Earnings Call: Q3 2018

Oct 31, 2018

Everybody, thank you for attending this presentation of the third quarter 2018. We are pleased together with Banyami Smith to welcome you. And before I go through the presentation, I would like to hand over to Benjamin, who will start this conference call. Benjamin, please. Okay. Thank you, Frederic, and good morning to all of you. It was important for me to take part in this call today and to introduce myself. As you know, I joined the group in September, coming from Air Canada, Aviation is my passion. I have exclusively worked in the aviation sector since the beginning of my career almost 30 years ago. And have been fortunate to have held jobs in almost each sector of our business. So throughout my career, I have always looked at Elfrance and KLM as being very powerful brands with strong reputations around the world, a long standing heritage, as well as being innovative and having a customer oriented spirit. What I have seen over these 1st weeks at Alfron's KLM is about that. I have been to the hubs at Tari Chateau and Schiphol, and met with pilots, crews, and ground staff. Their passion, their pride, and their dedication to their work is undeniable and incredibly valuable for the group. The Alcon's KLM group reflects both airline strengths, the creation of a European group, building a leadership position through 2 main European connecting hubs was extremely forward thinking back in 2004. This ambition to be amongst the top airline groups from Europe, has led Alfron's KLM to build a large network relying on strong alliances. Over the past weeks, I have also met with most of our partners around the world, and I can confirm the strength of our international Anchorage Over the years, the group has also built differentiating strengths when it comes to its outstanding expertise and customer experience, revenue management, commercial strategy, and innovation. And we could leverage much more on these assets. This is one of my first convictions Another strong conviction is that the value proposition is key in such a competitive industry. It relies on each brand's strengths and values. It should be clear, constant, and reliable so that we do not disappoint our customers. This is how we will meet and exceed their expectations. I will not commit on an agenda regarding the unveiling of a new strategic initiative for EfroskLM. But I can tell you that we are currently defining our priorities and that we will get back to you as soon as we are ready to move forward quickly. Finally, as you know, I have spent a lot of time discussing with Alfonso's social partners in order to solve our differences. I would like to thank all the parties involved for their spirit of responsibility and their mutual trust as a first step. Thanks to this way of working together, we have been able to reach a solution that both meets the staff, expectations, and provides LCOS and Alfon's KLM with a new perspective going forward. We will keep this approach to pursue discussions with our Alfon pilots and other professional categories within categorical discussions. Before handing over to Frederic, I would also like to thank all our group employees for their strong involvement in the summer quarter operations and for their contribution to our solid performance. And I'll be available afterwards to take some questions I will not present this result of the third quarter. I go page 2 of the presentation when we have the main as a main message. We would like to give you today. We think that the quarter is characterized by the good resilience of the operating results. And that is also characterized by a very good performance of the sales force in all the main businesses of the group, as we will see later. The number of passenger, if I take the network, plus Xavier together increased by 2.3%. And ZARASK, as unit revenue collected for the currency, has improved by 2% versus quarter, which is, we think, a very good performance altogether, in spite of the increase, as I should build by more than EUR 200,000,000, you see the good resilience of the operating results. For the quarter, we have operating results above 1,000,000,000 0.06 size, more precisely, which is a slight decrease compared to last year in the range of minus 6%. Also, an adjusted operating free cash flow close to 0 minus 14, but the adjusted operating free cash flow is positive over the 9 months since the beginning of the year. And you will see later on that the adjusted net debt of the group is decreasing compared to the beginning of the year. So all in all, the fuel bill increase the unit cost decreased slightly by minus 1%. And thanks to the good commercial and sales performance, we are able to keep operating result not too far to what it was in 2017. Another quite important achievement of the quarter is success of the labor wage negotiation in Air France but also in KLM concerning Air France. Ben just give you the information about the fact that the 19th October, the company and the unions representing more than 75% of the total staff assigned agreement concerning the wage increase for a period going from beginning January 2018, up to the end of 2019, October to be precise, and, you know, the terms of this contract. In the same weeks, KLM has also achieved as a round of negotiation with the ground people with the acceptance by the unions for balancing ground people. For the proposal concerning the series. So which means that for both cabin, ground and cockpit, we have also in KLM, a full set of CLAs, labor agreement, which will be effective until June 2019. I move page 5 of