Earnings Call: Q4 2020

Feb 18, 2021

Morning, everyone. Welcome to the Air France KLM Annual Results. Mr. Benjamin Smith, CEO of Air France KLM, the floor is yours. Good morning, everyone. Clade Dagier And I both welcome you to the Air France KLM Group's 4th quarter and full year 2020 results call. As you are all aware of the current situation of the airline industry, I imagine you are more interested to understand what we did last quarter And what steps the group will take in the near future to overcome this unprecedented crisis. I would therefore suggest we move quickly to the presentation. Of course, Farley and I will do our utmost to provide answers to your questions as clearly as we can. Turning to Page 3 of the presentation. We've been dealing with this unprecedented COVID-nineteen crisis since March of last year, which had and still has a tremendous impact on Air France KLM. During the first few months of the crisis, we moved from almost a complete standstill in April May with almost only cargo and repatriation flight still operating to a more optimistic summer period, which ended mid August with the implementation of more severe travel restrictions in Europe and abroad. During the autumn months, we faced a Stable yet low capacity situation. And during the holiday period towards the end of the year, we were able to ramp up capacity to some destinations, Which is a clear indication that our passengers are still willing to travel and there is pent up demand if the opportunity arises. In order to keep our employees and our customers healthy and permit them to travel safely, we implemented high level hygienic measures resulting in a 4 star from Skytrax. To protect our liquidity position, we took immediate action and implemented stricter cost control. The group and the airlines also adapted full time equivalent levels to the situation at hand, while reducing capital expenditures and working diligently to preserve cash by deferring tax, social charges and supplier bills wherever possible. We are grateful to our 2 largest shareholders, the Dutch state and the French state for their continued support. Thanks to the loans provided by the 2 states last year, the guarantees on the bank loans and the wage subsidy programs, Air France KLM was able to have almost €10,000,000,000 in cash at hand at the end of December 2020. Our transformation plan, as presented at the November 2019 Capital Markets Day was well underway before the COVID-nineteen crisis, and we have accelerated these plans, resulting in accelerated fleet phase out, Reduction of FTE and a step up in our sustainability commitments. Turning to Page 4. Despite strong cuts in capacity, The group has still been able to maintain its well balanced global network. Thanks to the balanced network, both Air France and KLM Have the strong cargo presence and performance. We have been able to operate higher capacity in the global industry and 2 of our large European competitors. Page 5, as Air France KLM has built a balanced network all over the world, We are less dependent as some of our competitors are on certain areas like North America or Asia. If border restrictions become less tough, we are able to ramp up capacity immediately as we have shown during the holiday period and in January on our Caribbean and Indian Ocean markets. Turning to Page 6. United States remains convinced that our go forward plan remains the best way forward for Air France KLM, And we have accelerated its deployment and implementation during the crisis while focusing on efficiency and simplification as our primary objective. On the left side of the slide, you will see our main unit cost reduction initiatives. And on the right, You'll see our plans to increase our unit revenues. I will not go through all these initiatives 1 by 1, But one thing I think is important to mention is that the group fleet simplification and the phase in of the next generation fuel efficient aircraft has already started with the inflow of the Airbus A350, Boeing 787 and Embraer 195 V2, which are all replacing older and less efficient aircraft. We expect to see significant savings from these aircraft, both in terms of a harmonized fleet, which has several downstream effects as well as a significantly reduced environmental footprint as each aircraft produces approximately 25% less CO2 emissions than the aircraft they replaced. We have also been fortunate to establish very productive relations with our labor partners in both France and the Netherlands, And they have shown their agreement and willingness to work together with management to find new sources of commercial flexibility benefiting all stakeholders. This collaborative approach plays a key role in the transformation of both Air France and KLM. Moving to Page 7. I will give a short overview of some of the key indicators for full year 2020, which clearly shows the unprecedented impact of the COVID-nineteen crisis on the group's performance. Passenger carried showed a drop of 67% versus full year 2019 And the operating result was down by EUR 5,700,000,000. Thanks to strict cost control, Government support and strong cargo performance, the EBITDA loss was mitigated to minus EUR 1,700,000,000. Our cash position at hand stood at a relatively comfortable €9,800,000,000 at December 31, 2020. As already mentioned earlier, the group continues to work on quasi equity and equity solutions in order to strengthen the balance sheet and expects progress in the following weeks. Discussions are continuing with the European Commission within the temporary framework. I would now like to hand over the phone to our CFO, Frederic Gaget, to provide further details on the Q4 and full year 2020 financial results Sorry. Thank you, Ben. I propose to go a bit in detail concerning the results of this Q4 of the year 2020 and also to try to make a synthesis of the full year 2020. So I go to slide number 11. When you see the global Economic indicator sorry, Page 9. When I go to the global indicator for the Q4, no surprise, the A stable drop in terms of revenue, which is, of course, true growth for Air France and for KLM. But again, it is not a surprise when you compare that to the level of the year 2019. It is almost a 2 third of the revenue, which vanished during this quarter Due to the terrible situation concerning the epidemic and the decision concerning the lockdown and travel restrictions, Which are applicable in a very large number of countries around the world. If you compare the Change in revenue and the change in EBITDA clearly, there is happily a difference, minus €4,000,000,000 for the revenue year on year and minus €1 point €2,000,000,000 for the EBITDA, which is clearly the demonstration that we have been able to manage correctly First, of course, the variable cost. We have already discussed that during the presentation of the 2nd quarter with the First estimate of the variability of the cost we provided to the market, which was in the range based on our First calculation of 50%, but you see that we have improved our resources elasticity of the cost to the reduction of revenue and capacity, Which explains why all in all, with €4,000,000,000 of reduction of revenue, the EBITDA is just deteriorating by €1,200,000,000 But which is all in all, of course, a variable result and the EBITDA for the quarter is At minus €400,000,000 operating results at minus €1,000,000,000 which is relatively close to our Expectation when we comment the outlook 3 months ago, a bit better than what we were expecting, in fact. And last element to keep in mind, you see very small difference this quarter between operating result and net income. This is due to the fact that we have taken maximum of provision in Q2, Q3. I will describe later The provision we have post during the year 2020. And from that point of view, the last quarter of the year It was relatively pure in the sense that we have not any additional provision to take. So adjusted operating cash flow is negative, again, not a The price plus minus €2,000,000,000 which is giving an indication of the cash drain