Earnings Call: Q4 2018

Feb 20, 2019

Okay. One sec. Whatever you are, already. I'm gonna put that on my plate. Okay. Okay. Well, good morning. I'm here with, Federicoje, and we are very pleased to, welcoming you to this presentation of Elkhars 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 Alfalf KLM. With 3 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 Federicoje, who will run you through the results. Thank you, Ben, and hello to everybody. So I propose to go through this short presentation about the result of the last quarter of 2018, which, of course, the full year 2018. What to say about the full year result? Let us say that the resilience, you know, that the beginning of the year has been a bit difficult with the social crisis in in Air France, the departure of, of Jean Marc, but globally speaking, the end of the year is better than the beginning. I can say that. Which means that globally speaking, we have during 2018 bids a record in terms of number of passengers. So the group reached 100,000,000 passenger transported during the fiscal year. And 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 Traverria France and Traverger. How long? The growth has been extremely significant. And on top of that, the results have continued to be quite high with my in close to 9% for both Transavia France and Transavia Poland, which is clearly a good news showing sustainability of the Locust model into the group Air France KLM. And lastly, Mark, but you know that, of course, since news coming yesterday concerning the vote of the pilot is achieving all these 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 of employees into KLM. To the Q4 2018 results, so it is a quarter still characterized by the growth of the turnover. We are at +4 percent, but we will see it is more explained by capacity than by the unit revenue. But as operating result is going down compared to last year significantly, I have to say, from 2 to 8 to 40000000, for the Q4 2018. You know the explanations. 1 is the increase of the fuel bill. We have the fuel cost, which is increasing by 257,000,000 during the quarter. 2nd, and 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 1st 3 quarters. We have a unit revenue for the network, which is at minus 0.14 start, 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 part of the year. It is exactly where we are, which is minus 0.1% for the network in Transavia is minus.9 for some, but it is more linked to the seasonality of this business. So the property result is at 40 which is not so far from your consensus, which means that you have taken also into account in your calculations, the fuel, and for guidance concerning the unit revenue. I have also to add the effect of the social crisis in the in France. As you know, the country is experimenting today with difficult situation. We have estimated the impact of the situation at minus 15,000,000 for the Air France EBIT in December, probably by the end of November, you can add also some millions to that. But clearly it is not going into the right direction. If you look at the Q Four pair business network, I told that before. You need to have a new minus 1% but capacity in Q3, which is explaining the growth of the turnover for selectivity. CAGO is still going well. We have capacity increasing by about 7%, mainly explained by the development of the base and not by adding, as you know, full freighter across now. But the unit revenue is still significantly positive, plus 1.3%. However, it is also a bit lower compared to what we have seen during the 1st 3 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, while the operating result is down compared to last year. Transavia, this is a winter period, so no surprise that the operating result is negative at minus 1,000,000 compared to last year. But again, in the winter period, the 2 Transaviors have under the capacity quite strongly with +14 percent of capacity. Matt Enon's 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 a methanol's result to some technical one off. Just some indication concerning the behavior of the values network of the group. Asia quite good. 6 of ASK, up to 4.8 of RASK. We have 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 we are behaving relatively well. And it proved to be correct. You see that in this last quarter, we have an excellent degree result coming from a Asian network, not America is okay with SK5 percent and stabilization of the unit revenue at minus.7. Latin America, we increased strongly the capacity in spite of the decrease of the rest, but you know the explanation. We are not going to proceed to China. We are growing to all the young countries, and the reduction of the ask is mainly explained by the situation in Brazil and Argentina. In total, if you look at the medium haul, you see that the medium haul helps. So the feeding activity is behaving correctly ASAP 3% and give us about 5%. The medium or domestic friends, however, is more difficult. We continue to adjust is network due to the necessity to follow the consequences of the development of the high speed trend. It's explained why we have minus 2.3 in terms of ASK. It would be even more negative in 2019. And in spite of this credit discipline growth, we have negative unit revenue at minus 1.2 percent. Unit cost, we have indicated, mid of the year that we are targeting a unit cost that comprise between 0 and 1.40 exactly where we are. Taking into account a good result of the Q4 where the unit cost have decreased by 0.9%. We have for the full year an increase of cost of unit cost, excluding, of course, fuel and, impact of currency of plus 0.6 percent So we are totally in line with the guidance we gave you earlier. It is partly explained by the good development of the labor for the activity. We have increased a bit the number of employees into the group 850 into Air France and 350 into KLM. Mainly payloads and, cabin employees, being explained by the evolution of the of course, but 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 number? 