the presentation with a financial number I would like to insist with the development of the revenue, which is increasing by 4% compared to the third quarter 2017, but if you correct, for the currencies impact, since evolution will be in the range of +6 percent plus 5 point 8 to be precise. We have been hit, of course, by a headwind coming from the move in currencies expanding is different, but clearly, if you correct for fluency, you see a dynamic growth Of the group revenue, EBITDA is slightly decreasing, minus 4%. But at a good level of 1.771. And again, if you correct for the currency impact the EBITDA would have increased by 0.3 percent, the stability of the EBITDA. Operating result, I said that before more than 1,000,000,001,000,000,001,000,000,000, a decrease of minus 6 compared to last year. And again, because of the heat of the currency movement, if you correct, we would have an operating result slightly increasing with 1% compared to last year, operating margin at 14% 14.1 during the quarter 2018, net income close to EUR 800,000,000 slightly increasing compared to last year, but last year, if you remember, The net result was hit by some one of one of them being the impact of the new deal with the a KLM cabin function plan. In terms of net debt, we have a decrease of the net debt since January of 1,000,000. On top of that, you have the impact of the reimbursement of the the hybrid, you know, that we have bought back part of the hybrid, which was in the market, we have bought back EUR 211,000,000, which means that this EUR 211,000,000 have increased the net debt, which means that without the hybrid impact, the reduction of the net debt should have been in the range of minus EUR 400,000,000. And thanks to the evolution of the net debt, we continued to keep the net debt on EBITDA ratio at 1.4. Going to Page 6, we have a description of the contribution of each business to the evolution of the group result I said that the first characteristics is a very good development of the unit revenue for all business Concerning the network, we are at +.8 percent, concerning the cargo, it seemed quite positive in terms of unit revenue +6.7 percent in Transavia plus 4.5 percent in unit revenue, in spite of together with capacity increasing by almost 6%, which means that in total, the capacity of the group has increased by 2.3%. The unit revenue by 2.4%. And the revenue, which is more or less a combination of the 2, increased by 4% as I told before. I would like just to take the opportunity to emphasize a very good result of Transavia to see both the capacity and the unit revenue quite positive development, then the revenue increased by almost 11% and also quite important. The margin during the summer period is extremely high, close to 30%. And important also, it is almost a same order of magnitude for Transavia France and Transavia Holland. And we now expect to have the 2 companies being, of course, profitable by the end of 2018 with the same order of margin for the 2 Transavia, the one based in Iran, the one based in France. Concerning the matter now, the commercial result are good. You see the revenues increasing by 9%. The maintenance order book also increased is now at $10,700,000,000, which is an increase of a $300,000,000 compared to the end of We already indicated that to you before that the margin of the maintenance is a bit under pressure due to the high level of competition in cease activity, and we are addressing more and more carefully sees a new order intake in order to be focused on machine optimization. I go to the Slide 7. You observe very good behavior of both capacity traffic and unit revenue in almost all subnetwork with 1 bin exception during this summer, which is Latin America, We have increased capacity by 7%. And you may need to the difficulty in Brazil and Argentina, you see the unit revenue decreasing by 2.4%. Other demand, where the situation is still difficult to manage the medium haul point to point, which is mainly the French domestic market, when you see that in spite of relatively a slightly increasing capacity, plus 1%. We have a WACC, which is negatively oriented at -3%. But on the other hand, you see the very good result of the 2 hubs where the RASK for the European flight, both in Air France and in KLM. The RASK are positive. 2% on the goal and in the range of 5% at Schiphol. Concerning the cost I move page And we have a reported change in terms of unit cost of plus 2.4%. If you call back for the currency effect, which accounts for 0.6% and for the fuel price effect, which is 4%. We have in total unit cost at constant currency fuel and pension expenses, which is -1 percent So we are still, of course, consistent with our target in terms of unit cost for the full year 2018. Part of the good performance in terms of unit cost is coming from the productivity and the change in staff cost. Page 9, you can see that we have increased bids of FTEs compared to last year. 850 for ground people, 300 for cabin and 250 for pilot, mainly due to the capacity growth, but in spite of that, we have an employee productivity, which is positively oriented and at 1.6% compared to last year. And if you look as a total staff cost, you see that they are slightly declining by EUR 11,000,000 compared to the third quarter 20 thing. So basically, the stability of the labor cost. As you know, just a technical remark the agreement signed in Air France has been negotiated and signed as per the closing debt after the 30th September, which means that the provision concerning the retroactive impact of the deal for the period January, September