Good day and welcome to the Air France-KLM Q1 2019 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Frédéric Gagey, Chief Financial Officer. Please go ahead, sir.
Thank you. Good morning to everybody, and thank you for attending this conference call on the 2019 first quarter of the Air France-KLM Group. I suppose you have the presentation in front of you. I propose to go to the first slide, which is just giving the global environment and what are the main lessons from this first quarter. I think that, as everybody knows, and following also some indication shared with the market by some of our colleagues, you know that we were a bit under pressure concerning the unit revenue, which is not a surprise for us, as already in the last year presentation for the full year result, we had indicated to you that we were expecting a negative unit revenue for this first quarter, due mainly to the relatively large development of capacity by the industry. In fact, it is what happened.
If you look to the slide, you see that the passenger unit revenue, which is the unit revenue for both the networks, Air France-KLM, plus Transavia, we are at -1.9%. This is negative. We consider it is probably a bit better compared to some of our competitors, in the sense that if it is negative, we also think that we have seen in the market indication of worse evolution of unit revenue for some of members of the competition. In spite of that, you see that the activity has been growing. In terms of number of passengers, we are at +3%. If you add also the fact that the fuel bill increased by roughly EUR 140 million over the quarter, you have the main explanation of the drop in operating result. Last year was minus EUR 100. This year it is minus EUR 300.
A reduction of EUR 185, if you go like for like. In spite of this reduction of the operating result, which is contained, I will say, we have been able to continue the de-leveraging of the company. The net debt is down EUR 400 million. This is a net debt according to the new IFRS 16 standards, and the free cash, according to the old standards, is also positive. I will come back to that at the end of the presentation. Two other elements. One, I suppose that you know that we have successfully launched a convertible bond for EUR 500 million, with an interest coupon of 0.1%. We have also discussed with Ben Smith, who will be very happy to welcome you in a Capital Markets Day we plan in November 2019. I go slide number four, when you have the main result for this quarter.
Revenue is up, +3% and +2% if you correct for the currency effect. The fuel expenses, as I told before, EUR 140 million more compared to last year, which is explained mainly by the fact that we had last year a very positive result of the hedging. This year, we have still a positive result for the hedging, but which is far less than in 2018, this is the main explanation for the increase of the fuel bill. Operating result, minus EUR 300 million. Operating margin, -5%. Negative, of course, but we are in winter. The net income group part is minus EUR 300 million. Adjusted free cash flow, positive EUR 241. As a consequence, the net debt on EBITDA ratio stands below 1.5, at 1.4 for the first quarter. Slide five shows you the development per business unit.
Network, which is both the passenger network activity and the cargo. It is the main explanation behind the reduction in terms of operating result. It explains minus EUR 193 of the change. This is explained by the fact that we have, as I told before, this negative unit revenue, -1.6% for the passenger network activity. You also see that in terms of cargo, we are back in a period with negative unit revenue. As you know, the year 2017, 2018, were relatively dynamic in terms of cargo. We shared recently with our colleagues of the business unit cargo that they are now facing more difficulty due to a weakening market in terms of international exchange. Transavia, also unit revenue negative, -3.5%, not really a concern.
As you know, Transavia is still planning to grow a lot during the summer. In order to go, you have to prepare that a bit in advance. It explains why the capacity is +11% also during this first quarter, which is the weakest period, of course, in terms of demand. Also, the Easter shift in 2019 is also explaining the unit revenue in Transavia. As you can imagine, the Easter period is very important for a low-cost company, both in terms of departure out of Orly or out of Schiphol. In total, we have a small reduction of the margin to Transavia, but again, it is not a concern. Good news is coming from the maintenance. Last year, we were a bit concerned about the reduction of the margin in the maintenance business unit. You see the contrary during this quarter, the margin increased by 1.5.
Last year, we suffered from some one-off. One of them, very important, was the loss of the contract with Alitalia, which had a significant impact during this first quarter. Now, for the first quarter 2019, we have a clean sheet in terms of accounting, and we have still a good margin of 4%, which will be even a bit higher over the 12 months, 2019. All in all, this reduction of EUR 185 for the operating result, and this negative margin of -5%. Again, we are in winter. Again, also, we were expecting this evolution due to the increase fuel bill, we'll explain during our presentation of the full year 2019, and also because we were expecting this negative unit revenue during the first quarter. Next slide, number six.
Per geographical area, you see that the medium haul point-to-point and the medium haul connecting hubs are resisting and not too bad. If I refer to some evolution of unit revenue in some of our competitors, it is minus 2.7 in the medium haul point-to-point, minus 2.1 for the medium haul connecting to hubs. In total, medium haul has a unit revenue minus 2.4, with capacity developing at 1.4%. Concerning the long haul, it is slightly negative, minus 0.9, with some weakest parts in the global network, of course. One clearly is Latin America, where we increase capacity a lot, mainly to the Andean countries, but due to the crisis in Brazil, Argentina, and Venezuela, you see the unit revenue at minus 7%, which is really a very weak result. North America, minus 2.5. For the rest, we are all stable or increasing.