1st full year operating result, is at 1,300,000,000. 1332. Again, not too far from your consensus. Net income is plus 400,000,000 I remember 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. So it is for 2018, his net income of 400,000,000 for the group. And again, she's a prorating receipt of 1,300,000,000 with a ROACE 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 the split of the annual result per business. Network is at close to 1,000,000,000. Which is a reduction explained by the 12 months 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 has been working far better than during the last quarter. We are for the full year at least 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 unvalued margin of the cargo market with the unit revenue at +5 percent over the 12 months for capacity close to the whole, which explain, 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 a very good level of the margin, 8.6% improving compared to last year by 4 and then operating result, which are increased by 18% compared to last year. So I think it's also very good and promising result concerning and in the methanol activity. We have a growth of all over you. But again, she's one of them back which explain more or less one half of the reduction of the operating results that we compared to last year. Just some remark there, business network, I think that's the most important is to keep in mind the evolution of the unit revenue for the 1st 3 quarter and the last quarter of the year. So you see something like a slowdown of the evolution of the unit revenue and would be, of course, one main concern for the first quarter of 2019. And other point, very important for us, which is a way also to to to, to contribute to improve the result even if the unit revenue is less positive, for this first quarter 2019, the fact that we continue to work hard thanks to the development of the digital, software, digital products for customer. A very good development of the ancillaries revenue. Which are now at 650,000,000. If you remember, it was 500,000,000 some years ago, and it has grown by 10 point 8% in 2018 compared to the year before. I think I already gave you my most important info. Again, very good growth, good development of the unit revenue, improvement of the pricing margin, which is high 9.1% in total, for Transavia France rate and 8.2, I think, for Transavia, Holland. And of course, Transavia will continue to grow in 2019 maintenance. Someone of explaining the partly the reduction of the operating margin compared to last year, but thanks to the capability of colleagues in the maintenance activity, we continue to accumulate the order books. Order book, we increased by 600,000,000 between December 2017 December 2018. If you compare the air front of the carrying results, the 2 components of the group, not surprised due to the strike of was that the result of Air France are not very improving compared to last year and are still clearly lower compared to the source of KLM. For Air France, we have a growth of 1.2% of the revenue. An operating result of 266,000,000, I would say only of which for comparison, you can add medically suit. Purely a fixtures cancellations of 1,000,000 of estimated impact of the strike, but even with this correction, the margin of Air France should be only at 4%, still far beyond the current result. Which stands at, 9.8% concerning the operating margin, of course, stability of the result compared to 2017, which was already a very good year for carry. If you go to the balance sheet evolution, again, a positive free cash. I remind you that we calculate the free cash in the all definitions. 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 since free cash is at 115,000,000 So it is a positive and it does continue to contribute to the reduction of all debts. And if you look to the depth, you see that we have moved from 6,400,000,000 end of 2017 to 6 point 16 in 2018. So it is a reduction of the debt close to 200,000,000, in spite of a negative currency in banks, dollar is stronger. So the component dollar of the lease debt is increasing by 142,000,000 And you also have to remember that during the year, we have we on both, part of the hybrid for 211,000,000, which is also a way which is asking to spend cash, but not really registering the debt because, as you know, the hybrid was considered as equity But all in all, the reduction of the final strong as not as a group without inductors is close to 400,000,000 give you some situation 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 1 year before, We have a net debt on EBITDA ratio, which is by the end of 2018 at 1.5. It was 1.32007 team, but the 1.5 is is so if you remember correctly, the target we have given to the market some years ago. And the group continued to have a a liquidity situation. I go now to the outlook. With 4 elements to keep in mind. First, we have, of course, I usual worked with the revenue management team and 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 longwallforward booking load factor for the February to June. What can you observe? Further, it will tell you Easter effect, which is visible. If you look at the long haul forward booking load factor in March minus 2 compared to last year and in April, please do compare to last year. Clearly, there is a swap of clients between the 2 months. So, Gordon, if you look at the first quarter, you see that Feb is equal to last year in terms of forward looking load factor, March is below. If you add that together, with the reason of January, we consider that the demand is clearly a bit weak in the first quarter and that we have