quarter, fair quarter. Then I move to the next slide. What is interesting is that, in fact, the EBITDA in Q4 is relatively close to the one in Q3. That's why I said just on the last slide that we were happy surprised by This is Rizal because we are more expecting a worse EBITDA for Q4 compared to Q3, which is not the case. The first element, the revenue index is similar to Q3, indexed 36 for Q4, 33 For Q3, which was relatively a source of satisfaction, you remember what happened in the end of the year, October, a bit of optimism with the announcement concerning the vaccines. And in November, in France And in some countries in Europe and in December in the Netherlands, deterioration of the epidemic situation and stricter Travel restriction applied in various countries. So from that point of view, we can consider that the revenue index is Relatively satisfactory in the current situation in terms of capacity also. Note that we had the same level of capacity, €37,000,000 Of KSK in Q4 compared to EUR 38,000,000 in Q3. To be totally transparent, we have So to indicate to you that there has been on the Dutch side a recalculation of the NOW mechanisms, Which are worth €150,000,000 not really attributed to the period Q4 is the P and L of KLM. I move to the next slide just to give, as usual, the evolution of capacity Traffic and risk, their sub network, everywhere, I would say the results are, of course, desecrating. You also note that we have been, I think, relatively agile, but I will comment a bit later in the presentation In the sense that we have been able to adjust relatively, I would say, rationally the evolution of capacity to the situation of the market. For example, Asia, SK minus 61 percent, but a sharp drop in the heart, minus 66 And car, the Yam and Indian Ocean, for example, minus 40 of capacity only, I would say. But the development in terms of RASK a bit more satisfactory compared to the situation in Asia or in North America. I move to the next slide to illustrate the situation business per business. The only number in green are coming from the cargo, as you probably know already, due to The restriction on capacity mainly coming from the fact that there is less passenger aircraft Operating means that there is less billings available for the forwarders and our clients, which means that facing such a situation, We have seen the market able to negotiate higher unit revenue compared to the same situation in 2019 And in Q4, a sharp increase of the unit revenue by more than 100% has been contributing to push up the revenue, Which is, to be honest, an exception when you compare to other activities, pushing up the revenue of the cargo compared to Q4 2019, by the way, in a significant way, you see that the revenue is increasing by 54% compared to Q4 2019. For the rest, no surprise, they are large again. Network unit revenue negative, capacity negative, which explain why the revenue is close to minus 80%. And we have the same into Transavia, where capacity Has been a bit more cut and the unit revenue has been a bit less negative, but it is also for Transavia quite Negative result. We must announce the revenue is minus 45%. Some clients, when the aircraft They're not flying, are picking the fact that they are available for some short visits. It's explained why we See a reduction of the maintenance turnover, a bit less than what you see concerning the network in Transavia, But all in all, just a succession of very negative number. Facing such a situation, I move to the next Slide, we have, of course, with Peter and Anne, worked a lot concerning the cost control. They will be able To comment if there is some question from your side during the Q and A session. I will insist on these slides concerning the management of The labor cost to indicate 2 things. 1st, the reduction of the labor cost is the result of The reduction of the FTE, and I will say that we are more or less in agreement to what we have explained to you Before earlier presentation, you see that the group FTE evolution is minus 10% between end of 2019 and Of 2020, which is approximately 9,000 people, which is, I would say, Already a great significant number. At the left of the slide, bottom, you see the development we expect for the year to come. In KLM, but it could be explained by Peter, the target to reduce in 2021, again, The number of 50 by around 1900 to be more precise and concerning Air France, the fact that voluntary Thank you, operator, for the period 2021 up to the end of 2022. At the right of the slide, you can see what I Before concerning the cost elasticity to the capacity. For the quarter, we have reduced capacity by 54% and the Tanopurizing cost has been reduced by minus 46%, which is giving an indication of an elasticity of the range of 85%, Which is something, I would say, relatively significant and better than what we have discussed with you at the end of the presentation of the second quarter. We also have to admit that part of this cost flexibility has benefited from the support of the government. There is a national system in both France and in the Netherlands. The company's supporters I have benefited of his support and the contribution of his support to the reduction of the labor cost is Relatively significant for Q4. It was in the range of 65%, but I will explain later that in the year 2021, The contribution of the state head will be less and the contribution of the restructuring to the control The labor force will be higher than in 2020. I move to the next slide concerning the full year. So the full year is, again, something absolutely difficult to present due to We see stable impact of the crisis, minus €16,000,000,000 of reduction of the revenue. Revenue was €27,000,000,000 in 20 19. It is €11,000,000,000 in 2020. As for the Q4 and happily, the reason of the EBITDA is less Then the loss in terms of revenue minus €5,800,000,000 so more or less 1 third of the reduction of revenue, Thanks to again the cost control and the impact of the variable cost, operating result at minus €4,500,000,000 And the net income system is different from the operating result due to the various provisions. We have taken mainly in Q2 and Q3 adjusted operating free cash flow, which is The cash drain during the year in the range of minus €5,600,000,000 And as a result, of course, The net debt of the group has increased tremendously by €4,900,000,000 and it's now €11,000,000,000 I move to the next slide just to explain the difference between the operating results and the net income. And to remind you the origins of the various Provisions we have taken during Q2, Q3, euros 800,000,000 to prepare the future. This is mainly the restructuring cost And the restructuring provision for the VDP in both Air France and in KLM, even if KLM I've been able to manage part of the departures already in 2020, so a bit quicker than what happened in Air France When a large number of departure will be observed during the Q1 of 2021, 2 elements in terms of provisions, the fleet impairment. As it has been already discussed in the past, you know that we have decided The 3 80, the 747, the 340, which is basically all the aircraft with 4 engines, I've now left the group fleet, but it had an impact in the range of EUR 672,000,000 Due to the necessary impairment we had to post. And last element to be taken into consideration, the fuel over hedging impact, €600,000,000 as many of our competitors, we have Prepared the aging portfolio at the beginning of the year to cover the expected capacity and the expected fuel consumption Due to the sharp reduction of the capacity, we have been in a situation of overage And it has been necessary to take this impact below the operating income. I move to the next slide, But I will not make a lot of comments where we present for the full year the situation per business, which is approximately, of course, the same As I described concerning the Q4, Terrible results for network and Transavia, cargo Positive with the unit revenue over the year plus 77%. In maintenance, a reduction of the operating result by €800,000,000 partly due to the fact that the activity has been reduced due to the fact that some clients have The decision to make some shop visit, also the loss of some contract, but also The fact that we have been able to take some provisions due to bad debt, revaluation of the stock And revaluation of the margins on some contracts we are then to take in the P and L. Page 19, It is just a slide to try to demonstrate that the network and the audio management teams have tried to work In a great rational way, you can see on the graph that each time the share of a subnetwork has increased compared to last year, It is correctly correlated to the evolution of the unit revenue. Just to example, if you Caribbean and Indian ASEAN, the share of this network was 8% in 2019, 12% in 2020 And the unit revenue was used by only minus 18%. On the other side, for North America, The share of North American network decreased from 2022 to 2017. And of course, the evolution of the unit revenue It's worse than in the example of Caribbean and Indian Ocean Networks, just to illustrate The rational behavior of the rationality of our decision concerning the management of the capacity, But all in all, for the full year, capacity minus 54%, traffic minus 69%, which means that we have deteriorated, Of course, load factor, but not, like I would say, in a relatively limited way, Unit revenue minus €32,000,000 for the full network and revenue minus €69,000,000 For Cargo, I move to the next slide. So we have been able, as I told before, to maintain a positive evolution of the revenue, plus 19%. Even if capacity has been reduced by minus €31,000,000 the increase of the unit revenue has compensated. So just to indicate that we have been extremely active in order to try to take all turnover and cash We can, from the cargo activity, by developing an extremely agile policy By organizing a lot of flight with a full fighter, but also using the Passenger aircraft in order to be able to operate cargo flights and to be able So to answer to the demand of the market. On Transavia, next slide, very difficult year, revenue minus 65 The deterioration of the margin a bit less than for the rest of the total network. And Transavia preparing itself For its future, which is mainly to increase its role on the French domestic operations, which are already started In Q4 2020, with the opening of our new routes on the domestic market, Already 5 new domestic routes, which have been launched by Transavia beginning of November. For the matter, because it is an important element concerning some exceptional items, which have hit The P and L, which are mainly the provisions I have discussed before, EUR €120,000,000 for Doctor. Powell receivable, which is due to the difficulty of some of our clients, which have been unable to pay The bill in due time EUR 110,000,000 due to provision on asset. Of course, we are losing contract. We have less activities and we have been able to evaluate a lot of the stocks mainly and also EUR 90,000,000 Following the revision of some contract margins and then according to IFRS, we have to take such a Revaluation of the contract margins has a provision in the P and L. Do note also that the order book has been reduced. Some contracts have disappeared because the clients also disappeared. And there has been also some renegotiations sometimes with some of our clients in total. The order book is still quite high €9,000,000,000 but €2,400,000,000 below what it was last year. Last slide is a comparison of the evolution of the margin and the absolute margin for the year 2020 For Air France and for KLM, so clearly, El Alsace, the 2 companies have the same negative operating yours. Minus €1,000,000,000 for KLM, minus €3,000,000,000 for Air France. The deterioration is also is the same order of magnitude, but not totally, Minus €2,000,000,000 for KLM and minus €3,600,000,000 for Air France. There is some explanation behind the Citi front in terms of evolution Of the operating result, keep in mind that the initial size of the 2 airlines was not Exactly the same in 2019. So the bigger you are, the bigger also is the impact on your P and L when you lose 80% of Also the fact that KLM has been a bit more quick than Air France to try to develop the cargo activity even in such difficult environment and the situation improved by the end of the year also in Air France and now the 2 group are extremely active on cargo. And also a third difference, which is that the state support mechanisms is not exactly the same In France and in KLM, which has also contributed to support a bit more KLM than in Air France. But all in all, What is important to note is that the impact of the crisis is, of course, extremely negative for both carriers. I move to the next slide to speak about the strategic concerning the cash savings approach. You know that we have at the beginning of crisis launched immediately a lot of actions in order to be sure that we can keep The cash at the highest level as possible, you see that it has been effective when you look at the CapEx management. We had a CapEx guidance beginning of the year of €3,600,000,000 And we have been able to cut by almost 50% the CapEx expense 1st, during the year 2020, all in all, at EUR 1,900,000,000 of which almost EUR 1,000,000,000 for the fleet CapEx, Knowing that all these aircraft deliveries are fully financed, this is the new rules We are flying now into the group if we are not able to finance an aircraft. We don't take the delivery. Good evolution also I think concerning the working capital. In 2019, the working capital contribution was plus 135 And in 2020, it is plus 165, which is, I would say, relatively Surprising positive result, knowing that we have been extremely active to negotiate with suppliers, with administration, With our clients also, the possibility to postpone some payment or some reimbursement In order to keep the cash as high as possible, it doesn't mean that we have not reimbursed ticket, of course. In the full year, the total reimbursement amount of tickets unfurl reached €2,300,000,000 And there is Tier 1.4 to reimburse all that or tickets or vouchers, Which can be used later for flight when we will be able to operate. I move to the next slide, which is a technical one. Of course, when you have the CapEx, the working capital and the free cash flow, you can easily calculate the evolution of the net debt, which increased during the year 2020 by close to €5,000,000,000 To reach now €11,000,000,000 I move to the next slide concerning the outlook. So of course, not a surprise, the situation is still extremely uncertain. We still expect, of course, as everybody, that the vaccine campaign will permit a The campaign will permit a positive evolution of the situation between now and the summer. But for the time being, we are extremely cautious for the Q1 of the year, which means that in both Air France and KLM, compared to 2019 Q1 will be with an index of 40, more or less So it's equally in the various subnetworks for French domestic, you see the capacity for Jan, Feb, March, Around 40%, 35%. And similar results for long haul and medium haul, I will say that, As I told before, the load factor was absolutely not ridiculous. If you look Jan, for example, load factor was 60% for the French domestic, 51 for the long haul and close to 70 for the medium haul, which means that, again, we see the numbers we try to illustrate The good optimization and the good rationale in the decision taken by the network, the sales and the Revenue Management Department. Next slide, concerning the cargo. We think that we will continue to take the benefit of the current situation. The cargo people have even recently increased a bit their forecast For the year 2021 in terms of revenue, and we will try, of course, also to take the opportunity concerning the vaccine transportation around the world, which is already the case, for example, with some flights Devoted to Vaccine Transportation, to Fios, America, Peru, Equator, etcetera. Page 29, future evolution of the labor cost. As I explained before, the support of the government With national system, NOW and partial activity in France will reduce in 2021. 