will be taken at the beginning on Q4, but have not been taken in Q3. It is a post event, treatment that we have adopted. However, I would like to insist that even if you integrate in Q3, the effect of the new agreement, which is in the order of magnitude of 1,000,000, the change in total staff cost would have remained a very stable staff cost compared to last year. If I go page 10, you have the global picture explaining the evolution of the operating result but nothing new. If I have been clear before, you see the currency impact minus 88, the fuel in the range of minus 200 and these 2 negative every month are compensated by the very good behavior of the unit revenue, which is contributing plus 155 and the good performance in terms of unit cost, which is contributing Plus 55 and altogether These values elements explain the slight decrease of the operating result compared to Q3 2017. Page 11 evolution of the, operating margin, revenue, EBITDA for the 2 company Air France and KLM. Not a big surprise. KLM as performance, higher than Air France, a margin of 'eighteen for KLM11 for Air France and the evolution compared to last year, is similar in the 2 companies reduction of the margin by 1.8% for Air France. Page 12, let us look at the adjusted operating free cash flow. Then we see at the KPIs over the 9 months period, and we are posting free cash flow since January positive of plus 1,000,000 It is explained partly if you look at the difference compared to last year, of course, by the impact of the strike, for the 1st month of the year, into Air France, which explains that the cash flow, the operating cash flow is a bit less compared to last year. And you see also that we have invested a bit more than last year over the 9 months of the year 2018. But more important than I go page 13, we continue to reduce the adjusted net debt. You know that since the beginning of the year, we calculated net debt accordingly to IFRS 16, based on these new IFRS standards, the net debt end of the year 2017 was 6,600,000,000. And if you look at, what it is today, we have a net debt end of September of EUR 6,300,000,000. So it is a reduction in the range of EUR 300,000,000 And keep also in mind that this debt is negatively impacted by the repurchase of the hybrid when you buy back an hybrid is increasing your debt because as you know, it is accounted as equity. So without the repurchase of the hybrid, the net debt would have decreased by approximately 500,000,000. The adjusted net debt on EBITDA ratio is still 1.4, so it's stable since the end of 2017. And the liquidity situation is a bit lower, 6.4to5.7, the round is mainly explained by the fact that the holding Air France KLM adds around both 500,000,000 in January $200,000,000 recently with the repurchase of the hybrid. And the holding itself has not launched any new financing. So it is just the normal explanation why the cash situation has a bit reduced compared to the beginning of the year. If I go page 15 concerning the outlook, First, concerning the outlook, we show in the slide, the of the long haul for our booking load factor, they are positively oriented in October, November, December compared to last year. For the time being, January is comparable to January 18. And in Feb, we have also a slight increase of the for one load factor for the month of February. So globally based on the current outlook and the demand environment that remained positively oriented. We expect passenger network revenue to increase ahead of the last year and passenger unit revenue stable at current currency compared to the very good quarter, Q4 2017. If I go page 16 for the fuel bill, Nothing really new. If you compare now, so it should be in 2018 to 2017, we have now an increase $500,000,000, which is a bit more compared to what we told you at the end of half one and concerning the evolution 2018, 2019. Today, in euro, we moved from 1,000,000,000 in 2018 to 5 point 9 percent in 2019, taking into account a positive result of the hedging policy. Which is estimated as a current forward curve at 1,000,000 in 20 19. Then in total, as a conclusion, for the full year guidance, concerning the capacity we made a bit less development of capacity during some, compared to what we expected, so which means that for the full year 20 18, we have no guidance, which is capacity for the passenger activity between 2.5, so a bit lower which is mainly the result of what happened in the third quarter. The development of capacity in Transavia is unchanged It is still for the full year between 8% 9%. For the fuel, as I told before, a bit higher fuel for the total year 2018. It was expected to be plus 4.50. We expect now plus $500,000,000 compared to 2017. The headwind in currency is unchanged Our target for the full year in unit cost is unchanged compared to what we told you in July concerning the CapEx, we move very slight movement from 2 to 2.5, which was the range we gave you in July to a CapEx narrow between 2.4 and 2.6 which is mainly explained, to be honest, by technical issue, we have reviewed recently the way we are looking at the shop visit for the operator lease aircraft. We have decided finally to go for capitalization which is contributing to this slight increase of the CapEx compared to the guidance given before and concerning the debt. If you look as what I told concerning the debt development, we continue. Of course, to have a reduction of the net debt over 2018. So this is the end of the presentation. And together with Benjamin and the team around me, we are ready to answer your question. Thanks a lot. We will now take our