Earnings Call: Q3 2019

Oct 31, 2019

Ladies and gentlemen, good day, and welcome to the Q3 2019 Air France KLM conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Frederick Cartier Chief Financial Officer of Pia France, PLM. Please go ahead, sir. Good morning to everybody. Welcome to is a analyst call for the result of Air France Third Quarter 2019. I am in Paris with the CFO of the platform, M, KLM, and the team of the investor relations. So I go to the presentation directly, I propose to go to the first line, which is a short resume of the result for see the first quarter. What is happening during this last 3 months? First, we continue to increase our activities at traffic is up 4%. But as we warn you already in August, we have a negative, a procedure of unique revenue. If you add together the network there from KLM plus Transavia, we have this percent of unit revenue at minus0. 6%. So it is in line with the message we have translated to the market in the middle of the summer. This is the main source explaining why the operating result is less than the last year. In Q3 2018, operating result was 1,000,000,000 for the third quarter 2019, we are 1,000,000 for the pricing result, which is -1 65. It's a drop. Expanding mainly, we will see that later by Zenia T Fasential unit revenue and also by heat. Coming from the fuel bill. The net debt is down minus 253 compared to December 2019 below 6000000000@50000000009001000,000,000 end of September 2019 with the reduction, which has been impacted by the quite strong dollar. We had at the end of the month of December, we will see also that the level of the dollar end of September has impacted the net pursuit of the company. So, basically, this is This is a short view about this result, good traffic, percentage of revenue. We get is an operating result less than last year, but we continue to ask a decrease on the new debt. I go to the next slide. When you see a bit more precise number, 1st, the revenue of 1% at constant currency fuel expenses 1,500,000,000, which is a bit more compared to last year around 130,000,000 We will see that the net impact excluding currency is a bit less. The EBITDA at 1,000,000,000, minus percent compared to last year, operating result. I discussed the operating margin, of course, direct impact of the operating result, which and at 12% compared to 14% last year. The net income is also less than 2018 3, we have a drop of minus 1,000,000, which is more than the drop in the operating results. 2 main explanations behind that, first, the fact that we are open, the into account earlier phase out of the 380. The impact on this structure is 1,000,000 below the operating result, and we have also a non cash impact coming from the strong dollar, which is impacting the financial cost due to the revaluation of the debt and the revaluation of some maintenance provisions, we expect a part of this effect will be reversed in the 4th quarter. Our progressive result is a bit weaker right now. Compared to what it was at the end of the third quarter, adjusted operating free cash I will show you that later indicating what we have over the 9 months period year to date. So net debt reduction of 250,000,000. I always indicated that, and the net EBITDA ratio is at 1.5. Next slide is the Airbus 3 80 phase, I would financial impact. So, as we have already announced in 2nd quarter, we have taken the decision to fill out progressively the M3 AT following, by the way, the decision of other carriers. The global non current result is estimated at Front And Million and this impact will be spread over the period between now 2022 but for the third part of 2018, the impact is 100,000,000,000 negative, which is some of the, in fair amount of assets, for 75,000,000 and 25,000,000 of excavated aircraft depreciation for Q4 we expect an impact of 1,000,000, again, below the operating result. I go to the next slide just to describe what is happening in the various businesses of the group. Network I told you that the unit revenue was minus 0.6, but it was by adding network and Transavia if we focus only the network from CRM's and degree to revenue is minus.9. So clearly indicating that the global IO on on March is less buoyant or positive compared to what we had in 2018 and in 2017. Even over the years, the situation has been changing from 1 quarter to another 1 Q2 and not so bad Q3 negative, Q1 watch this week. So we see that there is some uncertainty concerning the evolution of the passenger demand and the capacity for airlines to maintain the level of the unit revenue. I think that the result of British Airways this morning are giving also the same type of implication. The signal, which is really negative on my point of view concerning the group around Iron Mountain is a cargo bridge revenue minus 13% It is numbers. We have not seen already for 2 or 3 years. We have seen in the middle of the crisis before 2016 concerning the cargo activity. It was far better during the last 2 years So since the beginning of the year 2019, we see again a negative unit revenue development from sending the cargo And for the third quarter of the number, I would say that the quality impressive minus 13%. Concerning Transavia, both Transavia France and Transavia loans this summer has been fully okay. We have capacity increasing by 8%. The unit revenue is positive with 3% in spite of the capacity. And the margin is operating result is almost triple minus 5,000,000. But not, however, that the summer has been impacted in Transavia France by some operational difficulties due mainly to the delays in the training of Captain for operating the fleet of Transavia France and it had impacted most. The capacity of the capability of Transavia to grow according to the budget, but it has also increased a bit unit cost of Transavia during that period. The maintenance development is okay. You see the operating result minus 1,000,000 compared to last year, mainly explained to be precise by some one off The station is a one off coming from the bankruptcies of Ignacio and XLRwell. Where we have some doubtful debt, which Elias will be never paid. The impact is estimated around 10,000,000 which means that