2020, the support is estimated to 1.6%, and it will be reduced by 50% in 2021. But in the same time, we will see the increasing impact of the internal restructuring measures which have been applied or which are to be applied right now in Concerning the labor cost, which means that we will compensate, not totally, but a very significant part of the reduction of the state Scheme, by the evolution of the FTE and the restriction, we have negotiated accompanying the unit cost Per FTE into both KLM and Air France, so ability of the group to compensate for this reduction Of the state scheme concerning the labor cost, next slide. Of course, but again, Anne and Peter I'm better pleased than me to make some comments on this restructuring program. They are going well at the right speed With KLM, there is a structural benefit in the range of €750,000,000 for 2021 And in Air France, EUR 1,200,000,000 spread on 2021 and 2022, but with at least EUR 800,000,000 Our structural benefit in 2021 and concerning the FTE evolution, I have already provided a number, Which is minus 6,000 for KLM compared to the beginning of 2020 and minus close to 9,000 people For Air France compared to the beginning of 2020. Next slide. The group As clearly, sufficient liquidity to not be under pressure, to be honest, we have today EUR 10,000,000,000 Available, drawn or undrawn, but clearly, it is cash available for us. Of course, we will spend part of this cash in the year 2021, not a surprise alas. 1st, because we expect for the time being, at least for Q1, an EBITDA, which is expected below Q4 2020. Of course, we have been quite efficient to manage the working capital in 2020, but it could have some negative impact In 2021, for example, some payment of supplier bills, which have been postponed last year, We'll have to be paid in 2021, and there is still some tickets to be refunded. We estimate the risk today for the inflow ticket for flights even being already canceled at €1,400,000,000 Capital spending at €2,000,000,000 But of course, for all the part of this CapEx, which is consisting in aircraft delivery, it will be financed by the market. And finally, of course, take into account the Cash out coming from the restructuring, clearly in 2020, we have taken the provision concerning the VDPs. But in 2021, we will have, mainly for Air France, to cash out forces departures or Oostas. So last slide, just to conclude. Of course, it's a bit difficult to have a Quite clear conclusion due to the uncertainty when we are now. We still continue to expect that it's It's possible to reach in 2024 level of capacity back to the level of 2019. Clearly, all the efforts and the restructuring We are developing now will have an impact. It sounds that we expect that at the end of the crisis Being back at the level of capacity of 2019, the unit cost could be lower by 9% to 10%. Again, following the 5 year plan, we expect to come back to a positive adjusted operating free cash in 2023. And if things are going well, when the traffic is back to the 2019 level, thanks to the reduction of cost, We expect to progressively be back to the level of margin we have targeted already 1 year ago, when we are present Investor Day and the target Our full operating margin mid of cycle between 7% 8%. Thanks Frederic. So given the major initiatives Taken by the group during 2020. As explained at the beginning of this call, we are confident we can maintain our medium term objective of achieving an operating margin of between 7% 8%, although will be delayed. Furthermore, at this point in time, we estimate We will see 2019 capacity levels return to 2024. Once capacity is back at 2019 levels, we expect the unit cost to be 8% to 10% below 2019 levels. In 2023, the group estimates the adjusted operating free cash flow levels to be positive again. Turning to Page 31. So our path to recovery requires continued reaction and adaptation And by the group as well as an integrated approach between all stakeholders. The group will continue to improve our agility and swift adaptation of our flight operations in order to seize opportunities as they appear. Transforming Air France KLM is key to building a successful and sustainable post crisis model That takes into account strict costs and CapEx control to preserve cash and maintain financial flexibility. Our sustainability commitments are in line with our ambitious environmental roadmap of reducing our carbon emissions per passenger kilometer by 50% by 2,030. Finally, our group will ensure it is prepared to capitalize on the traffic growth once the industry recovers In order to position itself once again as one of the leading combinations of European Airlines in the post crisis era. However, to speed up recovery, we need the harmonization of cross country policies in order to restart travel as soon as possible. Rapid vaccine rollout worldwide is the key to recovery and a vaccine passport could be another enabler of a successful recovery trajectory. I would now like to hand it over to the moderator, so we can begin the Q and A. Thank you. Thank you. Yours. We'll now take the first question from Gerald Castle from UBS. Thank you, and good morning, everyone. Good morning, everyone. 3, if I may. Firstly, just in terms of the conversation This is government about further aid. Can you talk a little bit about timing and also the magnitude? Any color On that would be appreciated. Secondly, kind of related, but where do you see your cash burn In terms of a closed skies scenario now. And then obviously, ADP this morning talking about Paris maybe being 35% to 45% on volumes. How do you see or think about opening up? I mean, you highlighted, for instance, the North Atlantic, but when you look at Vaccination rates between countries, is there a chance, for instance, that the North Atlantic opens up to the UK before, Let's say France, etcetera. So how are you thinking about kind of just the profile of recovery going forward? Thanks. Concerning The discussion we have with the government. I think there is something you all know, which is that in the French and the Dutch scheme Provided to Air France and KLM in the middle of the year 2020. We have the components of this or the composition of This scheme was only debt, which is probably something different if you compare, for example, to the Providers to FRS, etcetera. So it's clear that the situation has to be corrected, Correct, Ed. Modified. And that's why we're clearly discussing with the There's a possibility to see if part of this support can move from debt to equity, which is clearly one of the concern we have To have only increased the debt and not yet improved the equity. And this is the type of distribution we have right now. As you know, also when you move from debt to equity, you have to notify the support to the European Commission. And then you are entering, which is also normal in a relatively complex and technical distribution, which can be a bit long. So it is exactly where we are And where the 2 governments are also because as you know, for the type of notification, it is a discussion between the states and the commission Denis, of course, companies have to be involved. So It's complex. That's why it is not totally ready. But as I told you today to our board, it is more a question of days weeks Than quarters. So we are confident and we think that it will that one day we will find a solution. As Always. Concerning the cash, I will not give you right now forecast for the full year because we have also to see what are development is the next month. What I will say is that even if we see some source cash going in the year 2021, working capital, evolution of the result And also the cash impact of the restructuring decisions, we are comfortable with the level of cash we have today. It sounds that we consider that there is no risk of cash stress before the year 2021, of course. And then for your last question regarding the possibility of the UK, U. S. Market