Increasing in Caribbean and Indian Ocean at plus 4.3. Asia also still continuing to develop correctly at plus 1.7, Africa is stable after a period where it was, to be honest, a bit weaker due to the low fuel price and the impact on the oil countries. In total, long haul resisting relatively well with only a reduction of unit revenue of minus 0.9. Of course, all these developments are impacted by the gilets jaunes events in France. We have considered, after some, as precise as we can, calculations, that the impact is around EUR 10 million during the first quarter 2019. Two other elements. First, premium is resisting better than economy. The RASK ex-currency for premium is at minus 0.6, when for economy it is minus 2.2. Second element, the ancillary revenues continue to grow very dynamically.
You are, for the quarter, at EUR 161 million, the growth is above 17%. Next slide, page seven. If you go to the unit cost, we have a unit cost which is continuing to give us comfort about our full year guidance. We still maintain the guidance that the unit cost will be between minus one and 0%, it is what we have today in the reforecast we made in March for the quarter. It is at minus 0.4. There is a labor productivity improvement we estimate at plus 1.7%. However, the staff costs are increasing under the other consequences for the two wage agreements signed in 2018 in Air France and in KLM. I will say that the impact of these agreements are a bit increased due to some timing effect.
Remember, for example, that in Air France, the measure concerning the 2018 agreement has been distributed to employees by the end of the year. Which means that for the like-for-like comparison, there is a bias because the 2% of the wage increase into Air France has been paid by the end of the year. Now when you consider Q1 2019 to Q1 2018, there is a pure timing effect, increasing the evolution of the staff cost, which means that over the full year 2018, we expect staff cost happily below plus 6.5% in terms of increase. If I go next slide, we have, I think, a very clear explanation of the waterfall between 2018 Q1 and 2019 Q1. When you look how to explain evolution of the operating result, there is a big impact of the unit revenue, minus EUR 115 million.
An impact of the fuel price, ex currency, it is EUR -44. There is a net currency impact, which is a combination of the currency impact on both the revenue and the cost. Of course, it is negative due to the impact of the dollar on the fuel cost, and mainly on the leases, and also the other currency impact on the revenue side. These three elements are partly, but very partly, I would say, compensated by the contribution of the reduction in unit cost of -0.4%, which has an impact of EUR 23 million over the quarter like for like. We have clearly a very simple explanation why we move from EUR -100 last year to EUR -300 in 2019.
If you look to the operational performance, as you know, for Ben Smith and Anne Rigail , mainly in Air France, a lot of focus has been given to the improvement of the operational performance. We see, during this first quarter, a relatively significant evolution concerning the time performance, on-time performance, and concerning the Net Promoter Score given by our clients. Concerning the on-time performance, Air France was very, very low in the ranking of FlightStats in the middle of 2018, 31st of July, 22nd in August.
You see that since the beginning of January 2019, you see an improvement for February and March 2019, the company Air France only, because KLM has far better on-time performance, which is the company is ranked sixth and seventh, which is really the first signal of the effort driven by Anne Rigail on the evolution of the operational performance of the company. Concerning the Net Promoter Score, also, we see an improvement. During the last year, we had a very large gap between the KLM performance and the Air France one. You see that on the beginning of 2019, the NPS has increased from 12, which was the level of 2018, to 24, which is, I will say, a relatively sharp increase. You see that when you look at the first two weeks of April, it is at 26.
Clearly, a good evolution in order to restore two big issues into Air France, which have been observed in 2017 and 2018. I move to the next slide 10. When you see, as usual, the comparison in terms of economic performance between Air France and KLM. This time, I will say KLM margin is going down -4.5 percentage points, which is more than the performance of Air France, which is going down only by 1.9 percentage points. Of course, the main explanation in that you have to take into account the fact that in 2018, of course, the first quarter has been impacted by the strike at Air France, we have estimated the impact at EUR -75 million.
When you correct for that, you see that, I will say, the evolution of performance or the reduction of margin in the two companies is of the same order of magnitude. Important also to see that the two companies continue to reduce their net debt for minus EUR 76 million for Air France, minus EUR 255 million for KLM, and that the net debt on EBITDA we show are not so different, especially if you correct for Air France, the strike effect of the last year. Next slide, page 11, evolution of the leverage. You know the way we have introduced for presenting this element since adoption of IFRS 16. You have the cash before working capital. Same level of working capital compared to last year, EUR 806 million versus EUR 807 million, not a big deal.
Concerning the investment in 2019 Q1, a bit lower or significantly lower by EUR 200 million, if you compare that to the first quarter 2018. It explained partly the operating free cash flow, which corrected for payment of the lease debt, give you a positive adjusted operating free cash flow, which is, I remind you, the free cash flow as it was before the adoption of IFRS 16. If you move to the net debt. You have on the right of the slide, the variation of this net debt from EUR 6.1 billion to EUR 5.7 billion. This is a reduction of the net debt pushed by the free cash and the unbalance between the repayment of this debt and the new lease, which are added to the global debt of the group. Again, the net debt on EBITDA ratio is end of March 2019 at 1.4.