if you exclude this 1 of the month and off margin will have increased during the third quarter, when we go a bit deeper in the analysis after a discussion with the controllers of the mathematics, it's clear that the margin on the equipment, the margins on airframe are increasing compared to last year, same period. And the margin vis a vis 3rd client support is not internal with external clients is also stable. So a good development of the business in the matter now, and so the result is the group evolution of the operating result. I have already this one. I'll go to the next slide to see what is happening in terms of unit revenue when you look at the value network or sub network of the group. There is, I would say, the first good news, which is evolution of the RASK in the funds domestic network, which is clearly a good result, largely explained by fact that the capacity are going down similarly, minus 12%. It is totally aligned with the strategy we announced in the second quarter. We expect the capacity of the domestic market to be reduced by 6% in 2019 and again, 6% in 2020. It is, of course, part of the restructuring plan for the heavy loss making network of platforms and distribution capacity goes together with the integration of the fleet by the beginning of 2020, the fleet of ATR, which are the propellers used by hub, will be totally phased out second good news, the relatively good development of the RASK concerning the medium haul hubs from both flies going to Chardugl or to Schripol. We have developed capacity during the fourth quarter by 3% and Zohaz is still below 0%. And of course, what is explained mainly the reduction of the RAS DIVING third quarter is the long haul Local long haul task is minus 1.5% explained by Latin America, not a surprise the crisis in Argentina and Brazil where the rest is minus 7% followed by Asia minus 3% in North America when we have excluding the currency, unit revenue of minus 1.8. 2 small cell networks are going not too bad. It's mainly with Indian Ocean where the world is +5 percent in Africa and middle east. I go to the next slide, which is just insisting on the phaseout of the ATR fleet. I just indicated. And also the good medium haul hubs and a French domestic performance in terms of unit revenue. Next slide on the unit cost. Unit cost is up point 4 during this quarter, but if you go to year to date, we are at minus 0.7 which means that we are for the full year 2019. As I told already, during the Q2, we expect to be on the very good side of the range, which means that we will be a closer to minus 1% that to 0%. Next slide, we insist a bit on that because you know that it is a focus events, business and other guys to improve and to come back to normal situation in terms of on time performance and net promoter score for Air France. In fact, it's going not too bad. You have slide the evolution of the air France on time performance, among the European peers can you see that in July, August, September, the rank has been 7, 5, 3rd, which is clearly far better If you compare that to the situation, for example, in the Q3 2018, And you see also on the right of the slide, an impressive movement concerning the Net Promoter Score for Air France for Q1 to Q3, since the KPIs is now 24, 25, 25, 25, which is almost twice better than the result in 2018. So, I think it's really encouraging result showing all the work which is developed right now by Anne Regay in order to improve the situation for this specific KPIs. Next slide is a waterfall for the operating result. From Q3 2018 to Q3 2019. Main explanation in terms of decrease is unit revenue minus 1,000,000. The biggest impact is the fuel price excurrencies, minus 74%. And finally, we have the same impact for unit cost negative minus 25 and currency impact positive, plus 24. So it's really the unit revenue and the fuel price. Which are explaining the deterioration of the operating results, sorry, from Q3. Last year and Q3 this year. I go to the next slide. To commence the performance of the 2 companies. So at the top, you have the evolution for Q3. Where I will say the evolution is relatively similar, from both Air France and KLM, which is a deterioration of the margin. Of minus 2.2 for KLM minus 2.5 for Air France. Keep, however, in mind that there is some one offs in Air France, which are relatively significant for this quarter. The first one I have already discussed is the impact of the bulk group C of Eglazoo and XL Airways on the French market. The company left an unpaid bill. Of around 1,000,000. 2nd, we had a compensation for the strike last year to be paid to Delta, which is also in the order magnitude of 10,000,000 negative for Air France. And finally, as the end of operations in June, have forced airphones to take some 1 off costs for 1,000,000. So in total, you have 30,000,000 of 1 off in Air France for this quarter. If you correct for that, we can admit that the evolution of the operating margin for Air France and KLM are relatively the same for the 3rd quarter. At the bottom of the slide, we have the evolution year to date. Clearly, the situation is a big different for KLM, the reduction of the operating result is minus 1,000,000, so a reduction of margin of minus 3 point 3 points, sorry, for Air France, it is less, but you have all of course to take into account last year. We have the strike in Air France with a global impact in the range of 200. So if you correct for that, you have a far more parallel evolution of the situation among the 2 carriers of the group. I go to the next slide, which is giving the evolution of the free cash and the net debt since December 2018, the adjusted operating free cash flow is positive over the period, plus 1,000,000 is the last dark blue bar on the left. And on the right, you have the evolution of the net debt between December 'eighteen to September 'nineteen, we have taken account Africa, the payment of these steps, of course, the new lease debt, which is all due to the entry of lease aircraft or extension or already existing leased aircraft into the fleet. And you note also the impact of the currency which is mainly the impact of the strong dollar at the end of