opening before Europe to U. S. Our view is that perhaps it may not happen simultaneously, but within the same period. So that's our current hypothesis. Okay. Thank you very much. We'll now take the next question from Daniel Rolvska from Bernstein Research. Good morning, gentlemen. Thanks, Tristan as well. First, from your discussions with governments and authorities, what is your assessment, What we would need to see in terms of infection vaccination levels to start easing travel restrictions? Secondly, once Demand returns. How concerned are you about your mainline narrow body network given that profitable segments like business travel and connecting travel Seem to be impaired for several years. Is there a larger loss in that segment inevitable even as traffic returns? And then maybe a longer term outlook, Ben, if you will, considering the unprecedented crisis we're witnessing, what are the fundamental shifts or changes in the airline business In Europe, you are expecting for the next cycle. You talked about your mid cycle margin, so you must have kind of reviewed your program. Could you give us The 3 biggest themes you're considering in your planning when you think about what will be changing in that cycle we're heading into? Thanks. So I'll start with question perhaps 23. Our view is that The model that we have at Amsterdam, Schiphol, is robust and works quite well. And that our plans for the medium, long term, We're assuming we get back the market returns so that we can continue to operate that model. We have a big plan surrounding Getting back to that as soon as possible. So we don't see too many changes in how we operate at Schiphol. At Roissy, prior to The crisis, we had already planned to reduce our dependence on connecting traffic and move closer to increase our percentage of O and D traffic And we're carrying it to L'OCCE considering the size of the Paris market. So we do have quite a bit of flexibility In Paris to alter the numbers of passengers we take on a connection basis or On a local basis. In Henri and the rest of French domestic, we're now on our way of transitioning From smaller regional type aircraft into the Transavia model. And our Transavia tool, The cost structure that we have with Transavia is very close to some of our low cost competitors. So we feel that with that model, we'll be better able to Participate in segments of the market that we won before, which gives us a greater Lower risk on the future depending on how things play out. In terms of the vaccinations, Look, whether the vaccination passport or the rate at which vaccinations roll out, We're extremely anxious as to how long it will take. We believe that In France and the Netherlands and the rest of Europe, there has been a slower start than some other jurisdictions in the world, but we do feel that in the medium, long term that If you will speed up and that Europe will be on the same at least on the same level as the rest of the Western world. Have you discussions with government yielded any indication kind of when that point is? Because As you said, developments are different, they speed up. But have governments voiced any indication kind of how far along that road They would need to be comfortable to remove restrictions. I hope that we have any information that you don't have. Okay, perfect. We'll now take the next question from Neil Glynn from Credit Suisse. Hi, good morning, everybody. If I can ask 3 also, please. The first one with respect to your approach to managing what's left to be achieved on the labor cost 5, just interested that you're obviously targeting the full restoration of ASKs, albeit with 7% less claims. That suggests that you're not using schedule recovery as a negotiation tool with labor. Just interested in your thinking why not While that wouldn't be an effective strategy to effectively reward productivity improvements with capacity growth, Which we've seen from some other carriers in the past as they're getting through difficult labor situations. And the second question with respect To the 8% to 10% unit cost reduction plan by 2024, could you give us a feel for what kind of savings on the supplier cost side you Should we expect similar 8% to 10% savings on supplier costs or should they be better or worse? Then the third question, Eurocontrol published an interesting analysis recently highlighting maybe intuitively the longest flights are generating A very disproportionate amount of the industry's emissions. The state that you've already received has come with some domestic capacity conditions. Just interested, do you see any prospect of long haul operation curtailment due to future state aid as part of the equity solution? Or do you think that the each respective government is very comfortable with your carbon reduction plans as they currently stand? Thanks. Okay. We have both Peter Albers and Henri Guy, CEO of KLM and CEO of Alphonse in the room with us here. So perhaps Peter can start out with answering your questions on the KLM side and then we can have Anne follow for Alphonse. Thank you, Ben. Good morning, everyone. Yes, to your first question on using the recovery as a means and stating network as a means to increase productivity, in fact, we make a distinction between the various phases of the recovery. The first phase is actually where we're in now. Our schedules are still very inefficient. We only fly a couple of flights per week. And in many countries, We do have serious adjustments of our schedules. Quite a few of the flights to Asia are operated through places where We have different crew regimes. And as such, we have a rather inefficient operation at this point in time. So I think the priority now is first to make sure that we have the operation running. And you could see the 2020 results, both Air France and KLM did relatively well compared to our competitors. That's a priority for now. Priority number 2, which is probably the second half of the year and probably next year, it's going to be very much On reinstating the network and bringing back all the frequencies and the destinations. And after that, and that's more in the later part, and You've seen that in Frederic's presentation, when the capacity is going to be further restored in the 'twenty three, 'twenty four time frame, it's also going to be the right point in time to address that matter. Again, today, the operational circumstances are very challenging and already require a large sense of flexibility of our flight crews, and I'm very proud actually that they are doing so, and we are able to keep that operation going for mostly cargo and some of the passenger flows. To complete a bit on Air France side, as Peter I think that the efficiency of the network with the decrease of the frequencies is quite low at the moment and that the Todd will help us to go back to a lot better efficiencies. In terms of efforts, clearly, We have already important steps that have been taken at the beginning of the year with the signature with All the people in Air France, pilots, cabin crew and ground staff, have agreements relating to partial that we will implement during 2 years, and we are in the middle of the implementation on the ground voluntary departure plan That is going on quite well. We have a strong wage moderation, freeze of the salaries that is already planned For 2 years, but in view of the duration of the crisis, we are exploring additional savings opportunities to improve our competitiveness in the short term And during the recovery phase. And of course, we are discussing this with the trade unions. We will now take our next question from James Hollins from BNP. Please go ahead. 