Okay. Well, good morning. I'm here with Frédéric Gagey, and we are very pleased to welcome you to this presentation of Air France-KLM's 2018 annual results. It's a first for me. Before we start, I would like to reiterate how happy and proud I am to lead a group like Air France-KLM, with three strong brands and over 88,000 passionate, dedicated, and talented team members. As you can see, we have redesigned and revamped the group's logo to embody the new dynamic we want to drive. I'll now hand it over to Frédéric Gagey, who will run you through the results.
Thank you, Ben, hello to everybody. I propose to go through this short presentation about the result of the last quarter 2018, plus, of course, the full year 2018. What to say about the full year result? Let us say that they are resilient. You know that the beginning of the year has been a bit difficult with the social crisis in Air France, the departure of Jean-Marc. Globally speaking, the end of the year is far better than the beginning, if I can say that. Which means that, globally speaking, we have, during 2018, beat the record in terms of number of passengers. The group reached 100 million passenger transported during the fiscal year. The group is, of course, still the European leader for long haul, if you look at the number of passenger or the number of passenger kilometers.
Second good news, I think, of the year 2018 is a fantastic development of both Transavia France and Transavia Holland. The growth has been extremely significant, and on top of that, the results have continued to be quite high, with margin close to 9% for both Transavia France and Transavia Holland, which is clearly a good news showing the sustainability of the low-cost model into the group Air France-KLM. Last element, you know that, of course, the news coming yesterday concerning the vote of the pilots is achieving all this process. We have established significant progresses in terms of social dialogue with the finalization of labor agreement into Air France and also new CLAs implemented for all the categories of employees into KLM. To the Q4 2018 results. It is a quarter still characterized by the growth of the turnover.
We are at plus 4%, we will see it is more explained by capacity than by the unit revenue. As operating result is going down compared to last year significantly, I have to say, from EUR 208 million to EUR 40 million for the Q4 2018. You know the explanations. One is the increase of the fuel bill. We have the fuel cost, which is increasing by EUR 257 million during the quarter. Second, I will come back on that later in the presentation, the development of the unit revenue has been less positive than what we have observed during the first three quarters. We have a unit revenue for the network, which is at minus 0.1%, which is, by the way, exactly what we give as a guidance during the presentation of the Q3 result.
We told you that the unit revenue should be flattish during the last quarter of the year. It is exactly where we are, which is -0.1% for the network, and Transavia is -0.9%, but it is more linked to the seasonality of this business. The operating result at EUR 40, which is not so far from your consensus, which means that you have taken also into account in your calculations the fuel and/or guidance concerning the unit revenue. I have also to add the effect of the social crisis in France. As you know, the country is experimenting today a relatively difficult situation. We have estimated the impact of the gilets jaunes at -EUR 50 million for the Air France EBITDA in December. Probably by the end of November, you can add also some millions to that. Clearly, it is not going into the right direction.
If you look at the Q4 per business network, I told that before, unit revenue -0.1%, but capacity +3%, which is explaining the growth of the turnover for this activity. Cargo is still going well. We have capacity increasing by 0.7%, mainly explained by the development of the bellies and not by adding, as you know, full freighter aircraft now. The unit revenue is still significantly positive, +1.3%. However, it is also a bit lower compared to what we have seen during the first three quarters of the year, which explain all in all that we have a change in the global revenue for the network of +3.7%, and for the reason I just explained before, why the operating result is down compared to last year.
Transavia, this is the winter period, so no surprise that the operating result is negative at -EUR 42 million compared to last year. Again, in this winter period, the two Transavias have expanded their capacity quite strongly with +14% of capacity. Maintenance turnover is also increasing, +5%, but the operating result is slightly down, mainly, I have to say, due to some one-off. We can explain at least 50% of the decrease in terms of maintenance result to some technical one-off. Just some indication concerning the behavior of the values network of the group. Asia, quite good, +2.6% of ASK, +4.8% of RASK. We had some question in the Q2 and Q3 presentation concerning a possible weakness coming from the Asian market.
We told you that we were not so scary about that because the data and the bookings were behaving relatively well, and it proved to be correct. You see that in this last quarter, we have an extremely good result coming from Asian network. North America is okay with ASK +5% and stabilization of the unit revenue at -0.7%. Latin America, we increase strongly the capacity in spite of the decrease of the RASK, but you know the explanation. We are not growing to Brazil, to Argentina. We are growing to Andean countries, and the reduction of the RASK is mainly explained by the situation in Brazil and Argentina. In total, if you look the medium haul, you see that the medium haul hubs, so the feeding activity, is behaving correctly. ASK +3% and positive RASK at 0.5%. The medium haul domestic France, however, is more difficult.
We continue to adjust this network due to the necessity to follow the consequences of the development of the high-speed train. It explains why we have -2.3% in terms of ASK. It will be even more negative in 2019. In spite of this quite disciplined growth, we have negative unit revenue at -1.2%. Unit cost, we have indicated mid-year that we are targeting a unit cost comprised between 0% and 1%. It is exactly where we are. Taking into account the good result of the Q4, where the unit cost have decreased by 0.9%, we have for the full year, an increase of unit cost, excluding, of course, fuel and impact of currency of +0.6%. We are totally in line with the guidance we gave you earlier. It is partly explained by the good development of the labor productivity.
