Turismo
Air France-KLM Second quarter 2020 results
The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met today to approve the financial statements for the First Half 2020 and review the acceleration of the Group transformation plan.
SECOND QUARTER 2020
The Covid-19 crisis severely impacted the Second quarter 2020 results:
The French and the Dutch governments have provided financial packages with conditions attached to increase competitiveness and achieve sustainability objectives. Thus at 30 June 2020 the Air France-KLM Group has 14.2 billion euros of liquidity or credit lines at its disposal to weather the crisis and restructure its business.
OUTLOOK
The Group has introduced stringent sanitary measures on board and, supported by the ongoing “Travel with Confidence” campaign, has seen a slow recovery of leisure demand in June and July 2020.
The airlines of the Group are carefully increasing capacity for the summer months, wherein overall capacity levels are managed based on continuously scrutinizing developments in market demand and government policies, including the opening of borders and slot moratoriums. The Group aims to rebuild its worldwide network step by step with a wide variety of destinations in the portfolio.
Nevertheless, there is limited visibility on the demand recovery curve as customer booking behavior is much more short-term oriented than before the Covid-19 crisis, especially on the Long Haul network.
On this basis the Group expects:
The Group has further reduced its capital expenditure plan for 2020 by an additional -0.3 billion euros to 2.1 billion euros. This is a reduction of -1.5 billion euros compared to the initial 2020 guidance of 3.6 billion euros.
The Group foresees a significantly negative EBITDA in the second half year 2020.
The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 30 July 2020 to approve the financial statements for the First Half 2020. Group CEO Mr. Benjamin Smith said:
“The second quarter results demonstrate the unprecedented impact of the COVID-19 crisis on the activity of the Air France-KLM Group and of all airlines worldwide. The Group reported an operating loss of 1.5 billion euros for the quarter, with activity virtually at a standstill in April. The cost reduction and liquidity preservation measures rapidly implemented have nevertheless enabled our operational losses to be reduced. The exceptional support of the French and Dutch governments has provided Air France-KLM with the liquidity needed to weather the crisis and ensure a gradual recovery in business. However, the uncertainties linked to the health situation, the opening of borders and the general economic situation are very strong. We must also adapt to important changes in customers' behaviour. This context pushes us to accelerate our transformation to improve our economic and environmental performance according to the main pillars of our strategic plan. I am confident in our ability to implement these projects with our teams in order to emerge from this exceptional crisis .”
Business review
Network: Skeleton network operation in April and May 2020, slow resumption of traffic in June 2020 after lockdown easing across Europe
Second quarter 2020 revenues decreased by 84.4% at constant currency to 938 million euros. The operating result amounted to -1,123 million euros, a -1,436 million euros decrease at constant currency compared to last year. Measures are in place to preserve cash including reduction of investments, cost savings measures, deferral of supplier payments and partial activity for employees.
Passenger network: Skeleton operations to key cities in April and May, slow resumption of activity in June with reduced frequencies on a substantial part of the network routes
The passenger network activity in April and May 2020 was, as anticipated due to the lock downs and travel restrictions, effectively reduced to a skeleton operation connecting our home markets to key cities and a number of routes with high cargo demand.
The slow resumption of traffic in June 2020 on the short and medium haul networks was a result of lockdown easing's across Europe.
For the second quarter 2020 the unit revenues were strongly down at -45.1% at constant currency compared to last year due to low load factors, partially offset by higher yields.
Since we introduced the refund policy, nearly 3 million direct sales requests have been processed (concerning flights cancelled since mid-March), representing nearly 90% of the volume of ongoing direct sales customer requests. Requests from customers who have booked through travel agencies can now be made through the agencies (gradual opening by country).
To handle this exceptional volume of requests related to program adjustments, the size of the team in charge of reimbursements was multiplied by 10 at the height of the activity, reaching more than 600 people thanks to internal and external reinforcements to process our customers' requests as quickly as possible.
Cargo: Strong Cargo yields due to gap between industry capacity and demand in the second quarter 2020
Global air cargo capacity is at the end of the second quarter 2020 approximately 27% lower than 2019 whereby industry air cargo load factors are the highest levels in past two years. The Cargo capacity of the Group has been down 56.3%, primarily driven by the reduction in belly capacity of passenger aircraft, with load factors strongly up 16.0 points for the quarter. Unit revenue were strongly positive for the second quarter 2020 up 145.7% compared to last year at constant currency.
On the demand side, world-wide air freight volumes are down due to Covid-19 crisis but are expected to rebound to 90 to 95% of pre Covid-19 levels in 2021. The supply-demand gap of the past months is foreseen to narrow as industry capacity supply will increase.
Transavia operating loss in the second quarter 2020 at -111 million euros, as fully impacted by Covid-19 crisis
The second quarter operating result ended 164 million euros lower compared to last year at an operational loss of -111 million euros, as a result of the Covid-19 crisis. Activity levels were close to zero in April and May 2020 with a progressive restart from early June, resulting in an activity level for the month of June 2020 of 8% compared to last year. Strict cash preservation measures are in place including reduction of investments, cost savings measures, deferral of supplier payments and partial activity measures.