to expect a negative unit revenue this first quarter. However, if you look to the middle of the year, which is given by indication we have already to meet in 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. I hope 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 full bill we used in the data which are presented here, the value of the market last Friday, And based on the forward curve and that date, we are expecting for the term B, the fuel bill increased by 6 €50,000,000 compared to 2018, which is, I have to say, mainly explained by the different in hedge results between the 2 years. In 2018, the Edge portfolio bring both a very positive result close to $800,000,000. For the time being, again, based on today's Friday, sorry for Oscar, the hedge ratio for the year 2019 is expected be close to 100,000,000. So far less compared to what we had last year, which is contributing for large part to the increase of the 50,000,000, you can see in the slide. CapEx. The guidance we have for the CapEx in 2019 is sweep on 2,000,000,000. So it is a bit higher compared to what we have made in 2018 with some explanation. First, then probably we speak about that later, the site 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 aircraft. So there is a non business plan for aircraft modification to be penalized in in Air France. Sugar on the result of Transavia pushed us to increase a bit the fleet expansion of the 2 companies, which means that the growth will be continue to be significant in 2019, but for that, we have to invest a bit more compared to the initial plan. And third element also to be keep in mind the fact that there is due to IFRS swap from lease to CapEx concerning the shop visit of the operating a aircraft. It has no impact in terms of cash. It is just a real classification of expenses, which were before in a increase of lease and which are narrow in CapEx. So for all three reasons, you will have, as a guidance for the CapEx 2019, 3,200,000,000. If I look now at the full picture for 2019 and if I compare that to the actual number 2019, some, important conclusion. First, the group, I think, is extremely disciplined in 2019 concerning the capacity development. We will be between 2% 3%. Not correcting for the strike effect which means that if you correct for the strike effect of 2018, the gross schedule compared to schedule will be less than 2 to 3%. 2nd Transavia continues to grow as I told before. We expect of the 2000 that we have taken together, a growth between 9% 11%, which is, as I talked before, partly explaining some acceleration of CapEx for the fleet of the low cost companies of the group. Sure. 650. Currency for the time being based on the current forward curve, there is no effect concerning the currency impact of the result of 2019. Unit costs, we expect to be between minus and very profound, which means that, again, we continue to control our cost and there is no increase or not able increase of the cost into the group. It was a case already in 2018. It will be the case in 2019. And CapEx even if we are increasing a bit from 2.6to3.2. In spite of that, we still expect to have a net debt on EBITDA ratio below 1.5 by the end of 2019. So all in all, a good resilience for the year 2018. So question concerning the evolution of the unit revenue for the first quarter, but we booking for the early summer period, which seems to be more promising. Thank you. Okay. As Frederic just showed from a financial standpoint, 2018 was mix Our operating result was impacted by the strikes at Elkhas 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 2 negative effects. So we made some real progress in recent months laying the foundations for our addition to regain a leading position in Europe. I'll now spend the next few minutes reviewing what we have put in place over the past 5 months and how we intend to continue working in this direction. So Elton's 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 Airlines and China Eastern. LCOS KLM benefits from strong brands with an exceptional reputation. El Paso is recognized as an airline with a strong premium image and benefits from the strength of the French market. And KLM with its impressive history dating back nearly 100 years is a proud flagship for the Netherlands, offering unrivaled connections to our customer Kanzavia, 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. We established a social dialogue with Afron's staff and bring back stability to the airline, establish a new governance Adaptive the 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 our costs. 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 1st few months with improving employee relations at FHAS. 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 1st phase. I'm very pleased to announce that we have thus signed balanced categorical agreements with all FCOS employees. The aim of these agreements is to provide stability for employees and for El 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 June teams and aircraft into LCOS. Yesterday, a majority of LCOS pilots ratified a new agreement, which will give Alfa 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 El France KLM unanimously approved yesterday a simplified and improved management governance structure for the group in order to enable LCOS KLM to better position itself to compete against our peers, taking advantage of the combined strength of our airlines. Together with Andre Guy, Peter Albers, and Fred Leggier, 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 3rd 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 fleet and boosting our competitiveness through a rationalized network and product offering. We have already marked 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 ELHAS 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 June into