We have increased a bit the number of employees into the group, 850 into Air France and 350 into KLM, mainly pilots and cabin employees, being explained by the evolution of the capacity, of course. In spite of that, we have a productivity in the Q4, which has improved by 2.2%, which is in line with what we have observed since the beginning of the year. If you go now to the full-year results, what are the big numbers? First full-year operating result is at EUR 1.3 billion, EUR 1,332 million. Again, not too far from your consensus. Net income is EUR 400 million. I remind you that last year, net income was partly influenced by the treatment of the pension funds of KLM due to the negotiation moving from defined benefit to defined contribution. You know that we had to take into account a big accounting impact in 2017.
It is for 2018, this net income of EUR 400 million for the group, and again, this is operating result of EUR 1.3 billion with a ROCE of 9.8% if you calculate it over, of course, the 12 months. I will come back later on the net debt and the net debt on EBITDA ratio. If you look at this split of the annual result per business, network is at close to EUR 1 billion, which is a reduction explained by the two elements you have, of course, in mind, which are fuel cost and the strike effect at Air France. As I told you before, the unit revenue over the full year is developing far better than during the last quarter. We are for the full year at +1.1% concerning the unit revenue for the passenger activity of the network and the cargo.
You see the extremely good result in terms of unit revenue, pushed, of course, by the quality of the environment and of the cargo market with the unit revenue at +5% over the 12 months for capacity close to zero, which explains, of course, the growth of the contribution of the cargo to the network activity. Transavia close to 4% of unit revenue in spite of capacity at 8% for the 12 months, which explains the very good level of the margin, 8.6% improving compared to last year by 0.4 percentage points in an operating result, which has increased by 18% compared to last year. I think it's also very good and promising result concerning Transavia France and Transavia Holland.
In the maintenance activity, we have a growth of the revenue, but again, this is one-off impact, which explain more or less one half of the reduction of the operating results which we compared to last year. Just some remark per business. Network, I think that the most important is to keep in mind the evolution of the unit revenue for the first three quarter and the last quarter of the year. You see something like a slowdown of the evolution of the unit revenue, and it would be, of course, our main concern for the first quarter of 2019. Other point very important for us, which is a way also to contribute to improve the result, even if the unit revenue is less positive for this first quarter of 2019.
The fact that we continue to work hard, thanks to the development of the digital software, digital product for customer, a very good development of the ancillary revenue, which are now at EUR 650 million. If you remember, it was EUR 500 million some years ago, and it has grown by 10.8% in 2018 compared to the year before. Transavia, I think I already gave you my most important info. Again, very good growth, good development of the unit revenue, improvement of the operating margin, a margin which is high, 9.1% in total for Transavia France, sorry, and 8.2%, I think, for Transavia Holland. Transavia will continue to grow in 2019.
Maintenance, somewhat of explaining partly the reduction of the operating margin compared to last year, but thanks to the capability of our colleagues in the maintenance activity, we continue to accumulate the order book, which increased by EUR 600 million between December 2017 and December 2018. If you compare the Air France and the KLM results, the two components of the group, no surprise, due to the strike, of course, the result of Air France are not really improving compared to last year and are still clearly lower compared to the sales of KLM. For Air France, we have a growth of 1.2% of the revenue, an operating result of EUR 266 million, I would say only, of which, for comparison, you can add, but it is purely a fictitious calculation. The EUR 335 million of the estimated impact of the strike.
Even with this correction, the margin of Air France should be only at 4%, still far beyond the KLM result, which stands at 9.8% concerning the operating margin, a quasi-stability of the result compared to 2017, which was already a very good year for KLM. If you go to the balance sheet evolution, again, a positive free cash. I remind you that we calculate the free cash in the old definition, so we're not taking into account the possible definition of the free cash coming from IFRS 16. So it is exactly the way we calculated it before IFRS 16, and this free cash is at EUR 115 million. So it is positive, and it does continue to contribute to the reduction of our debt. If you look to the debt, you see that we have moved from EUR 6.4 billion end of 2017 to EUR 6.16 in 2018.
It is a reduction of the debt close to EUR 200 million, in spite of a negative currency impact. The dollar is stronger, the component dollar of the lease debt is increasing by $242 million. You also have to remember that during the year, we have reimbursed part of the hybrid for EUR 211 million, which is asking to spend cash but not really reducing the debt because as you know, the hybrid was considered as equity. All in all, the reduction of the financial engagement of the group vis-à-vis debtors is close to EUR 400 million if you sum the reduction of the net debt and the repurchase of the hybrid.
Which means that with this reduction of the debt, and in spite of the lower EBITDA in Air France compared to one year before, we have a net debt on EBITDA ratio, which is by the end of 2018 at 1.5. It was 1.3 in 2017, the 1.5 is, sorry, if you remember correctly, the target we have given to the market some years ago, and the group continued to have an easy liquidity situation. I go now to the outlook with four elements to keep in mind. First, we have, of course, as usual, worked with the revenue management team and the sales force of the group to see what could be the evolution of the unit revenue and the level of demand for the first quarter. That's why we give you the value of the long-haul forward booking load factor for the month February to June.
What can you observe? First, there is clearly an Easter effect, which is visible if you look at the long-haul forward booking load factor in March, -2 compared to last year, and in April, +2 compared to last year. Clearly, there is a swap of clients between the two months. Second, if you look at the first quarter, you see that February is equal to last year in terms of forward booking load factor. March is below.