I go now page 13 to first try to describe a bit what is the situation. Clearly, winter has been characterized by a very high level of development of capacity also compared to last year and mainly on the medium haul. What is happening for the summer 2019? First, on the left of the slide, you can see that the group has a relatively cautious development in terms of capacity. It will be 4% for Air France and 3.2% for KLM, but the 4% in Air France is not corrected for the strike. Which means that we continue to maintain our guidance that over the year, the growth of the group in terms of ASK will be between 2% and 3%. Second, you see that the development of the capacity operated by the industry is a bit of even significantly slower than last year.
Last year, in terms of number of seats, long-haul as an industry from and to Europe developed a growth of 7.6%. In 2019, we have a growth of 5.2%, which is, I would say, significantly less than in summer 2018. Where are the most growing destinations? It's clearly Latin America, with number of seats increasing by 12%, and Asia, where you have a number of seats increasing by 7%. Also, these growths are less than last year, mainly in Asia. Last year it was 9%. This year it is 7%. The same on North America. Last year, the growth in terms of number of seats was 7%. Now it is 3.6%. Middle East, it was 11% last year. It is 5% in 2019. Second element, the comportment of the players are a bit changing.
I would say that the legacy carrier are slowing down the rate of growth compared to last year. Gulf carrier also are increasing far less than what they did years ago, and also the long-haul low cost are clearly also growing less actively than in 2018. All in all, we have a picture which seems to be a bit more favorable compared to last year. I go page 14. How does it translate in terms of long-haul forward booking load factor for Air France-KLM? As usual, we show you this long-haul forward booking load factor for the next five months. What do you see? You see that for May and June, we are above last year in spite of the increase of capacity. It carries a load factor and not the number of bookings.
For the time being, from July, August, September, we are more or less stable compared to the last summer 2018, which, if you remember well, was a relatively good summer. Stable for the summer up to now, and a booking load factor a bit higher for the month of May and the month of June. On top of that, you have to also keep in mind that last year, concerning the point-to-point, the unit revenue developed relatively quickly, +2.9%, as the point-to-point network was helped or supported by the strike in the French railways company.
Taking into account all these elements, what we think is that for the second quarter, the unit revenue corrected for the currency is expected slightly improved compared to last year, with clearly something positive on the long haul and which will be largely offset by the negative point-to-point unit revenue. This is the way today we are looking at the unit revenue for this second quarter 2019. I move page 15, should be no surprise. We give you the fuel bill estimate for the year based on the forward curve at the 26th April 2019, which is last week. As you know, the fuel is, or the Brent is rather going down, which means that there is no risk for the time being due to the very last days fuel cost development.
We are confident with this today's data that the fuel bill will increase by EUR 650 million compared to 2018, with the fuel hedging over the year, which is expected at $200 million to be compared to the $800 million of the hedge result in 2018. All in all, for the time being, apart of this slight evolution of our estimate for the fuel bill, we continue to keep the same guidance we shared with you at the beginning of the year. Capacity for the passenger business, +2 to +3. At Transavia, +9 to +11. The fuel bill, like I just told, +EUR 650 million. Currency seems to be neutral for the time being, but there is some, to be honest, variability when you look, for example, to the dollar, but this is the estimate we have today.
Unit cost, as I told before, still expected between -1% to 0%, so in that range. CapEx, unchanged, and Net Debt on EBITDA, unchanged also. Thank you. I give the floor for your question, and I am happy to answer with close to me, Erik Swelheim, who is the CFO of KLM. Marie-Agnès, that you know, of course, and Wouter, that you know, of course. I am also with our Chief Accounting, Xavier Lazon, and our Chief Controller for the group, Steven Zaat. I give the floor to your questions.
If you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take our first question from Savi Syth from Raymond James. Please go ahead. Your line is open.
Hi. Good morning. Thank you. Could you please elaborate, just a couple of questions from me. First one is, if you could elaborate what you're generally expecting from the various regions that's driving that passenger unit revenue up slightly in 2Q. Just somewhat similar to some of demand perspective, what you're seeing. I know you kind of highlighted a lot on the capacity side. Then just on the second one, with the premium down year-over-year in 1Q, just wondering what's driving that. If that's across the regions, or if there's any specific area that's driving that and what you might expect as you go through 2019. Thank you. Hello?
If I look, on your first question, which is how to split the Q2 assumption in terms of unit revenue per region. I would say, normally we don't share such precise data, but I would say that for the second quarter, for the time being, in the long haul, everything is positive except South America.
Okay.
We have positive unit revenue for Indian Ocean, Caribbean, Middle East, Africa, Asia, and North America, but there is still a significant drop for South America. The second question is the premium per region, sorry, we are not going at this level of granularity. We just give elements on the unit revenue for the global traffic per region.