3 for me, please. Just on the furlough support, that EUR 150,000,000 Looks like exceptional or surprise income on KLM. I was wondering if you could quantify how much of that was in Q4. I think you said not all of it was. Secondly, I know as part of the negotiation with the EU, but do you fully expect to lose some slots, Remedy slots at Orly and Schiphol. And then thirdly, I see you've drawn all of the Air France €7,000,000,000 package, only €900,000,000 of the €3,400,000,000 on KLM. Just wondering if you can draw further on the KLM and use that for the Air France CapEx and restructuring through this year. Thank you. Okay. Let me, in coordination with Frederic Assier, answer your first question. That was related to a booking for the NOW in the range of €90,000,000 out of the total amount, which was €250,000,000 To the NOW support we got for the month of March, the introduction was done very quick and very swift on the Dutch side. And then there were some So the different dynamics on the actual starting date, whether it was April or March. So in clearing the full year, eventually, the start was on March, and then We needed to make some corrections there. And that was also sort of aligned with all the parties involved. I think the second question, Frederic, on the slot stamps, then you or Ben or me? Okay. Regarding the remedies that the EU is looking for From a slot perspective, there are negotiations going on between the two states and the European Commission. We're expecting to be asked to release slots in Paris and in Amsterdam. We are pushing to ensure that they are proportionate and comparable with what Lufthansa has released. Frankfurt and Munich are somewhat similar to the YC. None of those 3 airports are fully saturated. There are still openings for new entrants. However, there are peak periods. Ollie and Amsterdam are fully saturated. So an impact on slot release would be different than what Lufthansa It's going to be how they're going to be impacted in the future. Also, ALDI is much smaller Than the 4 other airports. So we are negotiating with the European Commission, and we're hopeful that we will have an agreement, as Frederic said, in the short term. Concerning your third point, no, you're right. Normally, when there is this type of State support. The money is supposed to remain into the company to which it has been addressed First, which means that the EUR 7,000,000,000 for Air France, EUR 3,400,000,000 into KLM and there is some control, which The rules, by the way, to be sure that there is no flow of money between the two companies with, as an example, all the French state going To KLM or vice versa. So there is a relatively ceiling between the companies containing the money coming from this state support. Very clear. Thanks very much. Next question comes from Stephen Furlong from Davy. Good morning, gentlemen. In 2024, you're expecting to be back to pre crisis levels in terms of And I'm just wondering, I mean, you talked about, Ben, O and D versus connecting traffic at Rossi. In terms of the actual cabin mix, would you see more or it's really more a function of the aircraft You have quite a bit more kind of growth in premium economy or premium share because of Smaller aircraft type or do you think because of the crisis, we have more economy traffic? So I'm just trying to get an understanding of the Traffic mix in 2024, obviously, a long way away, but compared to pre crisis. Thank you. Okay. So on the Air France side, There's a I think Air France will be better positioned than the other 2 major competitors that we have in Europe, be it Lufthansa or British Airways premium traffic and long haul legacy type of flows. The Paris market It's the largest destination market in Europe, so it's a big, big O and D. And also historically, 50% of the premium traffic at Air France has been leisure. So the exposure to premium business traffic It's somewhat different. As you know, at Heathrow and at Frankfurt, the business cabin and the premium cabin I made up of pure business traffic, which is at Air France is not at the same level. Also at Air France with all the 380s being removed from the fleet, Those airplanes had the largest business cabins at Alfres. And of the 68 777 at Air France, 44 of those airplanes have a quick change capacity, which what that means is that business cadence can be reduced by up to 50%, and that can be done overnight. So the mix in 2024, Air France has an enormous amount of flexibility with the A380s out, Being able to tap into the local larger French market By balancing out flows versus local, flexing up the size of the business cabin and also Taking advantage of the large leisure higher end business, which does not exist It does not exist to that extent in other cities in Europe. On the KLM side, Amsterdam is the best connecting market in Europe, so can access smaller markets, Already has a very well diversified Networks throughout the world. So I think when you look at the ability to balance our different options, different flows And also the business cabin at KLM is relatively small already part of the crisis Versus its major competitors. I think we are well positioned as a group based on the setup of the airline before, based on the evolution of the fleets That have taken place throughout this crisis and on the flexibility that the airlines will have after the crisis And also taking advantage of the respective markets, the flexibility that we have that similar competitors Thank you. Very helpful. The next question comes from Roxandra Hauda Dozer from Kepler Cheuvreux. Good morning. Three questions, please. First, a follow-up on the unit cost reduction target. Could you maybe help with what impact was the sustainable cost restructuring measures implemented so far since the start of the Crisis have on unit cost performance at pre crisis level of activity. 2nd, Peter mentioned in recent interviews that he The recovery of long haul business to be driven by traffic through the hubs, and he believes the strength and power of hubs will be even stronger post COVID. Does this refer to hubs like Amsterdam and Paris, which rely on strong or short haul feeder networks? Or does this apply for hubs in general, Even to those that rely mainly on long haul flights like Middle Eastern hubs. And third, For Frederic, could you please talk about your thoughts on fuel hedging policy in Europe post COVID? Do you expect main payers to change There are fuel hedging policies. Thank you. So perhaps Anne can The first question, Peter the second and Frederic the third. Okay. Concerning the first and the third one, it's Clear that with the crisis, both Peter and their management have opened discussion, prepared And Lance already a lot of plans concerning the restructuring of the group and also 2 carriers. To be honest, if you look at the reduction of the FTEs, for example, which is in the presentation, it is already extremely impressive. But there is some other actions with the supplier, with the rationalization of the network. It's mainly for Air France, for example, the domestic network. So if I add all these elements, for example, just for Air France, the action with the new suppliers, we count for around €200,000,000 There is the same approach into KLM and there is also the same approach from group, the renegotiation concerning some joint contract. When you add everything together And you say one day the revenue will come back to the level of 2019. In fact, you will be in a situation where you will have the benefit of All the cost reduction we have implemented already from 2020 and we will continue and we will have the revenue back to the level of So mathematically, it leads to an improvement of the margin even compared to 2019. So it is exactly what we have to do to be sure that the cost reduction we're implementing We'll be structural and will remain in place even when the revenue will come back to the situation of 2019. And based on our first cancellation, we expressed that by telling you that the unit cost base When the revenue will be back to 2019 level, will be at least between minus 8% and minus 10% which is of course Positive for the profitability and for the margin. Concerning the hedging, very good question. In fact, First point, it's true that as many of the competitors, we have been hit by this overaging situation, Which is, to be honest, something very, very strange to suddenly discover that because you reduced capacity by 60%, 70%, your The full year of hedging is