If you add that together with the result of January, we consider that the demand is clearly a bit weak in the first quarter, that we have to expect a negative unit revenue for this first quarter. However, if you look to the middle of the year, which is given by indication we have already to May and June, the bookings and the unit revenue seems to be more positively oriented for the early summer period. I think it is a relatively clear picture how we see today the evolution of the demand and the yield during the first quarter and the period up to the midsummer.
If I go now to the fuel bill, we used in the data, which are presented here, the value of the market last Friday, based on the forward curve at that date, we are expecting for the time being, a fuel bill increase by EUR 650 million compared to 2018, which is, I have to say, mainly explained by the difference in hedge results between the two years. In 2018, the hedge portfolio brought a positive result close to EUR 800 million. For the time being, again, based on today's, Friday's forward curve, the hedge result for the year 2019 is expected to be close to EUR 100 million, so far less compared to what we had last year, which is contributing for a large part to the increase of the fuel bill of EUR 650 million you can see in the slide. CapEx.
The guidance we have for the CapEx in 2019 is EUR 3.2 billion. It is a bit higher compared to what we have made in 2018 with some explanations. First, Ben probably will speak about that later, the fact that Ben is willing to accelerate the aircraft modification program, notably in Air France, in order to offer, as soon as possible, flatbed in all the aircrafts. There is an ambitious plan for aircraft modification to be finalized in Air France. Second, the result of Transavia pushed us to increase a bit the fleet expansion of the two companies, which means that the growth will continue to be significant in 2019. For that, we have to invest a bit more compared to the initial plan.
Third element also to be kept in mind, the fact that there is, due to IFRS, a swap from lease to CapEx concerning the shop visit of the operating lease aircraft. It has no impact in terms of cash. It is just a reclassification of expenses, which were before in increase of lease, and which are now in CapEx. For all these reasons, you will have as a guidance for the CapEx 2019, EUR 3.2 billion. If I look now at the full picture for 2019, if I compare that to the actual number for 2019, some important conclusions. First, the group, I think, is extremely disciplined in 2019 concerning the capacity development.
We will be between 2% and 3%, not correcting for the strike effect, which means that if you correct for the strike effect of 2018, the growth compared to schedule will be less than 2%-3%. Second, Transavia continues the growth, as I told before. We expect for the two Transavia taken together, a growth between 9% and 11%, which is, as I told before, partly explaining some acceleration of CapEx for the fleet of the low-cost companies of the group. Fuel, EUR 650 million. Currency, for the time being, based on the current forward curve, there is no effect concerning the currency impact on the result of 2019. Unit cost, we expect to be between minus and 0%, which means that, again, we continue to control our cost, there is no increase or notable increase of the cost into the group. It was the case already in 2018.
It will be the case in 2019. CapEx, even if we are increasing a bit from EUR 2.6 to EUR 3.2, in spite of that, we still expect to have a net debt on EBITDA ratio below 1.5 by the end of 2019. All in all, a good resilience for the year 2018. Some question concerning the evolution of the unit revenue for the first quarter, but with booking for the early summer period, which seems to be more promising. Thank you.
Okay. As Frédéric just showed, from a financial standpoint, 2018 was mixed. Our operating result was impacted by the strikes at Air France during the first half of the year and higher fuel prices that lasted throughout. The robust performance of our commercial teams and continued focus on cost control helped to partly offset those two negative effects. We made some real progress in recent months, laying the foundations for our ambition to regain a leading position in Europe.
I will now spend the next few minutes reviewing what we have put in place over the past five months and how we intend to continue working in this direction. Air France-KLM has some unique assets, a strong presence in all major markets, the largest network between Europe and the rest of the world, and being the European pillar of the leading global airline partnership with Delta Air Lines and China Eastern. Air France-KLM benefits from strong brands with an exceptional reputation. Air France is recognized as an airline with a strong premium image and benefits from the strength of the French market. KLM, with its impressive history dating back nearly 100 years, is a proud flagship for the Netherlands, offering unrivaled connections to our customers. Transavia, our low-cost brand, is winning over more and more customers thanks to the quality of its service offering.
Building on these assets, our goal is to position ourselves as the leading airline group in Europe. To this end, our board of directors has entrusted me with three priorities, the basis of which has helped to form a short-term action plan, which we have already started to execute. Reestablish the social dialogue with Air France staff and bring back stability to the airline. Establish a new governance adapted for group's future challenges. Define and implement a strategic vision which will enable us to achieve market leadership. My first priority has been to reestablish trust and dialogue within Air France. I'm particularly committed to rebuilding trust and confidence within the group, an essential condition for building the foundation upon which a successful strategy can be developed for the benefit of our employees, our customers, and indeed, all shareholders.
It is for this reason that I have focused these first few months with improving employee relations at Air France. Towards the end of 2018 and into the beginning of 2019, we have worked tirelessly to reach agreements with all employee groups. The pilot agreement, which was successfully ratified yesterday, marks the conclusion of this first phase. I'm very pleased to announce that we have thus signed balanced categorical agreements with all Air France employees. The aim of these agreements is to provide stability for employees and for Air France, and to give the group the flexibility required to implement a future commercial strategy. In addition to general wage increases for ground staff, there are individual performance increases for 2019, which will enable managers to recognize the performance of their people more effectively.