September. But as I told before, I think that some of these impact will vanish during the 4th quarter. Zendelar being a bit weaker compared to what it was the end of September altogether. So net debt on the ratio is at 1.5 stable If you look at December 'nineteen, sorry, and September 'nineteen, we go on the slide concerning the revenue outlook. So 1st, in particular, we use with you're quite often is a long haul for one booking load factor. It's relatively stable. If you look at the period December to March 20, it is press 1, press 1, press 1, press 1. So there is nothing, nothing good or nothing bad, I would say. It is not indicating that we have a great capability to to maneuver concerning the evolution of the unit revenue. That's why after a discussion with the revenue management team, We consider that for the next quarter, the current quarter, 4th quarter, we expect unit revenue at constant currency, which should be slightly down compared to last year. So it is a bit the situation comparable to the 4th quarter. Probably a bit less. Or a bit better so we compare that well in Q3, but we are still expecting a slightly down unit revenue for the 4th fourth quarter. I go to the next slide just to actualize the fuel bill increase In Q2, we have indicated at the end of Q2, we're expecting a should be increasing by 1,000,000 compared to 2018. With the new market. We are now closer to 600,000,000 due to the fact that We have a good increase of the fuel price. You see on the slide that the hedging results For the year, 2019 is expected to be close to 1000000 And at the current forward curve, we are for 2020, the edge result, which is expected to be minus 150,000,000. But as always, concerning the fuel, things can changeable. So, next slide on the full year guide down, not many changes. For the passenger capacity, we stick to +2 to +3. We reduced by 1% the expectation concerning the Transavia, the capacity in Q2 indicate +7 to +9. We consider now that we'll be over to push 6 to push date, which is, of course, largely explain to the delays in the quick crew training in Transavia France fuel 3600 and what we did indicated that the currency over the full year, it will have been a natural effect and we still consider that it is a case. First, again, we say in the guidance, but probably in the right side of it. So close-1s up to 0, actually. The CapEx had an increase of 1,000,000, which is a minor CapEx increase, which is mainly explained by the size that we have decided to acquire instead of leasing some engines observings and the implicit margin in the release was far too expensive. So, we to move from lease to acquisition is good for the P and L and mandate on EBITDA at 1.5 as we said since the beginning of the year. So this is the end of the presentation. All in all, message are, higher on volume mode, a bit more difficult than what we had in 2018. Explaining largely the deterioration of the operating result compared to the third quarter of last year. Should be is not helping. Tomfer in Q3, the unit 1st, but we stick to all guidance concerning the unit first over the full year. So I have finished the presentation, and we are now all listening to your questions. Thank you Please make sure the mute function on your telephone is switched off to allow your signal to reach our confidence. And again, We'll now take our first question from Roxandra Haredo Dosser from Kepler Cheuvreux. Please go ahead. Your line is open. This is Roxandra. Please make sure your line is not on mute. Your line is now open. Yes. Good morning. You highlighted a strong improvement of the Net Promoter Score could you please give more details on what exactly has been driving this strong improvement? 2nd, could you please give an a convergent Atlantic. And third, considering the non fuel unit cost decline in the 1st 9 months, And the week compared to the basis of their funds in Q4, is it fair to assume that the non fuel cost guidance for the full year is quite conservative? Thank you. Thank you for the 3 questions. NPS, I think that for the, probably the main explanation beyond NPS improvement is coming from the other part of the slide. When you see the strong improvement in terms of on bank performance, it's clear that when you look, we'll be deeply in the NPS answers coming from the client. There is a rule which is that a good flight without non conformity as a very strong NPS. The same flight with a small non transformative has a very bad NPS, which means that the client is extremely sensitive to a small delay or a small change in the in the schedules and this type of things are improving quite strongly during periods, which means that when you focus on the quality of operations, less delay, better on time performance, a good percentage in terms of flight according to the plan. We have immediately an improvement in the NPS since this is the first iteration. The second explanation is that if you compare that to the last year, for example, it's clear that in 2018, as you remember, the situation in the group effort was a bit let's say, perfectic with the departure of Jean Marc in the crisis at the beginning of the year. When you are right now, coming into the policy of events and AM in the period, which is more calm, quite more positive. You see also the behavior of the things Is that the client improving? And I think it is other explanation. Concerning Vision Atlantic, we have decided with a partner that due to value delay, part of them being something from administrative work and distribution with authorities And also to simplify the treat more in terms of accounting, we have all decided that the launch, official launch of the GV will be 1st January 2020. So, which means that there was a small delay compared to what we have announced earlier we have indicated to you that the JV should be in operation 1st September after some delays, we have moved to the 1st Jan 2020. And there is still absolutely good relationship and work among the various working team. In the meantime, I remember you have the TV between our front column and then dies, of course, still in operation activity. We have not stopped as a concept the GV between Air