Maintenance business operating result for Second quarter 2020 at -318 million euros, strongly impacted by Covid-19
The Second quarter operating result stood at -318 million euros, a decrease of 370 million euros, highly impacted by the Covid-19 crisis.
Revenue highly declined in all three main businesses. In the second quarter, all clients of the E&M business have been impacted by the Covid-19 crisis resulting in a sharp decrease of revenues.
Operating costs have been reduced in the second quarter 2020 by a reduced maintenance activity level, partial activity pay schemes for employees and other initiated cost savings measures.
A provision had been posted in the operating result of the second quarter for around 210 million euros to take into account client situations including cash difficulties, fleet decreases and bankruptcies, and spare parts surplus due to the world wide fleet reductions expected as a result of the current crisis.
The E&M business is also strongly impacted by the activity decrease of the Air France-KLM Group airlines.
The Maintenance order book is assessed to 9.6 billion dollars at 30 June 2020 a decrease of 1.9 billion dollars compared to 31 December 2019, explained by the Covid-19 crisis effects already occurring and expected. The Maintenance business is carefully managing its external business, including agreements with clients on payment terms
Air France-KLM Group: Second quarter 2020 revenues down -83% and operating result down -1,976 million euros
2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
In the Second quarter 2020, the Air France-KLM Group posted an operating result of -1,553 million euros, down by 1,976 million euros compared to last year.
Net income amounted to -2,612 million euros in the second quarter 2020, a decrease of 2,709 million euros compared to last year, of which exceptional accounting items due to Covid-19: impairment for acceleration phase-out Airbus 380s -520 million euros and Airbus 340s -72 million euros, fuel “over hedge” -105 million euros and a restructuring costs provision for the KLM voluntary departure plan of -188 million euros and for Air France pilots Voluntary Departure Plan of - 37 million euros.
Fuel “over hedge” -105 million euros for the remainder of 2020:
As a result of capacity reductions compared to the end of March 2020 assumptions partly offset by higher fuel prices, the Group increased its position of over-hedging. The change in fair value, initially recognized in equity, has been recycled to “Other financial income and expenses”
Currencies had a positive 55 million euro impact on revenues and a negative 59 million euro effect on costs including currency hedging in the second quarter of 2020.
The Second quarter 2020 unit cost increased by 290%, primarily caused by Covid-19 related capacity reductions
On a constant currency and fuel price basis, unit costs were up 351% in the Second quarter 2020.
Group net employee costs were down 50.4% in the second quarter 2020 compared to last year, supported by partial activity implementation at Air France and KLM, release of temporary and hired staff and no profit sharing provisions to be made at both airlines. The average number of FTEs (Full Time Equivalent) in the second quarter 2020 decreased by 4,000 compared to last year, including 2,400 hired staff.
Net debt up 1,826 million euros and leverage ratio at 4.8x
* 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.
The Group generated adjusted operating free cash flow in the second quarter 2020 of -1,501 million euros, a decrease of 1,609 million euros compared to last year, mainly explained by an operating cash flow decline of 2,276 million euros, partly offset by a reduction in net investments of 481 million euros.
Both airlines results negatively impacted in the Second quarter 2020
OUTLOOK 2020
The Group has introduced stringent sanitary measures on board and, supported by the ongoing “Travel with Confidence” campaign, has seen a slow recovery of leisure demand in June 2020.
The airlines of the Group are carefully increasing capacity for the summer months, whereby overall capacity levels are managed based on continuously scrutinizing developments in market demand and government policies, including opening of the borders and slot moratoriums. The Group aims to rebuild its worldwide network step by step with a wide variety of destinations in the portfolio.
Nevertheless, there is limited visibility on the demand recovery curve as customer booking behavior is much more short-term oriented than before the Covid-19 crisis, especially on the Long Haul network.
On this basis the Group expects:
The Group foresees significantly negative EBITDA in the second half year 2020.
The French and the Dutch governments have provided financial packages with conditions attached to increase competitiveness and achieve sustainability objectives. Thus at 30 June 2020 the Air France-KLM Group has 14.2 billion euros of liquidity or credit lines at its disposal to weather the crisis and restructure its business.
Foreseen incidental elements with cash-impact in second half 2020:
The Group has further reduced its capital expenditure plan for 2020 by an additional -0.3 billion euros to 2.1 billion euros. This is a reduction of -1.5 billion euros compared to the initial 2020 guidance of 3.6 billion euros.
DUE TO THE NEW REALITY AIR FRANCE-KLM GROUP ADAPTS AND ACCELERATES ITS TRANSFORMATION PLANS
The Group's strategic orientations started to deliver results in 2019 and in early 2020. The Covid-19 crisis which commenced in Europe at the end of February 2020 had an unprecedented impact on the industry. The Group does not anticipate to return to the pre-crisis levels of global demand before several years.
In this context, the Group will look to continuously flex its activity to the development of demand for travel and will be adapting its capacity and commercial approach to adjust to the new reality. The Group expects to operate a capacity of Available Seat Kilometers for 2021 minimum -20% compared to 2019 and anticipates that a recovery to the pre-crisis capacity level will be reached by 2024.