The cabin crew agreements will resolve a number of concerns for our cabin crew, while simultaneously providing the necessary flexibility to improve our onboard product and service. It will pave the way to integrating the Joon teams and aircraft into Air France. Yesterday, a majority of Air France pilots ratified a new agreement, which will give Air France the flexibility required to profitably offer an appropriate product to match the demand across a variety of market segments. My second priority concerns group governance. The board of Air France-KLM unanimously approved yesterday a simplified and improved management governance structure for the group in order to enable Air France-KLM to better position itself to compete against our peers, taking advantage of the combined strength of our airlines.
Together with Anne Rigail, Pieter Elbers, and Frédéric Gagey, who are remarkable industry professionals, we now constitute a new CEO committee to determine the strategic direction for all group airlines and business units. With labor and governance issues sorted, we now know what flexibility we have to focus on the third priority, developing a strategic commercial vision, which will enable us to recapture the leading position in Europe. At the most basic level, we must simplify our group's value proposition. I'm particularly keen to strengthen the group brands by optimizing the fleets and boosting our competitiveness through a rationalized network and product offering. We have already embarked upon several initiatives in these areas. As I mentioned, the first thing was to improve and simplify the brand portfolio to capitalize on the power of the Air France and KLM parent brands.
This involves clarification for customers and a greater overall consistency for the group's commercial offer. We have decided to reintegrate Joon into Air France starting this summer. The Joon flight crews will join their Air France colleagues. Although the team did a fantastic job in launching Joon and creating a high-quality product within the span of a few months, both the brand and product were poorly understood by our customers and thus impeded the optimization of the Air France fleet. This integration project will not result in any negative financial impact for Air France-KLM Group, thanks in particular to a revised base wage scale for our cabin crew. We've also announced that the Air France regional aircraft will now operate under the Air France Hop banner.
This change links the regional product more closely to the Air France parent brand and reinforces it as the sole point of reference for customers in all markets. With these two decisions made, the Air France-KLM Group can now rely on two strong full-service brands, Air France and KLM, with regional variations, Air France Hop and KLM Cityhopper, and on the Transavia brand for its quality low-cost proposition based in both the Netherlands and in France. At Air France, network optimization will bring a higher degree of consistency, simplicity, and clarity to the long-haul offer, particularly for our customer with high expectations. To ensure at least one frequency per day on all our La Première destinations, the flight schedules will be revised.
In our most important markets, like the main North America and Asian trunk routes, our customers will be offered at least one daily frequency with a full-flat product in business. KLM already offers full-flat product in World Business Class for all its destinations. We must reinforce our offer with a multi-segment approach and offer cabins meeting the highest industry standards. At Air France, the new employee agreements provide the flexibility required to address the different markets more effectively. We can now revisit the aircraft configurations with the addition of more premium seats on routes where this is justified, enabling us to better maximize yields. Also at Air France, the aircraft retrofit schedule, as Nathalie mentioned, will be accelerated, in particular, as we look to offer all business class customers full-flat seats as quickly as possible.
On February 4th, Air France unveiled the new cabins on its Airbus A330-200s, offering an enhanced travel experience. These 15 aircraft will be completely redesigned by 2020, involving a total investment of EUR 140 million. The 12 Boeing 777-300ER aircraft in the leisure configuration will be equipped with new cabins by the end of 2019, and at KLM, all aircraft have now been equipped with cabins reflective of industry standards. In-flight connectivity will be deployed in all the long-haul aircraft in the group before the end of 2020. The simplification and modernization of our fleet will benefit customers while improving economic efficiency with more comfortable and more fuel-efficient aircraft. In 2019, Air France and KLM will collectively take delivery of six Boeing 787-9s and three Airbus A350-900 aircraft. More will follow in the years ahead.
Air France's last Airbus A340s and KLM's last Boeing 747s will be retired from their respective fleets in 2020 and 2021. Air France's Airbus A380 fleet will be reduced from 10 to seven aircraft by 2021. This strategy of upgrading the product offerings and optimizing the fleet aims to reinforce the group's competitiveness. We will go one step further. At Air France, there will be a particular focus to increase profitability in line with that of the industry, with customer compensation costs amounting to some EUR 400 million in 2018, including the fallout from the strike, an improvement in operational efficiency and robustness is key. We have therefore decided to relax the constraints on the fleet and add additional reserve aircraft at Air France. The co-construction work with our partners, Aéroports de Paris and Schiphol, is crucial, as is strict control over infrastructure costs in this regard.
Discussions with Aéroports de Paris on the future of Terminal 4 are ongoing, with an emphasis on improving the overall customer experience. In the Netherlands, the discussions will address KLM's capacity growth at Schiphol. Lastly, the group will continue to lobby the French authorities within the framework of the French National Air Transport Conference and at the European level to promote a level industry playing field. In this regard, the recent agreement between the European Union and Qatar has established an approved legal framework within which the parties recognize that air transport must grow without subsidies. We will have an opportunity later this year to delve into more detail on our strategic and financial objectives. For now, I suggest we move on to questions.
Thank you, sir. We will now take our first question from Jarrod Castle from UBS. Please go ahead. The line is open.
Thank you, and good morning. Three questions, if I may. Can you give some indication, firstly, on CapEx beyond 2019?
Good morning. Michael Kuhn from Société Générale.
Hello.