Alfons starting this summer. The June flight crews will join their Alfons colleagues. Although the team did a fantastic job in launching June 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 LCOS REIT. This integration project will not result in any negative financial impact for Alfalf KLM Group. Thanks in particular to a revised base weight scale for our cabin crew. We've also announced that the LCOS regional aircraft will now rate under the Alcon's top banner. This change links the regional product more closely to the Alcon's parent brand and reinforces it as the sole point of reference KLM Group can now rely on 2 strong, full service brands. Alfas and KLM with regional variations, Alfas Hop and KLM City Hopper, and on the Transavia brand for its quality, low cost proposition based in both the Netherlands and in France. At Elkhaz, 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 Puente destinations, flight schedules will be revised. Furthermore, in our most important markets, like the main North America and Asian trunk routes, Our customers will be offered at least 1 daily frequency with a full flat product in business. KLM already offers full flat product I think, 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 El Paso, the new employee agreements provide the flexibility required to address the different markets more effectively. We cannot 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 LCOS, the aircraft retrofit schedule, as Chakravinda mentioned, will be accelerated in particular as we look to offer all business class customers full flight seats as quickly as possible. On February 4th, Efrazz unveiled the new cabins on its Airbus A3302100 offering an enhanced travel experience. These 15 aircraft will be completely redesigned by 2020 involving a total investment of 1,000,000 The 12 Boeing 770 7300 ER aircraft in the leisure configuration will be equipped with new cabins by the end of 2019. And a KLM, all aircraft has now been equipped with cabins reflective of industry standards. In flight connectivity will be deployed in all the customers while improving economic efficiency with more comfortable and more fuel efficient aircraft. In 2019, Elkhov and KLM will collectively take delivery of 6 Boeing 787 dash 9s and 3 Airbus a350 dash 9 100 aircraft. More will follow in the years ahead. Alfalfa's last, Airbus A 3 forties, and KLM's last born 747s, will be retired from the respective fleets in 20202021. El Paso's Airbus A380 fleet will be reduced from 10 to 7 aircraft by 2021. This strategy of upgrading the product offerings and optimizing the fleet aim to reinforce the group's competitiveness, but we will go one step further. At Elkhas, there will be a particular focus to increased profitability in line with that of the industry with customer compensation costs amounting to some 400,000,000 euros 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 El Paso. The co construction work with our partners, I look forward to Pavi and Seguo is crucial as it is strict control over infrastructure costs in this regard. Discussions with Dialopolde Pali on the future of tech terminal 4 are ongoing with an emphasis on improving the overall customer experience. The Netherlands, the discussions will address KLM's capacity growth at Skifal. 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'll now take our first question from Jared Castle from UBS. Please go ahead. Your line is open. Thank you and good morning. Three questions, if I may. Can you give some indication, firstly, on CapEx beyond 2019? Michael Kuhn from Societe Generale. 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 on year B? Then secondly, on the fourth quarter performance. Clearly, the social situation in France was difficult in the 4th quarter still, the performance gaps between Air France and KLM widened substantially, could be good to get a little more explanation why Air France performed. That poorly in the fourth quarter. And 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, previous as I told us at the beginning of this tenure, is motherless 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 think that this is the first one. So it's the first one. If you take a Jan to April, we are still a bit negative or let's just say, we are of course far less negative than what we have on the Q1. Harvest negative, of course, which means that it's partly, compensating for the bad but the weak evolution of the unit revenue during the first quarter. 2nd 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 story. We gave you the first estimate from December, which was 15. It could be more. It's very difficult to amplify what what is it? But on top of that, you have we have seen the dynamic in terms of finish with you in our phones different from the dynamic in Karen during his last part of the year. One explanation being possibly the fact that the cumulative or bad operational performance of Air France during summer had a finally an impact on the customers, which it is appointed by what I think the buyer person comes from won't have preferring to go, temporarily to other companies or other competitors. From that point of view, it is very important to notice and communicate that if you look at the beginning of the year 2019, we see already a meaningful month, and she will explain that a little better than me, but he's working hard with Air team to improve the performance and reliability of the air front seat. And we have seen in the months of Jan, the first positive result of his hard work, which is today an important stake for the Air France Management. Okay. To follow on with your last question, trust is obviously the base of, all of our discussions, the entire culture at, both El Paso and, of course, the Transavia But we've added 3 other focus points, and that has formed all of our