Notwithstanding the current crisis situation, the principles of the Group's go-forward plan remains unchanged, aiming to reinforce the Group's competitive positioning by leveraging its strengths. The Group's sustainability commitments are also reasserted, the Group has set specifically for Environment a 2030 commitment to reduce its CO2 emissions per passenger by 50% versus 2005. This is achieved by a multi-facet strategic solution with real reductions of CO2 due to modern fleet, optimization of fuel use, scale up of sustainable aviation fuel and compensation via market based measures including CO2 schemes and voluntary offsetting by the Air France and KLM customer programs.
In the post-Covid-19 world, the Air France-KLM Group needs to balance its medium-term focus on managing liquidity risk and optimizing Capex investments with the long-term focus on achieving increased competitiveness and sustainability targets. The Group plans to do this through the 5 key levers of labor, productivity, network, fleet and cost management.
In response to the Covid-19 crisis and in order to carry out its reconstruction plan, the Group and its airlines must significantly reduce the number of employees.
Air France's restructuring plan calls for a reduction of 6,560 FTEs, or minus 16% of the total number of FTEs by the end of 2022 and Hop!'s restructuring plan calls for a reduction of minus 1,020 FTEs, or minus 42% of the total number of FTEs by the end of 2022. These plans will be carried out with a focus on volunteering and solidarity between the different companies in the group.
In addition, the implementation of the partial activity (without compensation for lost wages) and the application of the variable remuneration system for pilots and flight attendants (MGA) have made it possible to reduce the wage bill. Air France has also announced a policy of salary moderation through the suspension of negotiations on the profit-sharing scheme for the years 2020/21/22 and the freezing of general and individual increases (excluding promotion and seniority). Discussions may also be launched to identify and define, beyond the announced staff reductions, the savings required to meet the economic trajectory.
In the Netherlands, KLM's restructuring plan contains a significant reduction of FTE's compared to preCovid-19. KLM has already launched a voluntary departure plan to which 2,000 staff (in FTE) have subscribed at the closing deadline. Also the departures due to stoppage of external and temporary contracts will contribute to this plan. The next steps in the social plan to achieve these reductions will be discussed by KLM with unions.
KLM will announce their full restructuring plan by October 2020. In addition, as imposed by the Dutch State, adjustment of labour conditions for employees who earn above a certain threshold is conditional to the full drawing of State financing. These adjustments are under discussion with labour representatives.
Future competitiveness and sustainability ambitions are largely linked to network and fleet decisions. Mid- and long-term fleet investments drive the exit from the current crisis and are essential to achieve increased competitiveness and sustainability targets.
The Group therefore intends to keep the schedule as much as possible intact of committed fleet deliveries between 2021-2025, for which the Group is carefully considering financing options and is maintaining highest level of flexibility in fleet development to adapt in view of current uncertainty on the recovery trajectory.
In the context of the Covid-19 crisis the Group vows to accelerate its key transformation initiatives and all non-essential investments and expense are to be minimized.
Key measures, to improve structurally the future unit costs, are being implemented including a stringent policy to cancel or delay non-essential non-fleet capex investments, including IT, Ground and real-estate investment projects, the implementation of a control tower procedure on controllable external expenses and a freeze on contracting of external staff. In addition, new transformational initiatives to further simplify the organization and processes have been identified and added to the objectives.
With the reduction in capacity, consequential organizational restructuring and acceleration of transformations the Group is realigning to the new reality. The Group's medium-term financial ambition is maintained with a delay of 1 year, confirming the objective for 2025 to reach an operating margin of 7% to 8% and positive operating free cash flow in 2023. The capex investment level for 2021 to 2024 will be around 3 billion euros per year on average, it remains largely flexible.
Furthermore, the Board of Directors of the Air France-KLM Group is continuing its reflections initiated last April on the plan to strengthen the Group's equity and quasi-equity by May 2021, subject to market conditions.
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Limited review procedures were carried out by the external auditors. Their limited review report was issued following the Board meeting.
The results presentation is available at www.airfranceklm.com on 31 July 2020 from 7:15 am CET.
A conference call hosted by Mr. Smith (CEO) and Mr. Gagey (CFO) will be held on 31 July 2020 at 08.30 CET.
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: 8033582
To listen to the audio-replay of the conference call, please dial:
Confirmation code: 8033582
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
2019 results restated (with a similar impact in both years) for limited life parts componentization accounting change.
Consolidated Balance Sheet
Statement of Consolidated Cash Flows from 1 January until 30 June 2020
Key Performance Indicators
Restated net result, group share
Return on capital employed (ROCE)
Net debt
Adjusted operating free cash flow
Operating cash burn
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 30 June 2020
SECOND QUARTER 2020 TRAFFIC
Passenger network activity*
* Air France and KLM
Transavia activity
Total group passenger activity**
** Air France, KLM and Transavia
Cargo activity
Air France activity
KLM activity
Passenger unit revenue is the aggregate of Passenger network and Transavia unit revenues, change at constant currency
The definition of ROCE has been revised to take into account the seasonal effects of the activity.
Attachment
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