Three questions, if I may. Firstly, on the unit revenue outlook, if you would combine the January to April period and thereby eliminate the Easter effect, what would be the unit revenue development year-over-year be? Secondly, on the fourth quarter performance, clearly the social situation in France was difficult in the fourth quarter. Still, the performance gap between Air France and KLM widened substantially. It would be good to get a little more explanation why Air France performed that poorly in the fourth quarter. Last but not least, one for Mr. Smith, and I know it's a little nasty question. Some of what you told us today sounded quite similar to what your predecessor told us at the beginning of his tenure. His motto was "Trust Together." You're also emphasizing trust a lot.
What makes you confident that the trust and the cooperation will last longer under your tenure? Thank you.
I take the first one. If you take January to April, we are still a bit negative. Let us say, we are of course far less negative than what we have on the Q1. Far less negative, of course, which means that April is partly compensating for the weak evolution of the unit revenue during the first quarter. Second question concerning the Q4. Clearly, the behavior of the unit revenue between Air France and KLM has been notably different during the last period of the year, which is explained partly by the Gilets Jaunes story. We gave you the first estimate for December, which was 15%. It could be more. It's very difficult to identify what is it. On top of that, we have seen a dynamic in terms of unit revenue in Air France different from the dynamic in KLM during this last part of the year.
One explanation being possibly the fact that the cumulative of bad operational performance of Air France during summer had finally an impact on the customers, who were disappointed by this relatively bad operational performance, have preferred to go temporarily to other companies or other competitors. From that point of view, it is very important to notice and to indicate that if you look at the beginning of the year 2019, we see already some improvement. Which will explain that, of course, better than me, but he's working hard with his team to improve the operational performance and reliability of the Air France fleet. We have seen in the months of January, the first positive result of his hard work, which is today an important stake for the Air France management.
Perfect. To follow on with your last question. Yes, trust is obviously the base of all of our discussions, the entire culture at both Air France-KLM, and of course, at Transavia. We've added three other focus points, and that has formed all of our discussions, formed the base for all of our discussions, in particular at Air France over the last couple of months. That is respect, transparency, and confidentiality. If you look at the number of leaks or press reports surrounding the last 5 agreements that have been reached between all the various stakeholders at Air France, you'll see a significant reduction in the number of articles, which is a big positive. We have reached collectively, all these agreements in a very respectful way, and this is clear that the Air France teams want to win.
They're willing to really start to understand the marketplace, to look outside of Air France, to ensure that the group is more cohesive, to ensure that the strengths of the group are leveraged, and to really understand that we have 4 other major competitors in Europe, and that Air France-KLM has everything that is necessary to regain our natural position at the top of the industry in Europe.
Stephen Furlong from Davy. Question for Ben, please. I saw in the governance comment about regaining European airline leadership, and if you were, without putting numbers on it, would you see that as being size, margins, returns, share price? I'm just trying to get what is the North American type of metric on it. The second point would be, just from what you've seen of other airlines around the world, maybe North American or elsewhere, are there things that you've seen them doing that is something that may be industry best practice that when you came into Air France-KLM, you saw that maybe that was a bit subpar here? Thank you.
Definition of industry leadership or market leadership in Europe, obviously on as many metrics as possible, but I think also what's extremely important is long-term stability in terms of maintaining that position and ensuring that we are best positioned to continue to grow and maintain that position through this ever-evolving industry. In terms of different environments between North America and here, obviously in the U.S., there are three major full-service carriers plus one major lower cost carrier. It's a very different environment than here in Europe. I think you all know the situation here, the market situation here. With this new management governance structure we now have in place, with the combined strengths of both Air France and KLM, we intend to use this in a much more powerful way going forward.
I think to date that we have not been leading in that area compared to our two other major full-service air groups that we compete against in Europe.
Hi, Neil Glynn from Credit Suisse. If I could ask two questions, please. Some of the presentation materials focused on investment in the premium cabin. I just interested in your thoughts on the subject of closing the margin gap between Air France and KLM. To what extent is premium revenue generation a key component? If you could help us by confirming the 2018 premium revenue contribution within the overall group, that would be helpful. Then the second question on investment. I guess over the past decade, the focus has been very much on managing the balance sheet and reducing the leverage pile. CapEx is obviously stepping up in 2019. Just interested in terms of should that be viewed as a new level as a stronger group with a better balance sheet invests in a quality top line, or how should we think about that going forward?
I can take the second question. Just to say that what is important for us, especially after the introduction of IFRS 16, is the evolution of the net debt. I can reduce CapEx tomorrow morning, EUR 0.05 on this back of Triple Seven and it's done. I really think that the CapEx is a good proxy of what we are doing in terms of project, but I will advise you to really look first at the evolution of the net debt and the guidance we give concerning the net debt. For example, for the time being, we have a preference to buy aircraft and to finance possibly them with a financial lease, but to try to reduce the percentage of the fleet, which is operating lease.
When you move from operating lease to buying aircraft, you are increasing the CapEx, but it doesn't change anything to the evolution of the adjusted net debt. I will advise you to review a bit the matrix we use, especially after the new IFRS 16, which is, in my opinion, giving a far better view of where is the balance sheet and not making the balance sheet of some financial indication a bit transformed by the choice of the fleet between operating lease and a full bought aircraft. Part of the increase in terms of CapEx you see here is explained by this new policy we have introduced already last year, consisting to have more aircraft full owned instead of operating leased. Having said that, the group, as you know, has rather under-invested in the period 2011, 2014, 2015.
Some analysts told us that we had CapEx below the depreciation, which was a signal that we were clearly under-investing. On our view, we have to compensate progressively what we have done the years before under the financial constraint. With the condition that we do not deteriorate the adjusted net debt on EBITDA ratio, which is exactly, for example, what we give for the year 2019. We increase CapEx, but the adjusted net debt on EBITDA ratio is not expected to increase.