in excess. And it has hit, I think, many airlines in Europe, whereas hedging policy are more developed Then in other places into the world, I think, for example, U. S, where the hedging policy generally is relatively limited. And of course, to answer to your remark, we have already discussed the necessity to adjust the hedging policy, 1st to avoid in the current uncertainty to be facing such a situation of overage, but also because In the economic situation in which we are now, with the balance sheet weaker than before the crisis, with credit lines less available because banks, of course, are a bit more cautious. We have decided to adopt For the time being, a more cautious hedging strategy by hedging with the tenure of only 1 year instead of 2 years before And by limiting the maximum volume of the hedge portfolio at 50% of full year consumption, when before we were close to 80% of full year consumption. So clearly, you're perfectly right, the current situation forced us To, unfortunately, adjust the hedging strategy by being more cautious and more modest in our ambitions for the time being. To your second question, yes, indeed, I made that remark, and that I was pretty much focused on what we have seen throughout 2020, where by maintaining the network and by operating a very significant number of our flights I still keep not flights, sorry, our destinations. And by keep a certain level of connectivity, we have seen a relatively good or less bad, if you wish, performance. And that's mostly because a lot of the relatively smaller flows, which could hardly sustain direct flights, They have been canceled, and it will take quite a while before they come back. So from smaller cities in the U. S. To Europe or from Europe to the U. S. We will see a slower recovery of these sort of point to point flows where no hubs are supporting that. I think that would give a great opportunity for a group like Air France KLM and for our 2 Hubschen CDG in Amsterdam, Well, we will have the opportunity to recover on that medium haul, long haul connecting traffic. I don't think it's so much The case for the long haul, long haul because there's no direct flights anyway. So basically, when the traffic is coming back there, it has to go through the same hubs as was before. So my priority would be here on the medium haul, long haul and even on the medium haul, medium haul flight with a slower recovery of direct flights because the market is recovering slow. We'll have a great opportunity to take benefit of that situation. Maybe to complete a bit what Frederic said on the decrease of unit cost. On Air France side, the global actions, 120 initiatives at the present time represent €1,400,000,000 We will reach €800,000,000 by end of this year. The major pillars are the full restoration of the domestic network with Strong growth of Transavia, a restructuring of Hop regional subsidiary And also more intermodality with the train and with the suspension of routes under 2:30 minutes by Train from on the point to point network. The second pillar is the decrease of all our support functions, it represents 30% of that decrease in all the support and the management. And we are working on all our operational This is also with a lot of digitization. Overall, it means 8,500 Job cuts, and we are in the middle of the whole process. We are reviewing all our external expenses, as Frederic explained, With a lot of RSPs and adjustment to the current capacities, of course. And as I told you previously, we are working on new initiatives To reinforce this plan in a continuing process. Just one last point I'd like yours to make structurally KLM once KLM we remove the A330s, We'll have the most efficient wide body fleet with 1 cockpit type with the 777 and 787s and 1 narrow body cockpit type with the 737. So only 2 cockpit types, which is the most efficient of the major carriers in Europe. With Air France removing the 380s, an expensive or a lot of money that was supposed to be spent on cabin refurbishment, engine overhaul And airframe overhaul was we were able to cancel that, which was great. And then Transavia, which was a major effort, major exercise between Air France and the Air France pilot unions To implement flexibility that was not there before, there was a 40 aircraft limit that was in place, which was renegotiated for that limit to be removed, and there was also a restriction on flying Transavia in the domestic market. So I don't think it's fully well understood in the financial markets how valuable that is. For Air France, cost structure of Transavia, France is similar to that of EVJET. So with that tool, with the reduction In dependence and size of our hop operation, the structural benefit of that change It's something that will be clearly evident once we exit the crisis. And as Anne just described, it requires a major overhaul of the number of staff and the types of positions we have in the domestic French markets. Great. Thank you very much. The next question comes from Carolina Dors from Morgan Stanley. Good morning, everyone. Three questions, if I may. First 2 are on liquidity. You mentioned that Working capital has been helped by work on supplier payments, deferring tax bills and some kind of government support. How much of what has been deferred in 2020 is overall and how much of that is due in 2021? Second question is on liquidity. Are the EUR 9,800,000,000 of liquidity available for both Air France and KLM? Or if not, what is the split between the two? And my final question is on CapEx and the EUR 2,000,000,000. And sorry if I missed it, do you have all the financing in place? Thank you very much. On the second point, yes. We have managed all the financing for the aircraft by the end of 2021, Which means that there is a large majority of the aircraft deliveries expected into our plan for 2021, which are already financed Or directly by banks concerning a loan or possibly also by operation of sales and leaseback. We can also In order to be sure that the delivery of an aircraft is not a cash out for the group. If I understood correctly, as I told the cash provided by the 2 states for Air France on one side and KLM On the other side, again, there is a ceiling between the two companies in the sense that according to the contract, We are signed with banks and state. There is no possibility to move part of the support to one company to the other one, Which is logical, by the way, and which is a situation you find normally in this type of situation when there is state support to local companies. And sorry, but just to follow-up, how much is available for each one of them currently? More or less, it is €4,000,000,000 or €3,500,000,000 in each company. Thank you. We'll now move to the next question from Martheus Jainil from CQS. Okay. Thank you for your time today. I have an ESG question. I'm just keen to understand what initiatives you have in place for the year ahead apart from The environmental assembly aircraft that you mentioned earlier in the call. Thank you. I think we have trouble hearing your question. If you could just repeat, please. Sure. So my question was to do with your ESG initiatives For the year ahead, so in environment, social governance, you had mentioned earlier on the call, on the environmental pillar, You're focusing on upgrading your fleet. Are there any initiatives you're taking across the social or governance fronts For the fiscal year ahead. Okay. So I think we've got Peter and Adam in Remember, so I'll have each one of them answer for their respective airlines. Katie, do you want to go first? Well, regarding the environmental initiatives, I spoke a bit about the fact that we are working a lot on intermodality with the train, And we removed some flights to Orly, from Bordeaux, from Nantes, from Lyon. And we are connecting our network To train and facilitating the customer experience, digital and physical experience to be able to have this type of connection. The other issue are around sustainable fuel. It's a key level To reduce our environmental footprint, we are currently in a process