discussions on the base for all of our discussions. In particular, that cost over the last couple of months. And that is respect, transparency, and confidentiality. If you look at, the number of leaks or press reports surrounding the, the last five agreements that have been reached between all the various stakeholders at Alconce. You'll see a significant reduction in the number of articles, which is, you know, big positive. And we have reached collectively, all these agreements in a very respectful way. And this is clear that, the LCOS teams wanna win they're, you're willing to, to really start to understand the marketplace, to look outside of alcohol, 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 Alfalf KLM has everything that is necessary to regain, our natural position at the top of the industry in Europe. Steven Furlong from Davy. Question for Ben, please. I saw in the governance comment about regaining European airline leadership. And if you were but I'm putting numbers on it. Would you see that as being size margins, returns, share price. I'm just trying to get a lot of kind of the North American type of metric on it. And the second point would be, just from what you've seen of other airlines around the world, maybe North American or elsewhere, Is there things that you've seen them doing? That is something that, made the industry best practice that when you came into Air France, KLM, you saw that maybe that was a bit so par here. Thank you. Okay. So 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, you know, long term stability in terms of maintaining, you know, that position and ensuring that we are best position to, to continue to grow and maintain that position through this ever evolving industry. In terms of different, different environments between North America and here, obviously in, in the United States, there are you know, 3 major full service carriers, plus one major lower cost carrier, a very different environment, than here in Europe. I think you all know the, the situation here, the market situation here, what we are, you know, with this new governance management governance structure we now have in place, you know, with the combined strengths of both FHA and KLM, we intend to use this in a much more powerful way going forward. And I think, to date that, you know, we have not been leading in that area compared to our 2 other major full service groups that we compete against in Europe. Hi, Nancy Olson from Credit Suisse. If I could ask 2 questions, please. Some of the presentation materials focused on investment in the premium It's just interested in your thoughts on the subject of closing the margin gap from, between Air France and KLM to what extent is premium revenue generation, a key component. And if you could help us by confirming the 2018 premium revenue contribution within the overall group, that would be helpful. And 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 and best in a quality top line? Or how should we think about that going forward? I can't 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. 5, 10 on leaseback of a trip or 7. Yeah. So 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 relook first to 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 And when you move from operating lease to buying aircraft, you are increasing the CapEx, but it doesn't change anything to the evolution of that attended that. Yeah. So I will advise you to, review of these metrics. We we use, especially after the new IFRS 16, which is, of my opinion, leaving a far better view on where is the balance sheet. And not making the balance sheet or some financial litigation as we transform by the choice of the feed between operating lease and and a full only and a full board aircraft. And 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 on instead of operating the east. Yeah. I think that the group, as you know, has under invested in the prior 2011, 2000 14, 15. And some analysts told us that we had CapEx below the depreciation, which was signals that we are clearly under investing. And on our view, we have to compensate progressively what we have done the year before. Under the financial constraint. But with the conditions that we do not deteriorate the additional debt on EBITDA. We show, which is exactly, for example, what we gave for the year 2019, we increased CapEx, but we understand that that on EBITDA we show is not expected to increase. Okay. And on your question, regarding premium and premium margins just following on what Fire Creek said. The previous contracts Alfa has had with cabin crew and with pilots were extremely, inflexible, around the, you know, cabin crew ratios There is a very complicated production balance that is in place between Alfons and KLM pilots, and under these new contracts that have recently been signed, there's a lot of added flexibility that will enable, you know, our group to optimize the premium cabins where there is good demand. So this will really help the group better position the various airlines in the markets in which they serve. And, of course, with Trello, you just said, we are going to move as quickly as possible to standardize the premium offering at El France. Good morning, Benjamin Frederick. Thanks for the presentation. This is Abad Spindelli from Palco Regional Limited. I have two questions, one around liquidity and the other around long haul growth and in emerging markets. Well. The first round liquidity is you've got a liquidity in total of 6,400,000,000 as of December 18. What is the split between KLM and Air France and whether Air France has access to Calend's liquidity in times of needs, for example. The second one is, In terms of long haul markets, are there any particular that's are there any particular countries that, Advanced Scale is looking to grow, including