On your question regarding premium and premium margins, just following on what Frédéric said, the previous contracts Air France had with cabin crew and with pilots were extremely inflexible around cabin crew ratios. There is a very complicated production balance that is in place between Air France and KLM pilots. Under these new contracts that have recently been signed, there is a lot of added flexibility that will enable our group to optimize the premium cabins where there is good demand. This will really help the group better position the various airlines in the markets in which they serve. Of course, what Frédéric just said, we are going to move as quickly as possible to standardize the premium offering at Air France.
Morning, Benjamin, Frédéric. Thanks for the presentation. This is Achal Kumar from Falcor Regional Limited. I have two questions, one around liquidity and the other around long-haul growth and in emerging markets as well. The first on liquidity is, you've got a liquidity in total of EUR 6.4 billion as of December 2018. What is the split between KLM and Air France? Whether Air France has access to KLM's liquidity in times of need, for example. The second one is, in terms of long-haul markets, are there any particular countries that Air France-KLM is looking to grow, including investments in other airlines? We hear a lot around consolidation throughout Europe. If you can highlight on your plans on that as well. Thank you.
I take the first one. Globally speaking, if you look at the first adjusted on EBITDA ratio, it is almost the same into the two companies. It is not the case in 2018 due to the strike in Air France again. If you take the number end of 2017, the adjusted net debt on EBITDA ratio was almost the same, which means that in terms of balance sheet, the company are not too different. In terms of cash position, due to their respective size, the two companies have the same level of cash. There is no big gap between the cash on turnover ratio in Air France and the cash on turnover ratio into KLM.
Second, the strategy for the time being is, of course, that each company is responsible for its financing sustainability, which means that CapEx in KLM, for example, are managed by Erik, which is assuming the financing of his aircraft and developing its own operation. Of course, in full cooperation, transparency with me and with all the colleagues in the financial departments of the three entities and the same for Air France.
Emerging markets, obviously, we're extremely interested in India and China. We have some unique challenges in expanding in the Indian subcontinent, in part because of the lack of a level playing field with the Gulf carriers. In China, these are new markets with different types of competitors. Long term, these are two of the biggest opportunities for the group. In terms of focus on other investments, we have considerable work to do in bringing Air France back up to the level that it should be at in terms of product and profitability. This will be part of one of our main priorities and focus. Then in Amsterdam, we do have an airport that has pretty much reached its current slot maximum, the maximum number of slots that are there.
We need to ensure, along with the authorities at Schiphol and this new airport that we're hoping will be built, that we have further opportunity to grow long-haul destinations out of Amsterdam as well.
We propose now to take the question for those which are linked to us by phone.
Thank you, sir. We'll now reopen the line for Mr. Jarrod Castle from UBS. Please go ahead. Your line is open.
Thank you, good morning. Take two. Just coming back to Neil's question, if you can actually provide a number post 2019 for CapEx, that would be quite interesting in terms of how we should be thinking about it. I guess also linked to the balance sheet, you say you want to obviously reduce the net debt EBITDA from 1.5 times. Is there any thinking now in terms of dividends for ordinary shareholders? Secondly, just in terms of the outlook for MRO, any views? Are we going to continue to see that division under some cost and competitive pressures, and do you think you can stabilize profits from these levels? Just lastly, that doesn't seem like it's impacting your bookings at the moment that much, the unrest in France.
When do your group bookings start to really come through going into the summer? Do you think this will have an impact if that unrest continues? Thanks.
For the time being, we have not yet, as you know, Ben asked us to work on the medium-term strategy and the team are, for the time being, working under his leadership to see what could be the financial trajectory for the group for the next year. I will not give you now any views about the evolution of the CapEx for the years to come. I also come back to my remark before, CapEx is important, it's more important, for my opinion, to look at the evolution of the adjusted net debt and the adjusted net debt on EBITDA if you want to judge what is the evolution of the balance sheet of the group. Concerning dividends, of course, we have not to take position here because it is a decision of the board.
I have just to say what I told you one year, more or less, ago, that if the result of 2018 were close to the result of 2017, the question of a dividend would become more and more relevant. Now I let you interpret with the result for 2018, what do you think about my sentence of the last year? Concerning the MRO, I agree with you that last year we have this first slight erosion of the margin. This year it seems to continue. To be honest, I am a bit less afraid about the evolution of 2018 compared to 2017 because there is a lot of one-off and technical issue in it. I agree with you that the stabilization of the margin in MRO is something which is extremely important.
This is the case, by the way, when you look at components, the situation is a bit more difficult concerning the engines, where there's a lot of competition. Also, competition on the market from the manufacturers, which is something a bit new, is stronger than what we had before in this market. Even with this slight erosion, you will see that the level of the margin is still clearly acceptable. There was a question I totally missed.
Yeah.
It's difficult to say. When we give the bookings for June, of course, they are still weak in terms of %, the people of the revenue management consider that it is already significant. If you look at the booking from July and August, we don't give the data today because we consider that it is not really significant. There is still a long period before the flight, you cannot give too much confidence to this booking load factor for what? For the full summer. That's why for the time being, we cannot say a lot. We are just telling you that when you look at April, May, June, which is relatively significant numbers, which is early summer, more promising than what we tell you concerning the first quarter of the year 2019. Having said that, you're perfectly right.