first question from James Hollins from Exane. Please go ahead. Your line is now open. Hi. Good morning. A few from me, please. First one is just on your full year 2019 capacity plans. I was wondering if you could quantify them and whether they've been perhaps come back a bit. Obviously, your friends in Germany brought those back. I was wondering if you were changing those plans. The second one is on the premium cabin. Your Q4 comp is 9%, but your Q3 comp was over 8 percent and you've delivered premium at over 4%. I was wondering if you could comment on the Q4 premium cabin trends and whether that would still be expected up in q 4 on the premium side. Another one first on, I'd like to welcome you, Ben, and and also love to get your thoughts on what you've seen particularly as we go into the private negotiations, perhaps what they want above and beyond the cabin and ground and just your thoughts on a what you like and what you don't like? Thanks very much. Okay. Well, thank you. It's Ben here. Thank you, for those comments. I'll let you answer the specific financial questions that you post? And then I'll follow-up. Concerning what we have today in our plan for the capacity in 2019, if I correct for the strike, which is probably the best way to compare, in long haul, we are in the range of 3%. Which is accordingly to what we said before. Concerning the hub medium all, between 1% 2%. And concerning hope, for the domestic network in France, for the time being, we are at minus 6%. So clearly, it's characterized by a growth in long haul, which is according to what we said before. So we are not considering today compared to what was announced by Lufthansa yesterday to drastically reduce capacity, but it's also true that Lufthansa was far higher in terms of planned or announced capacity. And also, the capacity for 2019 are also characterized by the continuation of the restructuring in the French domestic network. Concerning the, concerning, sorry, the unit revenue. So it's true that if you go back Page 7 of the presentation, you see the high contribution of the premium to the development of the unit revenue during the quarter. For the time being, when we look at the forward load factor, we are not differentiating the premium versus the non premium. I cannot give you a precise information on the development of the premium cabin for the Q4. Let us just say that I have not received any warning at that stage. From the sales team and from the revenue management team. Okay. I'll just add, add some comments here. So what has impressed me and what has, would have met my expectations. Now that I've been here, despite the over 6 weeks. So following KLM and Alfons, my entire life, you know, very impressed with these brands. That was, obviously, one of the major reasons why I decided to, join the group you know, in mid September. Very clear that both major brands have extremely proud very professional and experienced team members throughout both organizations, specifically here at Health Cross, We are spending a lot of time, to build, trust and respect which, I think, needs some work here, doing as much as we can to increase transparency. And, you know, we saw some early, positive results out of, adding some focus to those three items in the 1st 4 or 5 weeks. And then specifically with, the talks we're currently having with our pilots, we have official talks or discussions and negotiations with this group at El France starting on 5th November. And again, I'm optimistic that if we can continue the type of dialogue we've had with the, with all the teams that, that took place from week 1, when I started, and I'm optimistic that we can make some progress on the type of discussions that we've had in the past and come to you know, a, a successful conclusion of those talks. It's a bit early. We're starting on November 5th, and, I'm sure based on how, how things are related to the public here that, you'll be up to speed. Very, very quickly. Thank you. We will now take our next question from Nael Glenn from Credit Suisse. Please go ahead. Your line is open. Oh, good morning, everybody. Neil Glynn from Credit Suisse. Also welcome, Ben. If I could actually pick up where you left off there, just a couple of questions on labor and I'll follow-up with one additional, if possible. I recognize clearly you're somewhat limited in terms of what you can say for now. But just interested in terms of high level thoughts, I followed what you what you've done with Air Canada and been a part of. But how do you think about growth investment and profit sharing as a carrot for labor in general in terms of trying to get things done and agreed. And second, following on from that, just interested in your take in terms of operational culture differences Europe versus North American markets and how that impacts what is achievable within Europe broadly? And one final question, just on a new business models, low cost, short haul, low cost, long haul. Trump's obvious had another very impressive performance I saw today, Tier 2 unit revenues leading the way there, but interested in your thoughts on the margin thresholds that would be would represent success for Transavia and June over the medium term to be classified as creditable long haul or short haul low cost carriers or value carriers to use your terminology given, I think, the markets credibility there is still somewhat limited. Thank you. Thank you. Neil, also for your welcoming comments, In terms of, our discussions or negotiations with the various team members here, specifically at our costs. And whether, growth is being, is