investments in other airline like we hear a lot around consolidation throughout Europe, if you can highlight on your plans on that as well. Thank you. I think the first one. Globally speaking, if you look at the, first, as you stand on EBITDA ratio, it is almost the same to the 2 companies. It is not the case in 2018 due to the strikes in Air France again, but you should take the number end of 2017. So just an added term EBITDA ratio was almost the same, which means that in terms of balance sheet, the company are not too deferred. In terms of cash position due to their size, respective size, the 2 company has a similar level of cash. So there is no big gap between the cash on turnover ratio in France and the cash on turnover ratio into into Kevin. And so, the strategy for the time being is of course that each company is responsible for its financing certain ability which means that CapEx in Durham, for example, are managed by Eric, which is a shimmings, a financing of the aircraft and developing it own operation that, of course, in full cooperation, transfer on seamlessly, and with all the colleagues in the financial department, so it's it's 380 from the state of Africa. Okay. And in emerging markets, obviously, we're extremely interested in India. And, China, you know, we have, some unique challenges in expanding in the Indian subcontinent, you know, in, in part because of, you know, the lack of a level playing field with the Gulf Carriers. And in China, you know, these are new markets with, different types of competitors. But long term, these are 2 of the biggest opportunities, for the group. In terms of focus on other investments, I mean, we have considerable work to do, in bringing our costs back up to the level that it should be at in terms of product and profitability. So this will be part of, you know, one of our main priorities in Focus. And then in Amsterdam, we do have an airport that is pretty much reached its current slots maximum, you know, the maximum number of slots that are there. So we need to ensure along with the authorities at Skippel and this the airport that we're hoping will be built if we have a further opportunity to grow long haul destinations at Amsterdam as well. So we'll pause now to take the question for those which are linked to us by phone. Thank you, sir. We'll now reopen the line from Mr. Jarrod Castle from UBS. Please go ahead. Your line is open. Thank you, and good morning. So take 2. Just coming back to Neil's question, if you can actually provide a number, post 2019 for CapEx, if that would be quite interesting in terms of how we should be thinking about it. And I guess also linked to the the balance sheet, you kind of say you want to obviously reduce the net debt EBITDA, from 1a half times, but are there any, 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 kind of some cost and competitive pressures? And do you think you can stabilize profits from these levels? And then just lastly, that doesn't seem like it's impacting your bookings at the moment that much, the, the, the, the unrest in France. But when do your group bookings start to rarely come through going into the summer? And and do you think this will have an impact if if those if that unrest continues. Thanks. So for the time being, we have not yet, as you know, then ask us to work on the medium term strategy and the team for the time being working under his leadership to see what could be the final trajectory for the group for the year. So I will need to not give you now. Any views about the regulation of the CapEx for the years to come, And I also come back to my remark before CapEx is important, but it's more important for my opinion to look at the evolution of the address an net debt, and so just an net debt on the EBITDA. If you want to judge, where is the, the evolution of the bad balance sheet of the concerning dividends, I have, 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 1 year more or less ago that is the result of 2018. Where close to the regions of 2017, the question of a dividend will become more and more relevant And now I'll let you interpret with the results of 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 flight erosion of the margin. And 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. But I agree with you that the stabilization of the margin is MRO is something which is extremely important. This is the case, by the way, when you look and co pronounce the situation a little bit more difficult concerning the engines with a lot of competition. Also, competition on the market from the manufacturers, which is something about you. Is stronger than what we had before in this market, but even with the slight diversion, You will see that the level of a margin is still clearly, acceptable. It's difficult to say, when we give the bookings for June, of course, they are still weak in terms of percentage. With the people of the money management consider that it is already significant. But if you look at the booking from from July August, We don't give the 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, too much, not give too much confidence to this booking load factor for Absa of the full summer. So that's why for the time being, we cannot say a lot. I'm just telling you that when you look at, April, May, June, we is relatively significant numbers, which is early summer, a more promising set what we tell you concerning the first quarter of 2019. Having said that, you're perfectly right. It's an always would continue and continue. It will have ultimately an impact from the summer, but, okay. As you, as you know, the movement is you have a weakening that's strengthening for the time being. And let us hope that everything will come back to normal as soon as possible. 