If the unrest will continue, it will have ultimately an impact on the summer. Okay. As you know, the movement is rather weakening than strengthening for the time being. Let us hope that everything will come back to normal as soon as possible.
Thank you.
Thank you. We'll now take our next question from James Hollins from Exane. Please go ahead.
Hi, good morning. Quick one on the Q1 unit revenue. Do you think it will be up in the premium cabin? All my other questions actually relate to the pilot deal specifically. Well, four things. One is the timing, when you'd expect it to be or CLA signed. Secondly, the length of the deal. I assume that cabin crew, it's just to the end of 2019. Thirdly, quantify the pay increases, finally, whether the pilot deal is included in your current ex-fuel CASK guidance for the year. Thank you.
Sorry. I missed that. Sorry. I was a bit lost by your global question. The cost of the agreement with pilots, globally, we consider that it is more or less balanced with the new possibility it gives to the company in terms of flexibility, capability to adjust some rules, and efficiency of some working rules. Globally, we are close to the balance. It will have an impact from the beginning of the year. Of course, it is in the forecast we gave you in terms of unit cost.
I'll just add to Frédéric's comments. One of the key, I'd say, positive results that came out of this negotiation was the significant removal of numerous commercial constraints that were in place in the previous contracts. Also, it opens up the door to having further discussions with our pilots around other ventures that had previously not been possible, including some investments. If those types of investments come up, there's perhaps an easier way of moving those forward. I think number one is what's already agreed to, which is significant commercial constraints that were in the previous contracts. With this new positive dialogue, we believe there'll be further opportunities going forward that would not have been possible with the previous contract.
Sorry, does it still just run to 2019?
I think you said, is this just effective for 2019? If that's the correct question, because it was a little muffled. The commercial constraints that have been removed are part of the living contract with our pilots that do not have an expiry date. The wage increase that we have in place, I believe it's three years that it's in place. I could be wrong. We can check that to get you the exact number. It's the commercial constraints that are the main benefit of this deal and those are in place for perpetuity, we hope.
Q1 premium, if you can.
Your question, we're not quite sure what exactly your question is, or it's not coming out clearly.
My apologies. If you can hear me, I'm just looking for whether you expect Q1 2019 premium unit revenue to increase.
I have no specific information. Sorry for that. When you look at the turnover, which is coming from what we call the big accounts, I will say that the trend seems to be normal. There is no specific element coming from the different in terms of booking between premium and economy, I think. I have never heard that during the review meeting we have every two weeks.
Thank you.
Thank you. We'll now take our next question from Savanthi Syth from Raymond James. Please go ahead.
Hey, good morning. Just two questions from me. Just with kind of Europe lower and fuel higher this year, I'm a bit surprised that the plan is to grow faster. I was just wondering if where this growth will be focused that gives you some confidence that maybe we could see it impact in Europe positively. The second question, I was just on the CEO committee structure, wondering if you can clarify what that brings.
We didn't hear quite well the question, to be honest.
Apologies. Ms. Syth's line disconnected. We will now move to our next question from Jaime Rowbotham from Deutsche Bank. Please go ahead. Your line is open.
Morning, gentlemen. I hope you can hear me okay. Two questions from me, please. The first one is, I wanted to go back to the guidance for unit cost, ex-fuel of flat to -1%. I just wondered how you have thought about the additional costs of the labor agreements you have signed versus the potential for last year's very material, I think it was EUR 335 million, of strike-related disruption not to recur. What have you assumed on strike-related disruption? What's your working assumption? Do the benefits of non-recurrence of strike-related disruption more than offset the costs of the new labor agreement, in your guidance on unit cost ex-fuel?
The second bigger picture question is, when it comes to the 4.3% blended margin, operating margin for the network airlines, I wondered if you have any near or medium-term aspirations for that margin in the context of the discussion earlier around European Airlines market leadership. Thanks very much.
I can take the first one. It's clear that when you look at the unit cost, we take into consideration further comparison compared to 2018 with the specific effect of 2018. We take, of course, into account the evolution of the labor cost, impacted by the various agreement in both Air France-KLM and the last agreement signed in Air France with the pilot and the cabin crew. Having said that, there was also a lot of other costs that we expect to control better in 2019 compared to 2018. If you remember what Lufthansa told recently, for example, concerning the cost of indemnification vis-à-vis the client, they gave a number of EUR 500 million in 2018. We consider that in Air France-KLM, it is close to EUR 400 million. The low quality of operations, mainly in Air France, but the summer was also a bit difficult into KLM.
The cost of the group, an enormous amount of money. By developing this focus on quality of operations, quality of the service to clients, we expect that with better Net Promoter Score, with better performance in terms of operation, we will reduce drastically the level of compensation in 2019. You have also to take into account another example, the development of the fleet. You see the number of younger aircraft we are introducing in both KLM and Air France. It means that they will be a more efficient fleet with far lower operational costs, as you know. Third element is the new agreement concerning the joint venture with Delta. You know that we have, it is a bit technical, but we based the year used for the calculation of the settlement, which means that this cost will reduce in 2019 compared to 2018.
We have the progress of the New Distribution Capability program. Last year, we expect that it helped us to reduce the cost, and the global impact of the NDC program was EUR 20 million. This year, we expect more than EUR 40 million. I can make a long list of all the effects you have to take into account if you want really to have a precise view on the evolution of the unit cost for the year 2019. Globally speaking, the assumption of the guidance we gave you is a result of a very precise and accurate budget exercise, taking into account all the project, all the elements which are making the day-to-day life of the management of the group.