being used as one of, one of the carrots, as you described, to try to, come to better conclusions. I would say it's not a, it's not the major you know, tool that we are using, as I said in my earlier response, it's, what I think is much more important is, improve transparency, trust and respect and understanding that a stable environment within our group, will be extremely important component of being more comfortable with the level of risk that is, in this business that entails any type of growth and that, any type of growth that we'd be looking at doing is much more difficult that we don't have stability. And with, I think, with transparency, improved transparency, at least now I think we can have a more fruitful discussion with many of these groups. And that is, I think that's the most important It's actually dangle. Are we going to add 2, 4, 5 airplanes? If we don't have those three items, I think it's a, you know, it's not a great tool to use at this point. In terms of, low cost, and margins, obviously, with our Transavia unit, the closer we can get to our competitive low cost carriers would be a start. In terms of margins, opportunities for the group to look at other other parts of the market long haul, you know, further medium haul, what would be acceptable with June, you know, how we're going to react to the existing low cost long haul that operate into our 2 major markets, still to be determined. And I think we want to ensure that both main main brands that we have are solid and have a well thought out future. But at the same time, ensure that we are you know, we are observing, and coming to, you know, a clear assumption within the group on what our competitors are going to be doing in and out of our major hubs and also in the surrounding areas. And do we have what we need, from the various options to compete effectively or in some cases defend areas are pre empt, other carriers were coming in. So in terms of long haul, low cost specifically, I get asked that question a lot. And I think it's a bit early for me and for the team to probably state what our position is on that and what our plans are. We will now take our next question from Andrew Lobbenberg, HSBC. Please go ahead. Your line is open. And then, welcome to Europe. Can I ask about how you're thinking, about solving the the wound that existed between the French and Dutch charms and how quickly you can look to, try and build the group in into 1? And then secondly, with regard to the labor situation, how do you see the pilot the overall union elections and, and specifically, the the elections within the SNPL are playing out and influencing, your ability to bring this special situation forward. Okay. Your first question there on the relationships that we have within the group, I would say the huge portion of, the people I've come across is the majority of the combined teams are working actually quite well. No, it's what I would have expected, actually, in some cases, better. So I don't think it's a good characteristic characterization that, there are major wounds or, you know, issues. Yes, we have, you know, some differences of opinions and lots of outside views on what doesn't work between Alfonso KLM. Obviously, a very unique setup, the way we have it here. There's no, there's no comparable around the world. But, the more we can do to optimize and, you know, do what, you know, what most major groups do when they, when they consolidate, that's obviously our goal. And any internal struggles should be addressed as quickly as possible. So merging 2 cultures also with different types of competitive environments in the 2 major hubs, challenging, but at the same time, huge huge opportunities So I think as long as we are aligned within the group on how we'd like to prioritize our future, I don't, and I don't expect that to be, you know, insurmountable. I think we have way more assets than we do, liabilities from an opportunity perspective and from a culture perspective, that is what we're going to focus on. In terms of the you know, the pilot elections and specifically the, as in Dale, you know, this is, I think, it's clear our pilots at Alcon want a more stable airline. They want to win. They do want a sustainable future. And I think more and more, there's a common belief that, ways of the past have not helped, not helped anybody. And so again, if there's the transparency, there's a belief in, you know, what it is we'd like to do. You know, it's been well demonstrated many other airlines that the pilots here at LCOS. You know, optimistically, we'll, we'll take the same view. We said we have a you know, we have a great group of experienced pilots here who are extremely professional, love this airline. We're just going to find a way to ensure that that that gets focused into a good way forward. Thank you. We will now take our next question from Jarrod Castle from UBS. Please go ahead. Good morning, and, welcome, Ben, as well. Just a couple of questions. Firstly, what one for Ben, and maybe, 2 Frederick. Any views in terms of gaps that you see in terms of, senior management in terms of adding additional resource at that level, and your thoughts of of of kind of the current team if you've prepared to give any thoughts. And then just in terms of, the stable constant currency, unit revenues you're kind of talking about in Q4, you give a bit more color in terms of some of the specific markets? Because, obviously, you saw some very good, constant currency unit revenue growth, so just a bit more geographic, color. And then, in terms of next year, Vivek, any thoughts in terms of