Okay. I wonder if maybe I can ask it a different way. From a business and corporate demand standpoint, are you seeing a kind of a trend change? Is there any softening in the business demand side of things?
For the time being, as you know, you don't know, we have every month, what we call the revenue meeting. The element I have in mind following the last meeting, it shows that normally there is no big change concerning the demand, big change in behavior concerning the demand for the premium segment. The demand level seems to remain relatively solid. As you see, when we split the unit revenue between premium and between economy, you saw that, this is in the slide, that the reduction of the unit revenue in premium is far less than in economy. It was a good resilience for the business on the premium traffic.
Yeah. Helpful. Thank you.
We will now take our next question from Jarrod Castle from UBS. Please go ahead, your line is open.
Thank you. Good morning. Three, if I may. One, just from the full year results, the load factors have weakened a little bit for May and June. I think you were a plus two rather than the plus one. Is there any comment around that? Secondly, just page 15, just the quarterly progression of the fuel bill. The quarters don't seem to add up to the total, or is it in a different kind of metric for constant currency, et cetera? They just don't seem to add up. Lastly, any kind of commentary at the moment in terms of corporate governance from a perspective of the new shareholder or since the Dutch government? Thanks.
Okay. Steven Zaat will take the second one, I will answer the new shareholder. Okay. As you know, it has been a decision for the Dutch government, this is a decision we have not really to comment. We will announce during the AGM if it is changing the composition of the board. At that stage, we have nothing we need to add. For the day-to-day business of the company, it doesn't change a lot the way we are working. I think that Ben Smith, Anne Rigail and Pieter Elbers are totally concentrated and focused to the management of the company, that's it. We are business people first and above everything, it is what we are doing every day.
Concerning the fuel bill, I suppose you refer to 2019 and the quarters.
That's right.
Surrounding.
Okay. Just the first question, but the one on the load factors going from +2 in May and June to +1 now.
On that question, it's true that if you take the presentation of February, page 18, you had for April, May, June, +2, +2, +2, when you have now +1, +1. I think that the more you are close to the month, the more there is robust data. Because of course, when you are three or four months in advance, booking load factor is relatively limited, yeah? What is important when you speak to the team of the revenue management is to be sure that you are at least at the level of the year before.
From that point of view, the +1, +1 for May and June give us this level of relative comfort concerning the fact that the unit revenue for the long haul will be positive, as I told before, with, however, this base effect of last year on the point to point, which explain why we have this approach consisting to tell that the unit revenue in Q2 compared to last year will be slightly improved but positive for the long haul.
Okay. Thank you very much.
We will now take our next question from Daniel Roeska from Bernstein. Please go ahead. Your line is open.
Thanks very much. Good morning, gentlemen. Three answers from me. Number one, on the SNPL. Frédéric, could you please remind us, kind of your roadmap for the remainder of the year, what are the topics you want to discuss with the union, kind of as we look towards 2020? Because I assume it takes a considerable amount of time to get the discussions going, but what will be the main points you'd like to achieve? Maybe in that context, Number two, priorities for HOP! and Transavia in this year, how do we think about those smaller ones? You mentioned the capacity growth, but maybe any color on the kind of top items on the HOP! management and Transavia management agenda. Lastly, I'll keep asking, fleet order on short haul, anything to expect?
Has MAX kind of issue right now delayed that process, and can we expect any news on a fleet order before the Capital Markets Day, or is that kind of the big reveal for November?
Okay, thank you. Very quickly to these three question. For Air France SNPL, you probably heard about a strike announcement, it was a national union for the French pilot, which is absolutely not the Air France organization.
Yeah.
We would like to say, on that topic, it is mainly topics which are to be discussed with the French government. We are not really involved, we support, of course, any solution in order to avoid such a strike for the time being, which had been postponed and even called as a technical pre-avis by the national union of the pilot in France. Concerning more precisely the union pilot in Air France, as you know, there is, as always, in any airlines, continuing and continuous discussion in order to keep the morale as high as possible. One of the topic which is discussed for the time being is, of course, the Transavia fleet and the possibility to go one day above 40 aircraft, which is today a limitation for Transavia.
Concerning HOP!, there is a lot of work, of course, which is managed now by the management of the domestic point-to-point network. First of all, we have already indicated that the development of capacity will be negative for the domestic network. For the year 2000, you saw that already in the slide, page six. You see that in the medium haul point to point for the first quarter, we had minus 3% in term of capacity. It will be even less for the full year. We are more targeting minus, let me check, yes, minus 6% for the full year 2019. Clearly, there is a continuous effort consisting to restructure the point-to-point network, mainly by operating lower capacity for this domestic network.