I'll just add one other key point, which I've already said a few times here, is we do need to quantify, and this is as we work through our future plans, the benefits of these new labor deals, in particular with our pilots and our cabin crew, at Air France by removing the commercial constraints and also just coupling on what Frédéric said, improving the operational performance and driving more simplicity throughout Air France. Obviously, the goal is to, as quickly as possible, close the gap in operating margin between Air France and KLM. Of course, here in France, there are some unique challenges, with some very expensive costs, unique costs, that all airlines incur. We are working closely with the government of France through the exercise, to work on better leveling the playing field within Europe.
Thank you.
Thank you.
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. Two questions from me. The first one, the initial sort of flavor of the plans for change in the company sounds like you are putting obviously investment both in CapEx and OpEx into the business and hoping for return later. When you look at the margin, one assumes the cash generation differential in terms of cash margin between Air France and KLM. What happens to the cash flow that KLM will generate until the group feels like it's in a position to pay a dividend? Is that going to accumulate in the parent company, or will it be sort of reinvested back into Air France equity? If you could be clear on where that cash ends up, that would be interesting. Secondly, clearly, it's not just the gilets jaunes and the French composite PMI looks pretty weak at the moment.
Within the plan and within the pilots deal that you now have, how much flex is there in the business to deal with a sort of more contingent, weaker situation within the outlook if that was to materialize?
Concerning the financing flow inside the group. The rules we have internally is that, as it is normal, the two carriers are contributing to the OpEx budget of the holding and to the financial cost of the holding. For the rest, we have models today where each company is responsible for its balance sheet and its financing operations and financing plans. Which is not really a problem, because the cash generation in each company is less different than the operating margin. Second, the situation of the balance sheet of both Air France-KLM are relatively similar. I told before that the adjusted net debt on the EBITDA ratio is almost the same for the two companies. It was the same 2017. It is a bit different 2018.
The level of the debt, if you look at the ratio, debt on turnover, it is also quite close for Air France and KLM. Clearly, there is a difference in terms of margin, but in terms of balance sheet, the two companies have situation which has relatively close, which is supportive to the model where everybody is in charge of its own financing.
Thank you. We'll now take our next question from Nuala McMahon from Goodbody. Please go ahead.
Hi, guys. Just three questions from me. The first one's on Transavia, I note in your presentation you're saying there's going to be an accelerated fleet expansion into the Transavia business. I'm just wondering, as part of the agreement, have you managed to lift the 40 aircraft rule on Transavia France? Also sticking with Transavia, are the pilots and cabin crew also included in your wage deals? Secondly, on the ancillary side, you noted EUR 650 million contribution in 2018, still quite small in terms of the overall revenue in the group. You highlighted areas yesterday as one area of focus. I'm just wondering, what are you doing in the background here on the ancillary and digital side? Thirdly, just on your unit revenue guidance, I'm specifically wondering about trends by region.
If you could just give me an overview of how that's looking for Europe, Asia and North America. Thank you.
Okay. On Transavia, the Transavia group's pilots and cabin crew not included in the recent agreements. The CLAs, the ACCA, are negotiated separately, the growth in the number of aircraft or lifting the cap on the number of aircraft at Transavia in France is not part of the recent deal. We do have a commitment from the SNPL, that's the larger pilot body, that we will immediately start working on this topic once the general union elections are completed, the first or the second week of March.
Concerning the unit revenue per region, of course, it is still data which are fragile, because we have not yet the full information you need. I will say that it is negative globally for the long haul. The same level of magnitude concerning the feeding and the domestic. There is no big differences in terms of trend we see for the unit revenue during the first quarter when you look at long haul feeding or domestic. In long haul, as before, we see probably more weaknesses in South America, but where we continue to grow more, it is a specific impact of Brazil and Argentina, and it is a bit less negative to Asia.
More or less, the trend we expect for the first quarter are relatively well aligned with the graphic I presented in my speech, when you see per country, the evolution of the RASK to Asia, North America, and the other part of the world. Let us say that we continue with the same trend as we have seen in the Q4.
Okay. Just the last question on the ancillary side.
We take the last question, if you want. By phone.
Thank you. We'll now take our last question from Johannes Braun from MainFirst Bank . Please go ahead. Your line is open.
Yes. Hi, good morning. Just two questions left from me, actually. Firstly, coming back to cost inflation this year, can you please be a bit more specific what the impact of all the new labor agreements actually is in millions of euros, if you can? Secondly, obviously you pulled out of the Alitalia saga. Can you just tell us why that was and also what your view on Alitalia now is, especially regarding the role it might play within your JV with Delta?
We told already that you know the cost of the full year agreement, which have been signed last year in KLM and finalized in September, October into Air France. Concerning the recent agreement, we consider that they are close to be balanced, if you consider together what has been negotiated for the employees against the rule in terms of flexibility and in terms of evolution of the working rules. Which means that it is considered as balanced.
In terms of Alitalia, we continue to observe the process and what is going on. We are not active participants at this moment, obviously the Italian market is extremely important for the group. As far as Alitalia is concerned, we are actively watching the events that are unfolding. Okay. Thank you very much. It's great to meet all of you for the first time, and look forward to speaking with you at the end of the next quarter.