Turismo
FULL YEAR 2019 Results
20 February 2020
FULL YEAR 2019
OUTLOOK
Business trends
After a good performance for the Passenger Network activity with positive unit revenue in January 2020, recent developments with regards to the Covid-19 have impacted the demand outlook, especially in the Asian network. This translates in long-haul forward booking load factors down from February to May 2020. As a consequence the Group anticipates unit revenues at constant currency to be down for the first quarter of 2020.
The Cargo activity is also impacted by Covid-19, foreseen to maintain pressure on the load factor and yield in the first part of 2020.
Based on the Group announcement regarding Covid-19 (suspension of China operations in February-March and possible resumption of operations starting from April 2020), the high-level estimated impact on operating result is of between -150 and -200 million euros for February to April 2020.
Full year 2020 guidance
The 2020 fuel bill is expected to decrease by 300 million euros compared to 2019 to 5.2 billion euros, based on the forward curve of 14 February 2020
The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 19 February 2020 to approve the financial statements for the Full year 2019.
“In 2019, the Air France-KLM Group posted an operating result at 1,141 million euros with a fuel bill hit and pressure on Cargo unit revenues” said Benjamin Smith, CEO of the Air France-KLM Group. Over the year we reinforced our foundations to build a European champion, notably through fleet optimization and restored trust that led to social stability and positive labour agreements at Air France and new CLA agreements at KLM. I am also proud that our Group was again at the top of the DJSI ranking and is recognized as an experienced and knowledgeable environmental leader in the industry. In November, we outlined our strategic plan with a substantial further step-up in financial performance foreseen, and we begin on this 5-year trajectory with a robust financial structure and strong unique assets.”
2018 and 2019 results restated (with a similar impact in both years) for limited life parts componentization accounting change. See notes in the consolidated financial statements paragraph 2, page 12-15 and page 9-10 of this press release.
Business review
Network: Resilient performance from Passenger and ongoing pressure on Cargo in the 2019 fourth quarter
Full year 2019 revenues increased by +1.5% at constant currency to 23.3 billion euros, thanks to the growth of the network activity. The operating result amounted to 749 million euros, a 256 million euro decrease at constant currency compared to last year, mainly explained by an increased fuel bill and with a good unit cost performance offsetting the drop in Cargo unit revenue.
Passenger network: Unit revenue in the fourth quarter 2019 -0.2% as expected, with a strong performance from French domestic and Medium-haul.
The fourth quarter 2019 posted a mixed performance from the Long-haul network and an improving trend in Short & Medium-haul:
Cargo: Performance impacted by continuing supply-demand imbalance in the fourth quarter 2019
Fourth quarter 2019 unit revenue remained under strong pressure and was down 17.1% compared to last year at constant currency. Effective cost control measures partly mitigated the negative impact of the Cargo contribution on the Network results.
Substantial Cargo industry capacity additions in 2019 led to the worst traffic versus capacity trend for the last 10 years, driven by opportunistic growth strategies after the strong Cargo market in the second half of 2017 and Full year 2018.This caused substantial (belly) overcapacity, particularly on the North Atlantic routes.
On the demand side, at the year end world-wide air freight volumes had fallen for 14 consecutive months, caused by geo-political uncertainties resulting in weak global air freight demand, trade tensions impacting especially ex-Asia volumes and a strong decline in demand from the auto-motive industry.
In this context, the market share of Air France-KLM Cargo proved resilient, with the growth realized in alternative flows partly mitigating the ex-Asia losses.
The Group's Cargo strategy is focused on maintaining and increasing load factors where possible and taking a pro-active approach to new revenue opportunities. A new Revenue Action plan for 2020 has been established to deliver incremental revenues.
Transavia: Strong performance in the 2019 fourth quarter and strong demand in both home markets
As anticipated, capacity growth was slightly negative in the fourth quarter 2019 at -2.6% due to the increase in cockpit training needed to prepare for future growth in Transavia France.
Transavia delivered a good unit revenue performance in the fourth quarter 2019 with an increase of 10.2% compared to last year, in the context of capacity moderation combined with strong demand in both home markets.
The unit revenue for the Full year 2019 increased by 3.0% compared to last year, due to strong demand in both France and the Netherlands. For the Full year 2019, the revenue grew by 9.3% compared to last year for capacity growth of 6.5%.