Second, we are also working in Air France to the possibility to launch a voluntary departure plan concerning the domestic network and mainly some ground stations in France. This is a normal effect of the reduction of capacity. As you know, we are still hit by the development of the high-speed railways. Last year it was to Bordeaux, which had, of course, a very strong impact, in terms of demand for the air travel. We have just to follow this situation in order to adjust the Air France network to the new economic environment, characterized mainly by the development of the train in domestic France. Third question on the MAX and the short-haul fleet. Just three elements. One, we have not ordered for the time being any 737 MAX. It is just a matter of fact.
Of course, we are now looking extremely carefully to the development and the announcement made by Boeing and all the bodies which are involved in the management of these events, and we will see later what to do. For the time being, there is no firm orders made by Air France or by KLM or by Transavia concerning these aircraft. Second, concerning the existing medium-haul fleet, two elements. One, in KLM, the short-haul fleet is relatively young, which means that there is no urgency to move or to launch big order. It is just a normal replacement year-on-year basis, but there is nothing urgent due to the relatively low age of the medium-haul fleet of KLM. Concerning Air France, the short-haul fleet is older. There is no urgent, but clearly there will be a need for replacing some aircraft after the year 2020.
We are right now considering all the possibility, all the choices which are offered to us in order to prepare this change. No big decision to be taken, I will say, in the next quarter.
Very clear. Thanks.
We will now take our next question from Neil Glynn from Credit Suisse. Please go ahead. Your line is open.
Good morning. If I could start, first of all, with, you've touched on premium traffic and premium demand in earlier questions, but on the leisure side, as we progress into the summer, clearly the gilets jaunes stuff continues, but also clearly across Europe, macro concerns are certainly relevant. Are you seeing any change in consumer behavior and appetite to book, whether short-haul or long-haul, leisure trips for the summer months? Second question, it might sound small, but I noticed that the temp headcount has fallen year-over-year for the second quarter in a row, if that's correct. Just interested, does that actually suggest any change in approach in terms of managing headcount as you progress?
If you could give us some insight in terms of how headcount should actually grow through the rest of this year, that would be helpful following a 1% growth at the total group level for the first quarter. The third question, obviously LATAM challenges continue. Can you give us an update on your expectations as to the timing of the launch of the Air Europa joint venture and give us some insight in terms of how you think that structurally changes your returns or at least your operations within the LATAM market, which is always volatile? Thank you.
Concerning the gilets jaunes, I have to say it is a bit difficult first to make estimate on the impact on the current development. We have asked the revenue management team to look at it. For the time being, we consider that for the period November to December, it was something between EUR 15 million and EUR 20 million. For the first quarter 2019, we have an estimate which is between EUR 11 million and EUR 13 million. Clearly difficult to estimate, but there is some impact. I will say that with such estimation of the impact, it is difficult to say that it is changing the behavior of the tourism of the non-premium traffic. It's clear that it cannot be positive for the time being. We consider that it is, of course, negative, but the order of magnitude is relatively limited based on the numbers I just gave you.
Concerning the headcount, I give the floor to Steven.
Yeah. If you look at the headcount figures, first of all, there were a lot of training needed for our pilots related to the growth. Actually, we don't have any strategy change. The main increase of FTEs is coming from our E&M business, where we try to insource more and also to support our external turnover growth. That's actually the main reasons for our FTE growth. There you see a little bit the mismatch because the FTEs of E&M are not linked to the capacity growth, because the capacity growth is just our passenger business and Transavia activity.
Concerning your last question, which is Air Europa. We continue to work, of course, with Air Europa in order to fulfill our obligation vis-a-vis the competition authorities in South America. We work in the various country which are concerned in order to get the necessary antitrust immunity. We still hope to launch the JV between Air France-KLM and the Spanish partner before the end of the year. Clearly, we have not yet given full estimate of the impact of this project, but it's clearly seen by us, a very important step concerning the organization of our position on the LATAM market. I will also take the numbers we give right now concerning both the capacity and the unit revenue a bit cautiously. The capacity, again, it is not that we fly to Brazil or to Argentina.
It is more that we are developing new capacity to some Andean countries. Concerning the unit revenue, I think that it's mainly the impact of the crisis in both Brazil and Argentina. This JV is a step in terms of increasing our market share together with Virgin to the South Atlantic. We will expect that probably we will reach something around 20% of capacity in the future when we will have this joint venture with Air Europa.
We will now take our next question from Andrew Lobbenberg from HSBC. Please go ahead. Your line is open.
Hello. Hi, Frédéric. Hi, everyone. Can I ask, just come back on the comment about cautious point-to-point revenues in the second quarter. Is that all focused purely on the domestic market or is it point-to-point international, and how should we read that for Transavia as well in that regard? Can I ask about the partnership with Jet? Up until very recently, you guys were very positive about the scale of connections that you were getting and the collaboration you were getting with Jet, and it was driving quite a lot of traffic on the India-U.S. market, I think through both CDG and Schiphol. To what extent is that a loss, and how can you mitigate that?
A third question might come to your approach towards Aéroports de Paris and their proposals for the next regulatory review with a remarkably low cost of capital and drop, and yet a doubling of their CapEx plans. How are you engaging with that consultation process?
