top financial performance
2020 | 2021 | 2022 | 2023 | 2024 |
Commitment to Global Environmental Sustainability
Optimize our Operating Model
Grow Profitable Passenger Revenue
Leverage European Consolidation
Develop Customer Data, Flying Blue, Cargo and Engineering & Maintenance
29
Air France-KLM the leading airline group in 2019 on Sustainability
European airline groups' Sustainability
rankings by leading rating agencies
100
score | |
Good | 80 |
60 | |
40 | |
Poor | |
score | 20 |
0 |
PLANET & SOCIETY
Contributing to UN sustainability goals
Sustainalytics | No. 1 position in the DJSI | ||
RobecoSam | |||
Bloomberg ESG Disclosure | Top ranking for 15 years | ||
ISS Quality | |||
CDP Climate | |||
Bloomberg Environmental | |||
Bloomberg Social | Leader in the « Airline » sector | ||
Bloomberg Governance | |||
• | Governance: best score | ||
• | Environment: best score | ||
• Social: Europe best score | |||
32 | Source: Bloomberg 10 February 2020 |
(1) ISS Quality and CDP Climate scores have been normalised for ease of comparison | |
A I R F R A N C E - K L M G R O U P
New Financial Strategic Framework 2020 - 2024
31
Mid-Cycle Operating Margin Reaching 7-8%
Air France-KLM operating profit evolution (€m)
Target Mid-Cycle
Operating Margin: 7-8%
Operating Margin:
4%
+€100m | +€100m | €2,500m | |||
+€250m | |||||
+€900m
+€1,141m
2019 Operating Result | Additional Group | 2024 Target |
Synergies and | Operating Result |
other businesses
1. Company sourced consensus as per 21 October 2019 for full year 2019 as published on https://www.airfranceklm.com/en/finance/financial-information/consensus | |
2. Modelling assumptions: | |
• Excluding Fuel Price, Currency FX and Industry yield development effects | |
• Objectives per airline are net amounts (including offsets against base-case price inflation and capacity growth). | |
32 | • Inflation assumption of 1.5% per annum, as per Eurozone Consumer price index 2020-2024. Source: Oxford Economics, updated August 2019 |
• Air France-KLM Group Available Seat Kilometer (ASK) growth assumption mid-point of guidance range +2 to +3% per annum from 2020-2024 | |
CAPEX 2020-2024 Underpinning Objective
to Rejuvenate Fleet & Improve Ownership Ratio
Capex investment 2020-2024
Before leases
In € bn | Guidance 2020: |
Average ~4.0 | |
€3.6bn after | |
operating leases | |
3.3 |
Capex 2020-24:
• Profitability uplift
• Improved fleet age & ownership ratio
20192020-24
Net Fleet
Capitalized Maintenance
Spare Parts incl. third-party growth
Aircraft Modifications
Ground & IT innovation
33
Fleet rejuvenation
Air France-KLM group fleet projection of average years of age
12
11
10
9
2019 | 2022 | 2024 |
Improvement ownership ratio and lease debt reduction
In € bn | Leased ratio | ||||||||
66% | |||||||||
8.0 | |||||||||
6.0 | Long-term objective | ||||||||
4.0 | 33% | ||||||||
2.0 | |||||||||
0.0 | 0% | ||||||||
2019 | 2022 | 2024 | |||||||
Lease debt | Leased aircraft ratio | ||||||||
(1) Air France-KLM Group portion of fleet under operational lease versus the total fleet
Financial Structure Robustness
Leverage Ratio to Remain ~1.5x
Adjusted Operating Free Cash Flow | Net Debt/EBITDA projection ~1.5x | |||||||||||||||||||||||||
positive medium-termmid-cycle | 2020-2024 | |||||||||||||||||||||||||
1.5 Investment grade like 1.5x | 8,000 | |||||||||||||||||||||||||
1.0 | ||||||||||||||||||||||||||
0 | 6,000 | |||||||||||||||||||||||||
0.5 | ||||||||||||||||||||||||||
(2) | ||||||||||||||||||||||||||
2020 | 2022 | 2024 | 0.0 | 4,000 | ||||||||||||||||||||||
(1) | 2020 | 2022 | 2024 | |||||||||||||||||||||||
Adjusted Operating Free Cash Flow | Operating Free Cash Flow | Net debt / EBITDA | Net debt | EBITDA | ||||||||||||||||||||||
Increasing cash generation by execution of strategic plans | ||||||||||||||||||||||||||
• Positive Operating Free Cash Flow foreseen throughout 2020-24 | Net debt evolution positively impacted by reduced portion of | |||||||||||||||||||||||||
• Adjusted Operating Free Cash Flow turns positive as foreseen | lease debt and increased profitability | |||||||||||||||||||||||||
progressive profitability uplift materializes | • Progressive profitability uplift by execution of strategic plans | |||||||||||||||||||||||||
CAPEX investment requirements 2020-24 | • Lease debt repayments | |||||||||||||||||||||||||
• New generation fleet and phase-out A380 | Progressive improvement foreseen in Debt to Equity ratio | |||||||||||||||||||||||||
• Transformation plans | ||||||||||||||||||||||||||
(1) Adjusted operating free cash flow = Operating free cash flow with deduction of repayment of lease debt | ||||||||||||||||||||||||||
(2) Including foreseen near-term incidentals | ||||||||||||||||||||||||||
34 | - Cargo claim (negative) (2020) | |||||||||||||||||||||||||
- Sale of Amadeus and Servair stakes (positive) (2020) | ||||||||||||||||||||||||||
Group Capacity Evolution
Capacity evolution 2020-24
Passenger Network & Transavia In Available Seat Kilometers
+2 to +3% p.a.