refinancing? You've got a bit of, debt coming due and, what you're thinking there? Thank you, Gerald for the welcome. In terms of, gaps or additions to the senior executive team. It's just over 6 weeks for me here. I'm still meeting everybody. It's in Paris and in Amsterdam. So the teams so far are excellent, whether there should be any additions or movement between the groups? It's a bit early for me to, to comment on that. Unit Revenue, I just say that a bit like in the Q3, there is always a difficulty coming from South America. With the evolution in currency. By the way, you can be surprised to see how we increase the capacity in South America together with such a decrease in the unit revenue, I just would like to warn you that we are not going to buy into in now, you are mainly growing to audience countries, which are not hit by the same evolution of the currency. Good body spacing in the Q4, we don't expect a very positive not to be more strong unit revenue coming from the South America. For the rest, we expect positive unit revenue from the Middle East. And also in the 2 hubs, we are also expecting as we see in the Q3 3, a positive development of the unit revenue. So all in all, we are back to what I said during the presentation, we expect growth of the revenue in the passenger activity. You see the four-1 booking, which positively oriented in October, November, December, February, Jan, and a bit increasing in Feb. And altogether, we are due also to the fact that the last year was a very good Q4 In terms of unit revenue, we are, for the time being, expecting a stable unit revenue compared to last year. Your second question concerning refinancing. The reimbursement next year has relatively limited. I would say it 700,000,000 for the 2 subsidiaries. There is nothing at the holding level. And, I think it will be normally refinance using operation, could not arise by aircraft At that stage, we have not discussed at the goal level any opportunity to refinance the holding efrance KLM at that stage. We will now take our next question from Daniel Rosa from Bernstein Research. Please go ahead. Much. Good morning, gentlemen. Welcome Ben and many happy London. Maybe picking up on that, debt refinancing and cash flow aspect, maybe just more broader common federal, if you would, on 2019, 2020, you've got several that instruments coming up. You've also got long haul. While they're coming up, which would suggest higher capping forward. You also talked about fleet RFP for all in the past. How would you see your net debt EBITDA ARGUS status to hold up in that environment? Is it fair to expect a little bit of an increase of that ratio again going forward. Second, staying on short haul growth, we're arguing with the fleet RFP. And how are you thinking about short haul growth next summer looking at your deliveries you have on the book right now? Does that indicate you're considering some leasing options for next year? Or how will you kind of secure some growth for TransAlvias? In the French GDP market. And then lastly, Ben, if you would, you would comment a little bit more on the broader sector level, maybe where you see the main differences between the North America and Europe today? And how do you think that will develop or develop in Europe going forward and how Air France KLM will try to capitalize on that development in Europe? Just checking, I think your line broke up a few times there. I'm not sure if we caught all of the questions, but we'll let Terry start and maybe reask some of the maybe for some clarification if we didn't quite grasp everything there. Yes. Concerning the evolution of the 1st of the realm of smart of the debt, I will say that the profile is what evenly flat. Every year, you have for the airlines in the range of 70800, which is based on the financing of aircraft. And in the holding, we have million of the hybrid, which are coming in 2020. And a 600, which are plain Vanadilla Bonds. If you look at the today at the holding level, I will see that up to 2021, there is no no no difficulty So, again, I think that the cash level of the company is today. The cash level at the holding and the reimbursement for fiber actually flat give us a great comfort in terms of financing plan. Do not forget on top of that that we are see 200,000,000 in Amadeus Shares and that there was also a 60% of sale there to be sold or put to the gate group, which is also some reserve in terms of asset ready for sale. Concerning the CapEx and confirming the ratio. We are relatively happy with the level of the adjusted net debt on EBITDA ratio. We can see there that when we spoke with some banks and some waiting agencies, but in terms of final structure, when you are at 1.31.4, It is close to investment grade, but of course, I let you judge, which means that whatever is a plan we present to the board automatically, we try to build something where we are not deteriorating anymore. This will show adjusted net debt on EBITDA. Which means that, in all the plan, we try to build are focused on the sustainability and the financial stability of the group as a whole Thank you for the welcoming remarks. And so differences from my perspective on the European versus the North American market where I've been working for 28 years. So I'm sure you're aware in, in the U. S, we're down now to 3, 3 major legacy type carriers and 1 major low cost carrier, somewhat similar setup here in Europe, but obviously, Easyjet and and Ryanair are very different to Southwest Airlines. And so I'm fully understanding that and looking at various opportunities and slot, the various slot