Concerning the approach, when I speak point-to-point, I speak about point-to-point, which means that this is really a short-haul domestic. Which means that if I look at what we have in mind today in terms of unit revenue between point-to-point domestic and the hub, it is totally different. When I speak about something negative, it is really limited to the point-to-point domestic, partly explained by the base effect due to the railway strike in 2018 Q1. Second question, Jet Airways. First, of course, it is not good news. We regret that for our colleagues of Jet Airways, with whom we used to work already for, I would say, a long period. It is, of course, a disappointment because we work with them in order to establish this JV, which was a very important project.
Now, at least for the time being, as you know, the company is just grounded for the time being. It is not bankrupt. We have to manage the situation. Economically, what we can say is that there is one of negative effect, we estimate around EUR 10 million-EUR 15 million due to the fact that there is some ticket booked on one or the other. It is a normal effect of any situation where one of your partner is stopping flying, and that you have to take the economic consequence for that. It is something not very large, but this is significant, I will say. Concerning the normal impact on a year-on-year basis, we have considered that the impact of the loss of the partnership with Jet Airways could be around EUR 20 million per annum.
Of course, progressively, we'll try the way to compensate that and to find another way to continue to increase our presence to the Indian market, and also to offer to Indian passengers a good connection to the U.S. First, it is not a good news, and we work with that, of course. Second, for the time being, the company is grounded, not bankrupt. Third, a short-term impact, something around EUR 10 million-EUR 15 million per year, before we find the remedy in order to compensate, something which can be an estimate, EUR 20 million per year. Your last question is, you can repeat it because Marie-Agnès will answer it, is the low cost of capital and, sorry, Andrew?
The proposed doubling of CapEx.
We will now take our next question from Jaime Rowbotham from Deutsche Bank. Please go ahead. Your line is open.
Morning, Frédéric. You may want to come back on Andrew's last question, I'll just give you mine as well. 4 hopefully quick ones. 2 on the guidance, 2 on the non-fuel unit costs. On the guidance, just firstly on fuel, is it really the case that spot going up, say, 4% or 5% since 20th of February, the impact of that on the 40% of your requirement that's unhedged has no impact on the full-year guidance? Secondly, on cash generation, despite the EUR 200 million CapEx reduction in Q1, you maintain your guidance for it to rise by EUR 600 million year-over-year in the full year, and you also maintain your view that net debt to EBITDA can come down from 1.5.
I think with EBITDA likely to be flat at best, I would have thought, what do you see offsetting the step-up in CapEx to leave the net debt lower in the full year? Just turning to costs, on the non-fuel unit costs, the non-recurrence of strikes must have been a material tailwind in Q1, yet the non-fuel unit cost only reduced by 40 basis points, you've given some helpful reasons as to why that was. When the strikes tailwind goes away in the second half, is there not a risk of the non-fuel unit costs going up quite a lot year-on-year? Lastly, on employee costs, you've mentioned in today's press release the additional hirings that took place in Q1 for the parts of the business where you're growing capacity.
Obviously, alongside that, it's encouraging to hear about a potential voluntary departure plan for employees in the domestic network. Is that plan something you might be able to have in place and be able to update us on by the time of the Capital Markets Day in November? Is there anything you can say at this stage on associated costs and benefits? Thanks.
I think your first question is the guidance of fuel, correct?
Yes, please. Yeah.
Why we have not increased the fuel bill compared to what we said at the beginning of the year.
We have to.
That's right.
In fact, during the last week, you saw the fuel price increasing significantly. I have to say that we had the same surprise as yours when we look at the forecast given by the fuel department. I would like to give you some explanation. The first one is that if the fuel price increase, so if the Brent price increase significantly, it is not exactly the same for the fuel, in the sense that the cracks margin have reduced over the last weeks. Second element, we are exactly at the range where the fuel hedging effect is extremely efficient, in the sense that we have taken some barriers, some collars, et cetera, this type of normal options.
When we look at the efficiency of the hedging, when you are in the neighborhood of EUR 70 or EUR 71 per barrel, it is exactly where the efficiency of our portfolio is, for the time being, maximal. There is a way to illustrate that, which is that in February, we told you that the hedge result will be EUR 100 million, and in the last figures we have in this presentation, it is EUR 200 million. Just to indicate that we are at the boundaries in terms of jet fuel, where the hedging is extremely optimal.
I will say this is the two reasons why, but we look at this data extremely carefully with Steven, because we are a bit surprised, but it is the two explanation we found in order to explain why the fuel bill seems to be relatively stable, in spite of the evolution of the Brent during the last week. Your second question is the cash generation and the CapEx in the first quarter, if I am correct. Clearly, for the time being, you can observe that the CapEx level in Q1 is lower than last year. This is a matter of fact. We are not changing today our CapEx guidance for the full year, which means that if you are consistent, we should have an acceleration of the CapEx during the next three quarters compared to last year.