The Transavia unit cost for the Full year increased by 2.7% at constant fuel and currency, explained by increased fleet related- and non-performance costs.
The Full year operating margin stood at 7.5%, with an absolute operating result of 131 million euros, 14 million euros down compared to last year.
Solid trend in Maintenance business margins in 2019
The fourth quarter operating result stood at 90 million euros, an increase of 43 million euros, underpinned mainly by increased Engine activity for Third-parties.
Full year 2019 revenues increased compared to last year with third-party revenues up 11.3% and 5.8% at constant currency, a continuation of the growth trend underpinned by the inflow of new contracts. The Full year 2019 operating result stood at 260 million euros, an increase of 46 million euros, supported by positive contributions from all business segments: Airframe, Engines and Components. The relentless focus from the teams on turn-around times and cost efficiencies drove these margin improvements.
The Maintenance order book stood at 11.5 billion dollars at 31 December 2019, stable on last year.
Air France-KLM Group: Full year 2019 operating result at 1,141 million euros with cost efficiency measures offset by pressure on Cargo unit revenue and a fuel bill increase
2018 and 2019 results restated (with a similar impact in both years) for LLP componentization accounting change. For details see statements paragraph 2, page 12-15
In the Full year 2019, the Air France-KLM Group posted an operating result of 1,141 million euros, down by 18.8% compared to last year, impacted by a challenging trading environment and a higher fuel bill.
Net income amounted to 290 million euros in 2019, a decrease of 130 million euros compared to last year.
The fuel bill including hedging stood at 5,511 million euros in 2019, up 550 million euros. This increase is mainly explained by a hedging gain of 50 million euros this year compared to a hedging gain of 650 million euros last year.
Currencies had a positive 367 million euro impact on revenues and a negative 122 million euro effect on costs (ex-fuel) including currency hedging in 2019.
The 2019 fourth quarter unit cost declined by -1.5%, delivering a -0.9% improvement for Full Year 2019, consistent with guidance
On a constant currency and fuel price basis, unit costs were down -1.5% in the fourth quarter 2019, with the first realizations of cost efficiency measures at Air France.
Group net employee costs were up 4.9% in 2019 compared to last year, explained by additional hires in response to the capacity growth and the impact of wage agreement implementation for Air France and KLM staff. The average number of FTEs (Full Time Equivalent) in 2019 increased by 1,400 compared to last year, including an additional 550 Pilots and 500 Cabin Crew. Productivity measured in ASK per FTE increased by 1.2% in 2019.
Net debt stable and Leverage ratio at Full year guidance of 1.5x
* Sum of 'Purchase of property, plant and equipment and intangible assets' and 'Proceeds on disposal of property, plant and equipment and intangible assets' as presented in the consolidated cash flow statement.
** The “Adjusted operating free cash flow” is operating free cash flow after deducting the repayment of lease debt.
Adjusted operating free cash flow at -385 million euros
The Group generated adjusted operating free cash flow of -385 million euros, a decrease of 500 million euros compared to last year, mainly explained by higher net investments in 2019.
The lease debt amounted to 4,120 million euros, a reduction of 415 million euros compared to the end of 2018.
Net debt stable
The Group net debt stood at 6,147 million euros at 31 December 2019, which is comparable to last year.
The net debt/EBITDA ratio stood at 1.5x at 31 December 2019, a slight increase explained by the reduction in EBITDA.
Both airlines improved their results in the fourth quarter 2019, with cost efficiency measures paying off for Air France, resulting in a +0.8pt margin increase
Outlook
Business trends
After a good performance for the Passenger Network activity with positive unit revenue in January 2020, recent developments with regards to the Covid-19 have impacted the demand outlook, especially in the Asian network. This translates in long-haul forward booking load factors down from February to May 2020. As a consequence the Group anticipates unit revenues at constant currency to be down for the first quarter of 2020.
The Cargo activity is also impacted by Covid-19, foreseen to maintain pressure on the load factor and yield in the first part of 2020.
Based on the Group announcement regarding Covid-19 (suspension of China operations in February-March and possible resumption of operations starting from April 2020 ), the high-level estimated impact on operating result is of between -150 and -200 million euros for February to April 2020.