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. What do you think it'll be up in the premium cabin? And then on the all my other questions actually relate to the pilots deal specifically, well, 4 things. 1 is the timing when you'd expect it to be or CLA signed? Secondly, the length of the deal, I assume that cabin crew is just to the end of 2019. And thirdly, quantify the pay increases. And finally, whether the pilot still is included in your current extra CASK guidance for the year? Thank you. I don't know who this is. Sorry. Sorry. Yeah. Sorry. I I was a bit to us by by your global question. The cost of the agreement with payload 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 the efficiency of some working rules. So globally, we are close to the balance. It will have an impact from the beginning of the year. And of course, it is in the forecast we gave you in terms of unit cost. And I'll just add to Sanofi's comments. You know, one of the key, I'd say positive results that came out of this negotiation was, you know, a significant removal of numerous commercial constraints that were in place in the previous contracts. And, also, it opens up the door to having, you know, further discussions with our pilots around other ventures that had previously not been possible. Including some investments, if, you know, if those types of investments come up, you know, there's, perhaps, you know, an easier way of moving those forward. So I think number 1 is what's already agreed to, which is, commercial constraints, significant commercial constraints that, that were within that were in the previous contracts. And with this new positive dialogue, we believe, there'll be further you know, further opportunities going forward that would not have been possible with the previous, the previous contract. And sorry, does it still just runs 2019? I think you said, is this just effective for 2019? If that's the correct question, because it was a little muffled. And the commercial constraints that have been removed, are part of the living contract with our pilots. They do not have an expiry date. The, the wage, increase, that we have in place, I believe, is 3 years but it's in place. I could be wrong. We can check that to get you the exact number. But, it's the commercial constraints that are the the main benefit of, of this deal and those, are, you know, in place, you know, for a perpetuity we hope. Q1 premium, if you want, if you can. And your question is, you know, we're not quite sure what exactly your questions are. It's not coming out clearly. My apologies. If you can, Amy, I'm just looking for whether you expect Q1 2019 premium revenue unit revenue to increase. I have no specific information. Sorry for that. When you look at the term of, which is coming from what we call the big accounts, I will say that the trend seems to be normal. So there is no specific amount coming from the different in terms of booking between premium and You can find me on a an economy, I think. I have never had bad dealings of your meeting. We have every every 2 2 weeks. Thank you. Thank you. Thank you. We'll now take our next question from savi Saip from Raymond James. Please go ahead. Hey, good. Good morning. Just two questions for me. Just with kind of years lower and fuel higher this year, I'm a bit surprised that plan is to grow faster. And I was just wondering as where this growth will be focused that gives you some confidence that maybe we could see an influx in yield positively. And then the second question is just on the CEO community structure. Wondering if you can, clarify what that brings What was that? We didn't hear quite well the question to be honest. We'll now move to our next question from Jamie Robotham from Deutsche Bank. Please go ahead. Your line is open. Good 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 6 fuel of flat to minus 1%. I just wondered how you've thought about the additional costs of the labor agreements you've signed versus the potential for last year's very material. I think it was 1,000,000 of strike related disruption not to recur So, you know, what have you assumed on strike related disruption? What are you what's your working assumption? And 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% lended margin, operating margin for the Network Airlines. I wondered, Ben, 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 values agreement in both France scale and and the last a good month to sign, in Air France with the pilot and the cabin crew. Having said that, there was also a lot of other calls that we back to control better in 2019 compared to 2018. If you remember, what looked on that or recently, for example, concerning the cost of indemnification vis a vis a client that gives a number of €500,000,000 in 2018. We consider that in Air France Care, it is close to 400,000,000. So the low quality of operations, Melina, from the system 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, perform in terms of operation, we would reduce drastically as 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 LM and Air France. It means that there will be a more efficient fleet with far lower operational cost. As you know, 3rd element is the new agreement concerning the joint venture with Delta. You know, that we have seen a bit technical, but we're based the year used for the calculation of the settlement, which means that this cost reduced 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 NEC program was 1,000,000 since year. We expect more than 1,000,000 So I can make the long list of all the effects you have to take in account if you want, we need to have a precise view on the evolution of the unit cost for the year 2019. So goodbody speaking, the assumption of the guidance we gave you is a result of a very precise and accurate, digit exercise taking into account all the projects all the elements which are making the day to day life of the management of the group. And 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 days and labor deals, in particular, with our pilots and our cabin crew, at LCrop in, you know, by removing the commercial constraints and also just coupling on what Frederic said, including the operational performance and driving more simplicity throughout that pause. Obviously, the goal is to, as quickly as possible, close the gap in operating margin, between that pause and KLM. Course, here in France, there are some unique, challenges, you know, with, some very expensive costs, unique costs you know, that all airlines incur, and we are working closely with the government of France through the African hospital exercise, to work, on better left lane of 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. 