France and Delta. It will move to Air France and Virgin beginning of the next year. And then I missed a short question and So, you need cost. So, the question is, is minus 1 not too shy? Okay. We are on the on the good wins, also on the good part of the wins. I was I would limit my comments here, but we can be at the extreme good hand of the venture, I will say, if it is more precise. We'll now take our next question from Savi Syth from Raymond Jan James. Please go ahead. Your line is open. Hey. Good morning. I've just a couple of questions for me. First on Transavia, you know, it it looks like a bit slower growth here in the fourth quarter as you as you cool up. Just any thoughts on on how you guys should think about the growth next year and and if you're able to take advantage of stopped opening up to Orley from, for some of the, carriers that went away. Second in in Latin America, it looks like things are down, but improving. And I was wondering if that's the result of easier comps or if you're actually starting to see improvement in Latin America, and and and just somewhat tied to that region, you know, Delta announced a in a partnership with LatAm, and then know you have an investment in gold. Just wondering how you, see the opportunity in in kind of partnering with the various airlines in Latin America given kind of the development with your Eagle Partners Delta. Okay. Concerning the first question, you true. We are very clear on that. The Transavia France has been impacted since the limited in growth due to operational programs coming mainly from training of a cruise, technical cruise. For the next year, when you look to the budget of Transavia France, they expect a growth of 10%. 1st, that means the growth will come back in 2020. 2nd, part of its growth can be also impacted. In fact, there's a distribution of the slots coming from the bankruptcy of the glazure and XNA waves had most notably. So, it has no direct impact on the slot distribution at Oli, and as you add a significant share of slot at Oli with around 13 very flight. Due to the fact that the company board approved, we expect as usual that the slot will be reduced to return by the slot coordinator Accordingly to the European Awards, which is if I do that quickly, 50% for the bring operators 50% for the new advance. So, which means that in all the case, Transavia and Air France by the way, will receive their normal share of the slot left or made freed by the bankruptcy of El Brazil. Behind the slot, there is something which is also extremely important for Transavia. Which are the traffic wise to Algeria. The last year was in fact quite present on the French Algeria market. This is a market which is still regulated with traffic wise negotiated between France and Russia. And of course, as well as small numbers of players for the Air Force will be extremely interested to receive a significant part of the traffic rights, mainly between early and Algeria. So the definition and possibly the development in terms of capacity will be linked to this question. From turning LatAm, in fact, it is what happened recently is, in fact, something quite new, I think this program is the biggest member of an Alliance studently deciding to move from one alliance to another one. As you know, that time was in one wall, quite close to C. Airways and partly owned by Qatar and we have to move. When you see Delta entering and developing strategy, a bit comparable to what they have seen, for example, with Aeromexico, which is developing a strong partnership partly based on equity stake. 1st from our, it is an ongoing process. In the sense that there is a lot of authorization, check, finalization of the financial operation, before to have this operation fully, I would say, operational, which means that in the meantime, of course concerning Air France KLM, we continue to work with goal and we will see in the next year if we need to change something to the strategy, but really for the time being, we have some agreements with gold. And Air France KLM will continue to work accordingly to cease existing agreements, but I cannot deny that the test made by Delta in South America is something which is a bit new compared to the former situation. There is one question you have to ask yourself is in the move to LatAm, what is really the intention of Delta? Is it to be focused on the north south routes? I mean, South America to the U. S? Or is it also west to east or east to west? And my first personal feeling is that the step made by Delta is for them. First something which is focused on the North fiber suits which means that the links between South America and the US Makes sense. And if I might follow-up on the on the Transavia, so if you do get some lease swaps and access to Algeria, Are you able to kinda, grow Transavia France faster than the 10%? Not significantly. I think it would be it's possible that we have a lot of the traffic wise one area, we can increase the growth that it will do not significant. The most significant will be the reorganization of the network. Of course, if there is Good part of the traffic wise to Algeria given to Transavia. Transavia can be forced to reorganize the digital network in order to respect as this new commitment is the French Australian market. But I think that it will not impact significantly the goals we have today in the bridge. Thank you. We'll now take our next question from Jarrod Castle from UBS London. Please go ahead. Your line is open. Thank you. Good morning. 