This impact on operating result is estimated as the sum of associated loss of revenue due to suspension of China operations for Passenger and Cargo, negative impact for connecting traffic and weakness in rest of Asia and variable cost savings as no redeployment so far is taken into account.
Full year 2020 guidance
Capacity:
Passenger network activity: In 2020, the Air France-KLM Group plans to selectively grow capacity by 2% to 3% compared to 2019. Capacity implications due to the Covid-19-related flight suspensions are expected to reduce capacity growth to or below the lower-end of this guided range.
Transavia: Continue to grow at a sustained pace of 4% to 6% in 2020, with around 10% growth foreseen in France and limited growth for Transavia Netherlands in light of the capacity constraints at Dutch airports.
Fuel:
The 2020 fuel bill is expected to decrease by 300 million euros compared to 2019 to 5.2 billion euros, based on the forward curve of 14 February 2020.
Unit cost:
The Group will pursue initiatives to reduce unit costs, with a targeted 2020 reduction of between -1% to 0% at constant currency and fuel price. Negative cost implications related to the Covid-19 foreseen due to lower-than-planned capacity growth and disruption cost.
Capex:
The Group plans capital expenditures of 3.6 billion euros for 2020.
Leverage:
Air France-KLM is targeting a Net debt/EBITDA ratio of circa 1.5x.
*****
The audit procedures for the consolidated accounts have taken place. The certification report will be published following the completion of the procedures necessary for the filing of the Universal Registration Document.
The results presentation is available at www.airfranceklm.com on 20 February 2020 from 7:15 am CET.
A conference call hosted by Mr. Smith (CEO) and Mr. Gagey (CFO) will be held on 20 February 2020 at 08.30.
To connect to the conference call, please dial:
France: Local +33 (0)1 76 77 22 57
Netherlands: Local +31 (0) 20 703 8261
UK: Local +44 (0)330 336 9411
US: Local +1 720 543 0214
Confirmation code: 5903128
To listen to the audio-replay of the conference call, please dial:
Investor Relations Press
Olivier Gall Wouter van Beek
+33 1 49 89 52 59 +33 1 49 89 52 60 +33 1 41 56 56 00
olgall@airfranceklm.com Wouter-van.Beek@airfranceklm.com
Income Statement– restatement by quarter of 2019
Since January 1, 2019, the Air France-KLM Group has made changes in accounting treatment for Customer compensation and the Component approach for Life Limited Parts. A full explanation of the changes is given in the Consolidated Financial Statements January 1, 2019 – December 31, 2019, note 2, page 15.
In accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, these changes in accounting policies have been applied retrospectively to each previous period for which financial information is presented.
Income Statement
2018 and 2019 results restated (with a similar impact in both years) for limited life parts componentization accounting change. See notes in the consolidated financial statements paragraph 2, page 12-15.
Consolidated Balance Sheet
Statement of Consolidated Cash Flows from 1 January until 31 December 2019
Key Performance Indicators
EBITDA
Restated net result, group share
Return on capital employed (ROCE)
Net debt
Adjusted operating free cash flow
Unit cost: net cost per ASK
* The capacity produced by the transportation activities is combined by adding the capacity of the Passenger network (in ASK) to that of Transavia (in ASK).
Group results
Air France Group
NB: Sum of individual airline results does not add up to Air France-KLM total due to intercompany eliminations at Group level
Group fleet at 31 December 2019
The Air France strike had a -335 million euros impact on the Full year 2018 operating result
Passenger unit revenue is the aggregate of Passenger network and Transavia unit revenues, change at constant currency
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
Based on the forward curves of 14 February 2020, average Brent price of USD 57, average jet fuel price of USD 605 per ton including into plane costs. Assuming exchange rate of EUR/USD of 1.11 in 2020
The ROCE definition has been updated within the framework of IFRS 16 implementation. The asset value linked to the aircraft lease contracts now corresponds to the net book value of the right-of-use asset of all the lease contracts. Moreover, the “operating result, adjusted for operating leases” no longer exists, having been replaced by “income from current operations” which, thanks to IFRS 16 implementation, no longer includes the financial cost of lease contracts. Finally, the Group now uses a normative income tax rate, calculated according to the tax rates applied in France and in the Netherlands.
Attachment
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