2 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 investments in some both in CapEx OpEx into the business and hoping for return later. But when you look at the margin, one assumes the cash generation differential in terms 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 payer dividend. Is that going to accumulate in the parent company or would it be sort of reinvested back into our France equity? So if you could be clear on where that cash ends up, that would be interesting. And then secondly, clearly, it's not just the julier jaun, and the French composite PMI looks pretty weak at the moment. Within the plan and within the pilot's deal, you now have how much flex is there in the business to do 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 to internally is that as it is normal, the 2 carriers are contributing to the OpEx budget of the holding and to the financial cost of the holding. And 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. And Chevron's situation of the balance sheet of both Air France KLM are relatively similar. I told you before that the just a minute on the EBITDA we show is almost the same for the 2 companies. It was almost it was the same 2017. It's a big difference 2018. And the level of the debt, if you look at the ratio debt on turnover, it is also a credit close for Air France and Karen. So, clearly, there is a strong impact of margin, but in terms of balance sheet due to company and situation, which has relatively close, which is supportive to the malware. Everybody is in charge of its own financing. Thank you. From Nula McMahon from Goodbody. Please go ahead. Hi, guys. Just three questions from me. The first one's on Transavia. And I note in your presentation, you're saying that it'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? And also sticking with Transavia or the polyps and cabin crew also included in your wage deals. Secondly, on the ancillary side, you know, the 650,000,000 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? And then thirdly, just on your unit revenue guidance, I'm specifically wondering about trends by region. So 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 Cabot Group not included in the recent agreements. The, the CLAs, the, at call are negotiated separately. And 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, but we do have a commitment, from the, the Netsenpale, large ship. That's the larger pilot body that, we will immediately start working on this, on this topic once the general union elections are completed the 1st or 2nd week of March. Concerning the unit revenue per region, of course, it is extremely, it is still that I would charge fragile because We have not yet the the full information you need. It all says that, it is negative globally for the long haul. The same level of magnitude concerning the feeding and domestic. So there is no big differences in terms of trends we see for unit revenue during the first quarter. When you look at long haul feeding or, domestic. And in a long haul, As before, we see probably more weaknesses in South America. That's where we continue to grow more, and it is a specific impact of Brazil and Argentina. And it is a bit less negative to Asia. So more or less the trend we for the first quarter are relatively well aligned with the graphic I presented, in, in my speech when you see per country is evolution of the, fast, to Asia and North America and the other part of the world. So let us say that we continue with the same trend as we have seen in the Q4. And just the last question on the ancillary side. So we take your last question, if you want. By phone. Thank you. We'll now take our last question from Johannes Brown from Mani First Bank. Please go ahead. Your line is open. Yes, hi, good morning. Just two questions left for 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 1,000,000 of euros, if you can. And then secondly, obviously, you pulled out of the Alitalia saga. Can you just tell us why that was and also what your view on Ali's Tardia now is especially regarding the role it might play within your TV with Delta? What are you doing here? We we told already that, you you know the cost of the full year agreement which have been signed last year in KLM and finalizing September to go into Air France. And concerning the recent agreement, we consider that they are close to be balanced if you consider together the what has been negotiated for the employees against the rule in terms of flexibility and in terms of evolution of the working rules, So which means that it is considered as a balance. And in terms of Allotallium, we continue to observe the, the process and what is going on. We are not active participants at this at this moment, but, obviously, the Italian market is extremely important for the group. But as far as Alitalia is concerned, we are, hopefully active actively watching the events that are unfolding. Okay, so thank you very much. And 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.