restricted airports versus gate restricted airports. This is going into are, you know, our decisions on how we're going to move forward. Also, the Gulf exposure, Gulf Airline exposure, you know, obviously, much greater for European carriers versus North American carriers and what our expectations and assumptions are for, how that we'll play it going forward. So that's going into our analysis and decision making, process and how we're going to move forward. Paris, one of the top markets in terms of growth, especially on the leisure end and how we want to participate going forward in that, with those opportunities in which specific sectors, we believe, we we can win in. But overall, I'll just give you a few more thoughts on my initial observations. I'm very pleased with Amsterdam despite limited opportunities for frequency growth, but we do have opportunities for gauge growth with the airport from a slot perspective being full. The model there started in the 60s and we find and optimized, you know, every decade. It's been great to see more of the inside behind the scenes, view on how our operation in Amsterdam works and I'm extremely impressed with that. But Alfcon, as I said, with the huge market here in Paris with the fact that child ability is not full that we have an extremely attractive for runway, for parallel runway operation here, that we do have some constraints on the way we operate our hub. With, with, I'd say, somewhat compromised terminal situation. But, you know, having, a good relationship with I hope all the caveats, and their desire to, to grow and to look at a new terminal 4. And the opportunity for us to play a major part in, the design of that terminal, I think, is, something is very good for off costs. I mean, of course, joint ventures. We have, I think, the strongest joint venture with Delta and across the Atlantic now being enhanced with Virgin Atlantic. So this is another area. So this is in a very long roundabout way. There are lots of opportunities how we are going to, prioritize those, which ones are best for, from KLM. Obviously going to be determined and also how much flexibility we get with our labor teams, labor partners to see where where we might be able to, shift our ability to compete in some of these sectors where we previously were not in the position to do that. Great. Thanks. Sorry, the line was a little bit sketchy. The second question I put in there was around the short haul growth next summer. I'm kind of with the, with no new planes coming in on short haul right now, if I'm not mistaken, just how you're thinking about market shares in short haul ex summer price? As I told, it comes to earnings 2 hubs we are expecting to grow in 2019. In total, for the group, the hub growth will be 1.4 if you eliminate the strike effect, which is It was a bit more in Air France than in KLM, but in total for the group, plus 1.4. Concerning domestic short haul network. As I told during the presentation, we are focused on the worst situation of this activity. And the plan today for the year 2019 is to reduce capacity by around 6%. So cautious on the domestic which has to be restricted and relatively positive concerning the hubs, feeding both in Air France, but also in KLM at Thanks. We will now take our next question from Damian Brewer from Royal Bank of Canada. Please go ahead. Three questions, if I can. First of all, just one technical financial 1. On the change in accounting policy with the short visit capitalization, Could you elaborate a little bit more on where else that's impacted the financial statements, particularly if there's any reduction in charges to the income statement? And how that'll evolve in 2019? And then secondly, given the comments about the stable unit revenue for Q4. Could you elaborate a little bit more on how you expect the business to recoup the SEK 900,000,000 extra fuel costs that you see for next year. How you think that will shift? Do you think the industry will move back to more focused on fuel surcharges? And do you think as that evolves, we may see more capacity reductions or any other thoughts you can share there? And then the very final question, just the 8 percentage point margin differential between Air France KLM. Is KLM over earning or is Air France under earning? A couple of things accounting, if I may, we have been, I think, already extremely clear since the beginning of the year when you have adopted the 3 new IFRS standard. So I'm a bit embarrassed by your question because I think that we have made all the or the comment on what is the impact of the newsstand at the values level of the P and L, but if you have some more precise question, do not hesitate to call my units and about and we will organize the link with the accounting team. Concerning the EUR 900,000,000 of the next year, okay, of course, you're right. It would be a for all airlines, both in Europe and in, everywhere in the world. If I look also to the comments colleagues yesterday before. It stands as the question is, again, the same power, the airlines in the 3 would be able to transfer part or whole. So if you'll be into the passengers, First, we are building the jet right now. So I have not yet a full answer to Cisco term, second, we are relatively well hedged compared to airlines in other parts of the world. The Edge next year, the current price of the fuel is expected to bring a positive price of $500,000,000 to Air France KLM. So it is, I think, relatively favorable position. 