11 on 2019 and 2 on 2020. Just on 2019, the network, obviously, 100 and 60,000,000 this afternoon operating profit. Can you give any kind of scale what percent relates maybe to pressure in cargo the the passenger. Secondly, just looking into 2020, can you give any ideas in terms of what impairments we can expect on the a380 in 2020. And lastly, just the fuel bill, it's obviously up since the half year, although jet carousel in the presentation seems kind of flat to be down. So how should we think about it being up in terms of, capacity indications in 2020 1 2019. Thanks. So concerning the impairment for the 3 80 we expect for the year 2020 around 1,000,000 negative again, but not again, 1,000,000 negative. For the full year, which is mainly coming from the acceleration in the depreciation of the aircraft. And it will be almost a will be less in 2021. And in total, if you take 'nineteen to 'twenty two, It will be at 1,000,000. First question on the cargo That's not so clear for me. I was just wondering within the network reduction in profit, 160,000,000. Can you give an idea how much of that impact is due to weakness in cargo versus weakness in the network airline? As you know, we're not normally giving indication anymore on the cargo result because we have decided to integrate his activity to trying to to the passenger activity. If I take a year to date, I will say that one term, basically, of the passenger, what we call the passenger activity is due to the reduction of the cargo contribution. One third and 2 third is coming from the pure, the pure in its revenue and specific costs due to the pure passenger activity. The third question was just around the 2020 fuel bill. It's gone up from 5.5 at the half year to 5.6, and that does look like jet care scene is, you know, broadly, broadly stable. So is there anything you can say in terms of processing indications? Is that what's driving us or is it currency. The slight increase? Question of the capacity, I see we will be something between 2344. Okay. Thanks very much. Thank you. We'll now take our next question from Damian Brewer from Royal Bank of Canada. Please go ahead. Your line is open. Good morning, everybody. Two questions from me. First, I'm just following up on the theme of Calgo. Maybe something for next week because even, you know, the expectations to cargo market is going to still remain weak and sort of capital allocation within the business Will you look at taking any more capacity to give the dedicated filters out of the cargo business or at least defer maintenance events there and maybe recycle back in Transavia? And then secondly, on the comments in the presentation where it's starting to start the pilot ramp up for 2020, what exactly you implying by that is that mainly for Transamerica's growth or is there something else implied behind that product? Concerning the fighter, first, it is a situation to if you think in the last 2 years, the contribution of the cargo to the passenger or business unit, what was positive. So you have not a legal decision just because There is, in 2019, which is as good as the last 2 years, which means that for the time being, we have no anticipator to reduce the capital. We use for the full federal activity. You know that we have totally changed the model over the last then yes. We want to use that in 2013, there were 10 full freighter aircraft into Air France and around 6 into KLM. 2 in KLM and 4 in Martinaire and Maro, we have a full cargo or full cater fleet, which is extremely limited with 2 aircraft in in, in Air France and 3.5 across, I would say, into KLM. So clearly, in terms of capital allocation. We have totally restricted, overview concerning the allocation of capital to, to the fighter activity. End, right now, more than 80% of the activity is transported in the of the passenger aircraft. And for the next year, this is the share of the babies, which still increase in terms of capital allocation. So it's a big decision taken by KLM, which is to phase out the second forces on cargo. Which is also a real application of the capital to the pure passenger. The companies and which are the specific 745 and half passenger half cargo. And by doing that, it is another step. Into the reallocation of capital to the pure passenger activity by reducing the capital used for the car. So this is clearly going into the right direction and into the direction of your a few, question, I think. Yes. In the presentation and you talked about the pilot ramp up, in 2020. I'm just wondering what you imply by that if growth is going to be 2% to 3% what's driving that pilot. Is it Transavia or is there something else changing there? We'll speak about that. It's both for if it is possible for the guy, France, and Karen, in the sense that when you grow, also due to the fact that we have a HP or mid which is, implying that there is a relatively high rate of natural departure in the pilot populations imposed their phones and KLM. It means that when you are entering new pilots, of course, you have to respect what it's called in the airlines and what you know perfectly well is the seniority list, which means that there is a huge pilot entering. There is a old pilot leaving the company and you have all CASKAD of trainings that we have to be organized in order to respect the senior utility. That's why it is so important to have a simpler flavor. And that's why all the steps taken both air fronts and tailing in order to reduce the number of aircraft types in their fleet. It's so important for the future in terms of unit cost. By carrying moving to a fleet mainly focused on 77787. It means that in the future, there will be a far less impact of the ramp up of pilot hiring in to KLM because for the long haul, there will be a unique cockpit when the 330 will be filled out. Alimera France also, they will see some prediction of the fit, which will be going on with, for example, the end of the ATR the expected end of the 3 40 at the end of the 380 with the fleet in Air France, which will be focused on the 7. It's a 350. So all together, but it's true for any airlines. You can of course reduce the operational cost. If you have a fleet, simple as possible and limited number of cockpits. Thank you. That's very clear. Thanks very much. Thank you. Our next question comes from Daniel Oroska from Bernstein Research. Please go ahead. Your line is open. Mister Daniel, please make sure your line is not on mute. Thanks, excuse me. Good morning, everybody. 