In spite of that, however, based on our internal calculation and budget plans, we still expect to have a net debt on EBITDA below 1.5 at the end of December 2019. Concerning the strike effect, yes, you're right. The strike had last year, a negative impact on the unit cost, mainly in Air France, of course. We have, in fact, two different elements in the unit cost for the first quarter. In Air France, in fact, there is a relatively sharp reduction due to, partly this effect of the strike in 2018. In KLM, on the other hand, we have for this first quarter, an increase of the unit cost. So that's why you don't see that at the global level. But in fact, the strike effect is present into Air France, where the unit cost for the Q1 are negatively oriented.
What explains the global Air France-KLM data is due to the fact that in KLM, because KLM developed relatively limited capacity during this first quarter, KLM has been hit by weather and some technical problem which reduced capacity severely compared to their budget, for example, and this is why you don't see that at the global level. To summarize, -0.4 for the group, negative for Air France, positive KLM. Negative for Air France, because we have to correct it for the strike last year, and positive for KLM. Due, of course, to the CLA or the labor agreement signed last year, but also due to the fact that the capacity in KLM is relatively slow, and in any case, far lower than the budget. You have to repeat the question if you want.
Just any additional color on this potential voluntary departure plan for employees in the domestic network. Timing, associated cost benefits. Anything you can say at this stage? Thanks.
As you know, or you don't know, there will be a discussion with employees representative mid-May. As usual, we are not willing to speak before there is dialogue between the management and the employee representative. At least it will be discussed for the first time mid-May into Air France, I will not say more for the time being.
Fine. Thanks a lot, Frédéric.
We will now take a next question from Malte Schulz from Commerzbank. Please go ahead. Your line is-
Hello, and thank you. A little bit notes on the unit cost, you didn't give us a lot of guidance on what you expect for the next quarters, if you can maybe give us a little bit more color, particularly, when we have ex strike effects. If you can also clearly reiterate that you are quite confident on reaching the full-year guidance of minus 1 to 0. One clarification, on the cost, it sounded it was EUR 11 million-EUR 13 million and not EUR 30 million, just to be sure that it's just EUR 11 million-EUR 13 million on the extra cost. My final question is on M&A. Do you also plan to engage into the consolidation wave to a certain degree, or do you particularly leave it out to your legacy competitors to move there ahead and benefit rather passively from the consolidation?
Concerning the unit cost per quarter, I think it's difficult. We will not give you the unit cost per quarter, to be honest. What I can just tell you is that for the time being, in the forecast we made in March, we are confident to stay absolutely in the range we gave concerning the unit cost. I can add, under your insistence, that you are rather on the good side of the range. I will not do more than that and not giving to you the unit cost per quarter. Second question. For the situation, I think that we gave you, it is EUR 10 million-EUR 13 million for the period of the last quarter, for Q1, we are EUR 11 million-EUR 13 million also. It is around something like EUR 10 million per quarter for the time being.
It is not insignificant, it is not enormous, clearly, nobody can argue that it is positive for us or for the tourism industry into Paris. You had a third question on M&A?
Yes. If you plan to become more active on the consolidation or if you rather leave it to your legacy competitors to drive consolidation. If you're also looking at some of the assets market.
Active. If we had a plan, I will not tell you that by phone first. Of course, we are looking, as usual, what is happening in the market. What I have to add is that last year you saw a big step in terms of consolidation, and that there is no immediate plan for the moment to participate to the consolidation in Europe.
Okay, thank you.
We will now take our next question from Michael Kuhn from Société Générale. Please go ahead. Your line is open.
Good morning. Also, three from my side. Firstly, on personnel cost, you mentioned that the 6.5% increase in the first quarter was partly influenced by timing effects. I would be interested in what we should expect on personnel costs for the whole year. Secondly, on the Capital Markets Day, I understood earlier that it was rather planned for summer. Some indication what determined the timing of the CMD would be interesting. Is it union negotiations or are there also other topic that finally determined November? Lastly, on financing, you issued the convertible lately. What are your general thoughts on financing and your capital structure at the moment? What elements do you prefer and what is possibly on the agenda here? Thank you.
Concerning the labor cost, yes, indeed, they will be lower for the full year. Let us say that there is at least between one and 2% in excess for the Q1 compared to the full year. I let you to make your own calculation. Concerning the timing of the Investor Day or Day of the Capital Markets Day, there is no table or suspect of secret interpretation to give to this date. We have just considered that probably there will be more content if we postpone a bit that to the month of November, and also you have to organize that in a quiet period. Which means that if you want to take the time to prepare and to be sure that you will be happy with the content, we have decided to put that in November, but there is no other interpretation to give to that.