Long-haul capacity evolution
2019-2022
6pt | 4pt | 2pt | 111 | -6pt | ||
105 | ||||||
100 | ||||||
2019 | Fleet size | Maintenance | Aircraft | 2022 Block-hour | Gauge | 2022 Capacity |
impact | utilization |
Long-haul capacity evolution(1) | ||||||||||
2019-2022 | ||||||||||
3pt | 110 | |||||||||
107 | ||||||||||
4pt | 1pt | 1pt | ||||||||
2019 | 2020 | 2022 | 2024 | 100 | ||||||
2019 | Fleet size | Maintenance | Aircraft utilization | 2022 Block-hour | Gauge | 2022 Capacity | ||||
impact |
35 | (1) KLM Actual growth will depend on slot growth opportunities in the Netherlands |
Strict Cost Control
Turn-Around Plans to Deliver Unit Cost Reduction in Average of -1% per Annum
Net cost break-down
Net cost RTM 2019(1)
Unit cost objective 2020-24
Unit cost at constant fuel and currency
100%
80%
60%
40%
20%
0%
-20%
Other revenues
Operating cost
Depreciation
Salary cost
Fuel efficiency
Wage inflation
Productivity
Price inflation
Transformation projects
Commercial cost
Other cost
Maintenance cost
Fuel
Cost control targeted to exceed inflationary pressure
Average -1% p.a.
2019 | 2020 | 2022 | 2024 |
Despite an upward inflationary trend
Inflation(2) 3%
2%
1%
0%
2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |
France | The Netherlands | |||||
(1) | Rolling Twelve Months 2019, from 1 October 2018 till 30 September 2019 | |
36 | (2) | Inflation as per Eurozone Consumer price index 2020-2024.Source: Oxford Economics, updated August 2019 |
Group Objectives and Guidance
Objectives medium-term (2024)
Operating margin mid-cycle at 7-8%
Adjusted Operating Free Cash Flow positive
Operating margin mid-cycle at 7-7.5%
Operating margin mid-cycle at 9-10%
Guidance elements (period 2020 till 2024)
Capacity growth +2 to +3% p.a.
Unit cost average -1% p.a.
Capex average ~€4.0bn p.a.