3, if I may, on the competitive development, maybe for winter and into early next year, you talked about your network plan you look on the French market. But could you talk a little bit about, if you see any airlines aside from Air France and Transavia also moving into the French market line of Deepak. Some share out of the Eagle Azur. Share, do you see anybody else pivoting towards Orly, what are Evgen and Rhine are doing? What's your expectation kind of over the next couple of for their positioning. And then secondly, maybe still staying on the LATAM question. Could you update us on the progress for the joint venture with Aeropar? And how you think about that going forward in the latest developments with LatAm and Delta. And I guess we'll we'll talk about the strategic plan next week But you commented that the main developments in Q3 were essentially based to market on RAS and fuel. Is there any short term self help mentioned, you can still do in Q4, Q1, Q2. Are there any plans to be a little more aggressive on unit cost and what should we be thinking about in the near term? Thanks. On the first question, And depending which part of the domestic you consider, it's true that if you look at French province to Europe and some destinations, There was a lot of competitions. And you can have RMA, AZJET, Volodya, and some others trying to participate to the strong expansion of the traffic between the French province and Europe or North Africa to make it short. Concerning the competition for the domestic goods, I mean, France to France, It just says that out of only due to the situation of the airport. It's relatively limited. There is a bit more competition, for the But when you hear about neural cost and covering the French market, it's mainly focused on the development of the traffic between, province and Europe or, or, North Africa, which is not what really we call the friends of When you speak about the French domestic to be frank, it is mainly Air France, again, the trend now. Air France against the various modes of transportation. And the worst situation I described concerning capacity on what we call frame domestic is closure of small routes, losing a lot of money or reduction of capacity between Olli and Bordeaux, for example. Of course, you're right. The slots made feed by Ignacio interested a lot of people, but I suppose that for a launch of the competition, out of our league, it would be temporary tools from all into Europe and not only to Marseille, for example. Just an example, between Oil And Marseille, there is only a forms to there. It means that it is such a difficult route, but it is important for our firm because it is a natural market for us, but there is no competition on the Marseille and only. It's not the case when you look at, for example, Concerning LatAm and the JV with ARPA. We continue to work, of course, with ARPA, but as you know, for these type of things, there is many countries in the South America. So, which means that you have to go first to Brazil and after that to a large number of of South American countries in order to get the needed, the antitrust immunity. And that explain why this file is progressing certainly a bit a bit slowly from the Q Q4, I give the room to Steven the CFO of Air France. Yes. So if you look at the unit cost development in Q4, a lot year, we had the one off delays to the labor agreement we had. So of course, the last quarter will be for Firms much better than it was last year. And for Q1 and Q2, we are very hardworking on the transformation plans. So, actually, we will dispute that next week. In our strategic plan, but we expect, especially from our transformation a lot in a context where we have a limited growth NBC also kinds of inflation around the world. So, we are working hard on it and we will tell you much more next week. Okay. And could I maybe try my luck to just press and say, of course, you'll be working on the transformation plan, but is there a material impact your affecting finance in the near term from the activities? Yes, we do. So we expect already some impacts this year, what we call the speed savings. And also next year, we will have the first impact of the transformation. Thank you. We'll take our next question from Jamie Robertson from Deutsche Bank. Please go ahead. Morning, everyone. Yeah, just one from me. So, Frederick, you have almost €1,000,000,000 of operating profit year to date. Last year, you did 40,000,000 in q 4. What it sounds, it looks like yield and fuel cost headwinds alone could maybe reduce that by up to a €100,000,000 year on year. So on CASK ex fuel, if you're listening to it, you could generate a €100,000,000 tailwind to offset. I think that would be around a 2% reduction in non fuel unit costs at constant currency. And if so, can you just make it clear what's driving that, please, and why it's So later to the fourth quarter after the non fuel unit costs went up 40 basis points in Q3. Thanks. So let's wait for the Q4. It's true that last year we have some base effect and one off in the Q4. It means that we really expect a contribution of the unit trust in the 4th quarter which will be significant and leading us to the as I said already, on the right side of the, of the rent we get to the market. Could you remind us what those base effects were? Sorry. Note in the matter now, for example, which has impacted the unit development in the last quarter or last year in the labor deal. Sorry? In the labor deal. And what? Labor deal, we make Yeah. So also the the as you know, some labor deal has been initiated and had a significant impact for example in November in Air France. Where following the arrival of the ban, the labor deal has been settled and paid for 2018. In November. Understood. Yeah. Thanks very much. Thank you. Our next question comes from Andrew Lobbenberg from HSBC. Please go ahead. Your line is open. Hi there. First question over at KLM, can you test updates us on what the situation is with the, labor tensions. Are they are they all over? We will take the the caters who I think are are still surprising the the poultry. I'll passenger to find that food. But, yeah, what's happening with it would be other crew groups at KLM? And then can you just elaborate a little bit on on this 10,000,000 payment to Delta in the cost of an Air France relating to this flight that Can you explain how this works? And then slightly related to that, does that play across to the North Atlantic unit revenues in any way because if you just compare your North