Concerning the convertible bonds, it is a convertible bond, which has been launched by the Group Air France-KLM. In the today's organization, we try to let every carrier to be responsible for its own financing, which means that at the group level, we have also to manage the cash situation and the future reimbursement of debt. As you know, in 2020, we have to reimburse EUR 400 million of the hybrid, which has been launched, I don't remember when, but we have in 2020, EUR 400 million to be reimbursed. It is a hybrid which is extremely costly because it is with a coupon of 6.25%. By launching this convertible, we are just preparing the reimbursement of this hybrid, which means that we will exchange a coupon of 6.25% by a coupon at 0.1%, which is less expensive and which is good for the unit cost base of the group.
For the rest, as you know, the two company are financing independently from the group, their needs in terms of capital, which are mainly to invest in acquisition of aircraft, developing some secured operation, in order to finance the aircraft acquisition.
Excellent. Thank you.
We will now take our next question from James Hollins from Exane. Please go ahead. Your line is open.
Hi, good morning. Two from me. Just on the operation performance on time. Are we seeing better air traffic control issues year-over-year? Is there any sort of indication that we should be thinking that overall, looking ahead as well, ATC might be less of a headwind for you this year? Secondly, just coming back to some of those questions at the beginning on premium traffic. Obviously, against a comp of +8% on premium last year, you've only down a little bit. Your comp in Q2, I think it's up 6%. Should we be thinking about premium actually being up in Q2? Thanks.
Concerning the improvement of operational performance in Air France, I would say it is independent from the ATC because it is a ranking compared to the global industry. I think it is improving. It is improving for everybody. That's why we think that This evolution of the on-time performance of Air France is clearly just the beginning. It has to be confirmed. Of course, it is in winter, so everything has to be looked at quite carefully in the next month, but at least it is a good beginning. Second, I cannot give you any complete assurance for the summer concerning the ATC. We know that there is still a constraint and really tense activity for all the operations in Europe, especially during the summer period.
At that stage, we continue to monitor carefully the situation, but I can really not assure you that for the entire industry, and more specifically for Air France and KLM, we'll have necessarily the capability to maintain the high standard of operation we want to develop vis-à-vis our passengers. Concerning the premium traffic, now, as I told before, concerning the forecast, we prefer only to give you a global estimate concerning overview for the unit revenue for the next quarter. I cannot tell you what it is for premium and what it is for economy. However, I just answered before to one of the questions that we had no alarm or orange light concerning the development of the premium traffic up to now. I cannot tell you more about the forecast of the premium RASK in Q2. It is a bit too small granularity. Yeah?
Okay. Yeah. Thanks very much.
Cool.
We will now take our next question from Nuala McMahon from A&L Goodbody. Please go ahead. Your line is open.
Hi, guys. Just two questions from me. The first one on the cargo business. I'm just wondering what are the trends you're seeing for Q2 in terms of pricing and demand, and then is there any areas that remain weak on outlook? The second one is just on ancillary. I understand it's very small proportion of your total revenues, nearly less than 3%. I'm just wondering, it's also coming off a very low base in Q1, but just what was the driver of the result, and has management set any target in terms of what ancillary could be of overall revenues on a 3- to 5-year view? Thank you.
Okay. Concerning ancillaries, we have no, I would say, complete target concerning the share of ancillaries in the global traffic revenue, of course. What we just know is that there is still a lot of opportunities, and when you look at the growth during the last years, it is normally two digits of growth already for a relatively long period. We have to continue, and the idea is always the same. The client is extremely sensitive to the price of the ticket when he buy it on internet. After that, if you are offering to him a specific service of good quality during his trip, he's able to pay for that. It is this combination to be able to offer as low tariff you can in order to attract the client.
After that, thanks to the quality of the service and of the offer, you are able to develop the ancillary service. We will continue. I don't know exactly what is the limit or if there is a golden rule in terms of a percentage of the ancillary on the total revenue. I can just tell you that we will clearly continue to develop this type of service. A new distribution capability is an opportunity by improving the quality of the dialogue between the airlines and the clients, we are able, with this new type of distribution, to enrich the content of the dialogue we have with the customers. This is extremely important because when you are just working with a normal channel, with a limited exchange of info, it's difficult to add new services, et cetera.
With all the potential offered by the NDC, we have clearly the possibility to expand this ancillary revenue. For the quarter, it is EUR 161 million, and the growth is more than 17%, which is clearly excellent number. Your second question was on the cargo. I cannot add anything compared to what I just told you in the presentation. As you know, the predictability of the traffic in the cargo is extremely limited. When we speak with our colleagues from the cargo business unit, they speak to the next three weeks, but it's very difficult to go further that period. For Q2, we have not yet indication concerning what could be the unit revenue in cargo. Only info, Q1 is weaker compared to what we have experienced during the year 2018.
Okay. Thanks, guys.
As a reminder, if you wish to ask a question, you can press star one on your telephone keypad, we do not have any questions at this time.
I would like to thank you for your participation to this call, and I wish you also a good weekend. The next rendezvous is for the publication of the second quarter. Bye, and thanks a lot again.
This concludes today's call. Thank you for your participation. You may now disconnect.