Net debt/EBITDA ~1.5x
37
38
A I R F R A N C E - K L M | G R O U P |
Appendix
Creating Win-Win Partnerships with Employees
Air France Signed a New Pilot Agreement Permitting Increased Flexibility in Commercial and Fleet Strategy
A New, More Flexible Agreement Has Been Signed Between Air France and SNPL Pilots
Previously, an agreement was in place with Air France pilots
While Block Hours and number of aircraft directly affect pilot
ASK metric is replaced by a
new KPI based on Maximum
regulating the growth of Air France in relation to KLM, based
employment, the ASK metric has no direct link with pilot activity
Seating Capacity of aircraft
Air France is now able to make
optimal fleet and product
on three metrics:
Restrictions regarding
decisions, to extract maximum value and profit
- Capacity (ASK)
- Block Hours
- Number of Long Haul Aircraft
This KPI forced Air France to
make financially punitive fleet & product decisions
maximum number of aircraft
at Transavia France (TO) have been lifted
Example: Paris/Amsterdam - Singapore
- Same aircraft: Boeing 777-300ER
- Same block time: 12 hours 30 minutes
- +35% ASK for KLM due to cabin configuration (Air France: 296 seats | KLM: 408 seats)
39
Summary of Key Initiatives Currently Underway
And Estimated Operating Result Impact
Commitment to Global Environmental Sustainability
Optimize our | Grow Profitable | Leverage European | Develop Data, Flying Blue | ||||||
Operating Model | Passenger Revenue | Consolidation | Cargo, E&M | ||||||
Increase | Clarify Brand and | ~€25-50m | Pragmatically Evaluate | Flying Blue: | |||||
Commercial & | Pre-requesite | Product Portfolio | Consolidation | Leading Loyalty | €50-100m | ||||
Fleet Flexibility | Opportunities | Platform | |||||||
Revenue Growth | ~€200m | ||||||||
Optimize Internal | on Strongest | E&M: Remain | |||||||
€400-475m | ~€50m | ||||||||
Airline Processes | Segments | Industry Leader | |||||||
Simplify and | €400-450m | Grow Transavia | €75-100m | Cargo: Maximize | Positive | ||||
Renew Fleet | Contribution | ||||||||
Contribution | |||||||||
Implement | |||||||||
Leverage Group | €300-350m | Personalized Travel | ~€50m | ||||||
Synergies | (accounted in | Journeys | |||||||
airline P&L) | |||||||||
34
Air France Turn-Around - Priorities
Optimize our Operating Model | Grow Profitable Passenger Revenue | ||
Operating result +€900M | |
Simplification focus | Fleet renewal |
Operations transformation | A380 replacement |
Transversal (Organization, External spend, IT) | A220 phase-in |
A350/787 phase-in | |
French domestic restructuring |
Revenue mix optimization
+€m
CDG hub consolidation (incl. cabin LOPA
improvement)
Revenue enhancement (including CRD, Ancillary), Brand & product portfolio
41
Focus on Simplification
Ambitious action plan has already started…
2020 Accelerate implementation of transformation projects: some highlights
- And will deliver steadily until 2024
Net impact
of transformation projects €400m+
TRANSVERSAL
External spend
- Implement "Control tower" on spends and contracts
- Enforce speed savings: review of contracts
- Optimize marketing, training, catering, outstations, maintenance costs
- Accelerate channel shift
Organization simplification
IT
- Improve prioritization and standardization
- Develop further agility in innovation projects for efficiency and time to market delivery
(after inflation)
€350m |
€260m |
€165m |
€80m |
- Simplify processes and break silos, with specific focus on overheads and support functions (delayering, mutualization)
• Improve operational | |
performance | OPERATIONS |
• Optimize fuel consumption
• Optimize full flight simulators usage
42
- Launch successfully the Supply Chain program
- Digitize processes to enhance customer experience and reduce costs
- …
2020 | 2021 | 2022 | 2023 | 2024 | |||
Transversal streams | |||||||
Operations Transformation | |||||||
AIR FRANCE - KLM INVESTOR DAY - NOVEMBER 2019
Air France Turn-Around-Timeline
Timeline | +€900m | |||||||||
% completion | ||||||||||
100% | ||||||||||
100% | ||||||||||
80% | ||||||||||
60% | ||||||||||
40% | ||||||||||
20% | ||||||||||
0% | ||||||||||
2020 | 2022 | 2024 | ||||||||
Simplification focus | Revenue mix optimization | Fleet renewal | ||||||||
Medium-term objectives
Deliver sufficient operating
margin to ensure profitable growth
Operating margin objective
mid-cycle
at 7-7.5%
43
KLM Strengthening of the Success Model - Priorities
Optimize our Operating Model | Grow Profitable Passenger Revenue | |
Focus on cost and operational excellence
+€m
Operational excellence
External spend management
Margin improvement initiatives
Operating result +€250M
Fleet renewal | Revenue mix optimization |
E195 phase in | Revenue management |
B737 replacement | |
Long Haul fuel efficiency | Revenue enhancement (including Customer |
Long Haul optimization | |
Reach and Distribution, Ancillary) | |
44
AIR FRANCE - KLM INVESTOR DAY - NOVEMBER 2019
KLM Strengthening of the Success Model - Timeline
Timeline | |||||||
% completion | +€250m | ||||||
100 | 100% | ||||||
80 | |||||||
60 | |||||||
40 | |||||||
20 | |||||||
0 | |||||||
2020 | 2022 | 2024 | |||||
Focus on cost and operational excellence | Revenue mix optimization | Fleet renewal | |||||
Objective medium term
Further grow KLM's successful model,
including continuous focus on cost
Operating margin objective mid-cycle
at 9-10%
45
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Air France-KLM SA published this content on 04 March 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 March 2020 19:57:05 UTC