Atlantic unit revenues this quarter with your Convergys who who've reported over here in London, you know, they they look to be trading rather better on the North Atlantic than you. I appreciate you've got a different capacity trend than you, but it looks quite different. Andrew, for the labor agreements in Caitlin, you know, we have 3 groups. We have agreements with all ground unions It's looking very positive for the cockpit, unions, the negative problem is with the cabin unions. So we have not signed an agreement yet. We don't think there's a lot of willingness to strike, but we may expect some actions in the coming weeks but we also are positive to find an agreement in the coming weeks. For catering, it's a bit different. For catering, it's more a national team where Skippel is very much used to get some exposure. Also that is not yet agreed and I've known you from that one. And it's it's it is the small for, for, for Caden. Indeed, it's not our long haul fee. It's not to apply it. It's it's mainly the as we experienced the European regional fleet where we had to decide on some days to fly with minimum catering. Any impact coming from the JVs given? Yes, it is delayed to the EU compensation, which tells updates on behalf of us. So there's nothing to do with something else. It's just, to pay off what they paid for us on the EU 2 46 combination. So is it fair to say that that is is is a pressure on the, line of the group? To unit cost? Yes. Yes, it affected the unit cost. It's one off in the unit cost this quarter. Okay. Cool. And then can you explain, can you ever send color as to why the the the North Atlantic is is down 2%. And and, your old IIT has produced positive brass on the North Atlantic? So firstly, we don't I I do not I am not in mind. What is the capacity development of PA during the quarter? Just 1.7, I think by heart. If you look to what has been developed by AEG and Sonos at Monty. So if you compare the minus 1.7 to the plus 4, There is clearly a gap in terms of, development of capacity, which can contribute to expense a gap in terms of, unique revenue 2nd, also, you can have a difference in terms of 2018 days The Q3 2018 North Atlantic was extremely strong into Air France When I remember that AEG was flat during the same quarter, just by half, but you would check this is the number I suppose. So, we have also different in terms of base effects. Yeah. So, base effect, please, development different in terms of can explain from a large part of the explanation compared to the 0% of VA. And what I show you in terms of, unit revenue minus 0.8. So it is exactly different. Then after that, I know that 2 are corrected for, for currency, but we are also that the nominal see for BA, which is a pound and euro, probably with a dollar, a bit of a different impact during the period. So I can just say that for the time being. Savings said that and as somebody living in London, you know that perfectly it's true that the level of competition of the North Atlantic routes out of London and out So, Continental Europe is a bit different. You know the story that I was of Paris, you have 10 or 9 now, 9 airlines flying between Paris and New York clearly. The intensity of the competition is a bit stronger out of Continental Europe compared to what it is in London, Con Chester is for airport. Okay. Thanks, Frederick. Thank you. We'll now take our next question from Johannes Brown from MainFirst. Please go ahead. Good morning. Three questions from me. Actually, could you share any early findings of the McKinsey study that was conducted in in September in particular. Potential cost savings is for 2020. Technically, on the 2.5% capacity increase you are planning for the winter season, especially the 4% increase for long haul. Isn't that a bit optimistic in light of 3 built a safety demand environment. Just wondering if this is a reflection of recent insolventes in Paris as well or any market share flight or whether you expect demand to recover to the extent in 2020? And then lastly, Portertavi, has applied for increasing airport fees, for the next regulatory period. I guess this is not in line with what you want. So just wondering what your line of augmentation is here? Thank you. Okay. I think this is a good one and Steven would take what what I'm sorry. It's 2.5. It's included internally. And again, for the, yeah, the, as you know, and based on their activity, good 4 months is increasing more than the the rest of the group. If you exclude Transavia, we are rather close to 1 to 2% for the for the landline. So it is more reasonable and not the 2.5. You just describe confirming Mackenzie, Steven? Yes. So the, the, the full transformation, which we will present next week, is based on the McKinsey study. So we started with an Mackenzie study, and we did our own deep dive on where we think we can reduce further costs. And in CASE revenues, and which we will present next week. Regarding CAGR port, the Paris, yes, of course, we are not happy with the development on the tariffs for next year. It was already in the framework. We are currently discussing the framework for the years after 2020. And, our opinion is that we should go for a further reduction in tariffs instead of increasing returns. So we are at this vision, we did also on the future of L Part B in terms of construction So, we are also having, let's say, all our wishes in terms of improving the performance of airport. So you are lobbying for decreasing fees. Is that right? Often fees and fees. That's right. Thank you. We will now take our next question from Malte Schulz from Commerzbank. Please go ahead. Your line is open. Hi, good morning also. Thanks for taking my question. First of all, if you can maybe put a little bit more color on your date hangout, look, or what what do you think would you get them in for the rest of the year, you know, and we're looking a little bit into 2020? Do you have any signs of that it's kind of recovered particularly in the China demand? And Andre would you then, if there's no recovery, would you also adjust capacity a little bit more in this region? And then Additionally, I mean, you're also targeting that you, look