of stimulating the industry to be able to Create SaaS in Europe and in France, and Peter will probably speak about Netherlands. We are collaborating also with the European at the European level with the Commission on the Refuel EU Reform in the Green Deal. And recently, Air France KLM Group has launched a brand new Program, enabling companies to have an active role in the future of sustainable travel with the SAF initiative. Maybe, Peter, you can complete. Yes. Thank you. Yes, there's a whole range And as Ben said, we had a little trouble in getting your question. I understood it's a bit broader than just the sustainability part when it comes to the sustainability initiatives. But just to underline and echo what Arndt said, I think we've done a lot already On the improvement of our fleet and the renewal of our fleet is one of the key drivers. In addition, we are investing in alternative fuels, Sustainable Aviation Fuel. I'm actually pretty proud that we had very recently the first flight Being executed on partly synthetic fuel, I think there was a great step forward. It was just a small quantity, 500 liters, but a very important step. And then when it comes to the ESGs, and that's and I'm very proud of that actually. As a group Air France KLM, we are again one of the leaders in the Dow Jones sustainability index. The basis for that really is the sustainability goals, and we're scoring high on that. Both in France and the Netherlands, we do have an extensive list of social projects in terms of inclusion, in terms of broadening the workforce, in terms of Having people from all groups in the society being working, close collaborations with schools, with institutes And all these initiatives in order to play our social role. And I think maybe as a last point here, during the crisis, we are demonstrated by the transportation of vaccines, by repatriation flights, by all the initiatives we do in order to bring medical equipment that we are indeed playing a very crucial role in our respective societies. And in fact, that will only continue to be stronger going forward. To complete a bit on the customer side, it was very important for us To have the trust of our customers with the certainty measures, with our flexibility on the commercial measures. And we just extended our commercial flexibility to the end of the year so that we can really book with confidence. We observed NPS Improve of 80 48% in 2020. And so during the crisis, we kept Really, the trust of our customers within the group. We are also working to on the parity For the women, so we want to achieve 34% of women in At the highest management level, and we are committed to this at the group level. And on the social side, as I explained to you, we have a lot of negotiations, a lot of discussions About the whole transformation plan, and it's very important for us also to keep the trust of our employees. We are monitoring our Employee Promoter Scores. And we've seen that this employee Promoter Score is now at Air France above what We have seen before the crisis. It means that we really want to change and to make this transformation plan In a collective manner, keeping the cohesion between all the people inside Air France and the group. That's very helpful. Thank you. We will now take the next question from Andrew Lobbenberg from HSBC. Morning, everyone. Can I ask a question about partnerships with other airlines? In a normal world, they would be a big Feature of your strategic position and network opportunity. And it makes sense that everyone's focusing on surviving themselves at the moment. But it's also the case that your good friends in Atlanta sit on your board and in your ownership structure. So what do you see the role of your key partnership going forward in terms of ownership structure and indeed rebuilding as the network happens? Can I ask a question about the reopening of market? You stated very clearly that it's really important that we try and get cross Government cooperation to set up standard rules. And I get that and everyone gets that. I'm just not seeing it anywhere. So to what extent do you think that the EU can take ownership of defining the reopening Of aviation in Europe? Or are you scared of the risk of a whole new layer of Bilateral Health Regulations, country by country that can just overlay on top of the time, Well, that's the Air Transport structure that we have and I'll leave it there. Thank you. Okay. Regarding Our partnerships with other airlines, in particular, the 2 airlines that have an equity interest in the group, Both Delta and China Eastern. As you're probably aware, we have an extensive transatlantic joint venture with between Air France KLM, at Delta and Virgin Atlantic. We don't foresee any change with this very successful joint venture going forward. So from our we were working day in, day out. And from our view going forward, things will remain the same. And that is also the With China Eastern. In terms of what is being done, But our hypothesis on a more streamlined Border restrictions has been particular in Europe. We're part of A3 and IATA, and we know that both organizations are doing all they can to streamline and ensure there's harmonization for border crossings. And we obviously are experiencing this non coordination or Different bilateral policies are in place today. We don't foresee it becoming more complicated. We do foresee it becoming more harmonized. It's just a question of time. Okay. Thank you. We will now take our next question from Moniba Kiyani from Bank of America. Good morning. For the Q1, you've said EBITDA would be lowered. How should we be thinking about free cash flow in the Q1 and what you highlighted on working capital? Second question on fuel costs. So with hedging lower this year and oil prices having risen, How are you thinking about fuel costs and the ability to pass it in the ticket fares possibly this summer? And thirdly, can you talk about how you're thinking about the Equity turns in terms of size, and what are kind of leverage targets that you're working with here? No. First element concerning the fuel Cost, concerning the fuel cost, we have an hedging portfolio, which is not full, which means that there is for 2021 no more overage And portfolio which is, sorry, close to the current fuel price. So it can give you an indication of what With a few, Bill, based on our estimates on capacity, we have forwarded into the presentation concerning the working It will be difficult, of course, to make an assumption right now. What I have tried to explain during the presentation is that I think that we have been quite efficient in the management of the working capital for the year 2020, as we have shown in one of the slides. 2nd, clearly, there will be some expenses, some payments we have delayed, which will have to be paid into 2021. And there is still €1,400,000,000 of ticket unfloan, which are possibly on board In the year 2021, but first, it is less than what we made in 2020 where we were on both more than 2,000,000,000 of tickets. And second, as you know, we have provided new offer to the clients to infancies them to keep their ticket and to use it later on. So it continued to have this commercial policy in order to avoid reimbursed mode of all the unflown ticket stock we have today. And 3rd type of actions, of course, the 2 companies, I mean, is the 2 financial department, but not only are working With new suppliers, with administration to see if it's again possible to postpone some of this payment. So I will say that I don't know if we will be as efficient as we have been in 2020 concerning the management of the working Peter, but we continue, of course, to develop any actions in order to be able not to be too hit too similarly by Chia, for the year 2021, I hope to have answered your question. That will conclude today's question and answer session. I will hand your call back over to your host for closing remarks. Okay. So we'd like to thank all of those who've been on the call today. Thank you for your questions And have a great day and a great weekend.