3rd, of course, we have plenty of fusion with our new management team. And we put pressure on them. We explain to them what is the fuel cost in etcetera and they are white now studying. And looking at the market, the demand, the capacity development, And you see that the end of the budget that will have a clear view on what ARPU expectations in the Translayers of fuel cost to our dear passengers. And your final question there on the relative performance, between our 2 major brands, KLM and LCOS. Look, I think both of our units We need to strive for higher margins. We're not looking at saying that one is, is performing at a level that's adequate and that the other one, same situation is, is accepting that, needs to work and operate in the environment that it's in? No. I think, clearly, the the environment in both, plants in the Netherlands are very different. I'm sure you're well aware of that, but I don't believe there should be a difference between these longer terms in terms of how these two units perform. But I do believe that with the opportunities that we have, we should be targeting and we should be achieving, the types of margins that are major competitors, are managing to, to achieve and how we go about doing that and which one of our brands you know, we'll, we'll perform better than the other, you know, from an internal perspective, we don't that is not the major objective. It's how can the group perform better. And in some sectors, one of the units may do better and others it may not, but if you look back at the history of the merger, since 2004, and I've spent some time looking at this, you know, our current situation has not always been the same. There have been years where it's been the opposite, and obviously the different environments at that time between the two carriers. So going forward, everything we expect. And I am, you know, we're targeting that the entire group, best performed at or above our competitors' margin position. Thank you. We will now take our last question from Michael Khan from Societe Generale. Please go ahead. Your line is open. Yes, good morning. Thank you for calling from Credit Suisse. Also a warm welcome from my side. Two questions, if I may, one on the third quarter and one more strategic. 3rd quarter, KLM operating result was pretty much stable, as far as down, roundabout 10%. You talked about the weakness in regional point to point traffic. Was that the major driver behind that result weakness over the other traffic regions as well? And then secondly, Ben, you talked about, corporations already what's your broader view on industry consolidation and on corporations? In which areas would you be willing play an active part in consolidation? Where do you see strategic value? And where do you see, let's say, still open areas for further corporations at both short haul and long haul. Thank you. Yes. Just to mark on the comparison between the 2, the 2 should be there is or we look at the variation of the operating result on the operating margin, if I'm correct, page eleven, you see that in KLM, the margin is down 1.5. And in Air France, the margin is down 1 point 8, which means that for me, the evolution of the performance is more or less aligned between the 2. So I don't thing that the personal data for protein results is a good, is a good matrix. If I may, So what's for me characterized the quarter is that, of course, we know that, and we have to solve that as a margin of KLM is for higher compared to the margin of Air France, which is not new. But I will say that in terms of evolution, frankly, the evolution is more or less, so it's the same between Air France and KLM. And when you look internally, the various pernation, fuel cost, labor cost, productivity, and military, I would say that the evolution relatively well aligned between the two companies, what is not such a price to be honest. You're welcome. So as I mentioned, we have, and I think you're well aware, our very strong Transatlantic JV with Delta. We're very close to finalizing the, you know, our JV with our Europa, which will be focused more on the South American market. And then our partner, China, Eastern, this is already having a a strong relationship there. We're going to ensure that that strengthens. We have a strong position, both ALM and LCOS business units in Africa. I believe there are further opportunities there. But our main, largest market here in Paris I think it's our biggest opportunity. How do we optimize, our operations at Chaldegold and at Orly? This, there'll be further work there. But specifically, how do we, how do we participate as best we can in the growth, the significant growth that's taking place here in Paris and in what forms do we, what way can we address and participate with our France model? With Transavia and perhaps some of the other two models that we have, and do we look at do we look at different ways to do that in terms of aircraft type? What is the, do we look at trying to get lower costs into those 2? Or when you look at all the various models, you look at the difference between Ryanair and Easyjet and how they approach the lower costs? How did they get how do they get their, their RASKUP, you know, what format this is, these are types of studies that we're looking at. I'd say the number one opportunity for us is definitely Paris. And in what form we're going to, we're going to participate in the various sectors, and would, which tools. Sending a sales meeting, and we gave you rendezvous 10th February for the presentation of the full year 2018 result and we wish you a fantastic day to day. Bye. Ladies and gentlemen, that will conclude today's conference call and you may now all disconnect. Thank you for calling.