already into cutting further on Air France domestic capacity. Is there also anything, I mean, with the new agreement, you get also more flexibility on your mid haul, long haul side. Is there also something that you plan to restructure, have 2 medium whole network out of, Air France to Africa? I mean, maybe exchanging a wide body scenario body. So it's kind of on cost there. For the 4th quarter, there will be a bit less capacity to Asia. We expect to do the best effect probably LatAm a bit better than what we had since the beginning of the year. And the first indication we are for the month of October is not too bad, I would say. If you want the flavor to get what we have in terms of to the new. This is what I can, what what I can tell you. Then I missed the second question. So we are changing the network and the or or the strategy module okay. I propose that for this type of thing, we wait for the investor the next week. It is typically the type of questions that we can answer together with Ben and Peter. We'll now take our next question from Michael Kuhn from Societe Generale. Please go ahead. Your line is open. Good morning. There was one, I would say, worrying trends in the unit revenue. In the third quarter. And that was that a premium, I think for the first time in many quarters underperformed economy as a wonderful percentage point. Could you provide us, some more details on what drove that development? Was that French corporates or was, that also driven by, point of sales, outside France, And, sticking with that topic, is that a trend that you continue to see into the fourth quarter. So a sustained weakness in premium demand or would you see the product as a a temporary dip in the first quarter and recovering soon? Thank you. This is a difficult question. It's clear that the corporate bookings segment is soft today with your open corporate guidance. We are seeing some cuts in the travel budget and you will see that when you speak to bankers and you know that of course, if you follow all the sectors that for the time being, let's just say mini sector situation is not not dramatic, but the result of uncertainty. And as a result, it's true that we are seeing is a new behavior of some it's mainly European, I would say, but also franchise, that we have seen a softer trend in terms of demand for travel of a corporate clients. It's also true for French with a negative demand trend, which is visible since the beginning of the summer. So now I cannot tell you if it is, for how long, you know, the source of uncertainty right now. You know, also today's specific situation of, I would say, a relatively significant numbers of country, He should do business with, with libanon, with Argentina, with Brazil, with Hong Kong, with Algeria, with probably sorry? I don't know that you are inclined to do this trip right now, and you will wait a bit before to, to open your discussion with your business partners in these countries. Think that we still there. I forgot Okay. So I will not make the long list of the country, which I'm right now a bit in a, let's just say, you know, a pretty unstable situation. We hope that they will all find a way to recover and to stabilize politically and economically articulation, but let us say that for for people like us, which are supposed to help people traveling between, between all these countries. We can just admit that situation is not optimal and it can be one of the explanation behind the softer demand for premium. We have 7 out of the European market and out of the French market. When you look to the comment of Delta, If you come back to the North Atlantic flight, I already indicated that the non US point of sale has been impacted by uncertain economic outlook. So I think that it is not only, all feeling that it is a feeling, which is, which is shared by some of of colleagues. Maybe just one quick follow-up. As you mentioned, the corporates, Is there a particular weakness in some sectors or financial companies or automotive companies, or is this rather a draw the weakness, across the board? I, I, I, I have not heard the details of what are the most impact on the the most impact to the sector. Actually, surely, well, probably, the pace, in the create new opportunities of travel for some managers of our chief sector globally, globally. Again, I take the comments of Andrew some minutes ago concerning the huge difference British Airways and that's on sale and in terms of each revenue to the North Atlantic that when you look to the numbers published by British Airways this morning, Asia Pacific is, in terms of task, directed for QNC's mandatory pump 7. Latin America 9%. Europe -1 and AMAZA which should be I don't know why Asia, I don't know, I mean, the African is, okay, well, I don't know what the answer is that they will perform. So will say that all in all, Asia, we have 2.8 British hours, it's minus 37. Domestic, sorry, Europe, there are minus 1. We are at 0. North America, it's true there is is different in Latin America. We have 7. That's minus 9. So I I will say that nobody's speaking. If I just take not trying to open discussion with our colleagues from British Airways, but let us say that we are, I will say, a bit facing the same environment. But of course, we know the specificity of the London U. S. Routes are where our Malaysia West is, beneficiating of the concession of the airport and and its big market share on this specific goods. But the idea is that everywhere we are facing is softer demand coming from the business travelers. I think it's probably a reality, which is shared by a lot of of airlines to the industry. This has been also for the result of the terms and mix rates to compare seems something which is Alaska, not good news, but shared by a lot into the industry. So, we take the last Thank you. For your attendance. I suppose that we will meet a lot of you next Tuesday. For the investor update into the beautiful city of Harris. Not sure that the weather will be sunny, but I am sure that the meeting would be interesting. So have a nice weekend. Thank you. Thank you. Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation. You may now disconnect