Everybody, thank you for attending this presentation of the third quarter 2018. We are pleased, together with Benjamin Smith, to welcome you. Before I go through the result presentation, I would like to hand over to Benjamin, who will start this conference call. Benjamin, please.
Okay. Thank you, Frédéric, 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. Throughout my career, I have always looked at Air France and KLM as being very powerful brands with strong reputations around the world, a longstanding heritage, as well as being innovative and having a customer-oriented spirit. What I have seen over these first weeks at Air France-KLM is about that. I have been to the hubs at Paris-Charles de Gaulle 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 Air France-KLM group reflects both airline strengths, the creation of a European group, building a leadership position through two main European connecting hubs, was extremely forward-thinking back in 2004. This ambition to be amongst the top airline groups from Europe has led Air France-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. 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 in customer experience, revenue management, commercial strategy, and innovation. 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 Air France-KLM. I can tell you that we are currently defining our priorities. 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 Air France'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 Air France and Air France-KLM with a new perspective going forward. We will keep this approach to pursue discussions with our Air France pilots and other professional categories within categorical discussions. Before handing over to Frédéric, 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. I will be available afterwards to take some questions together with our financial team here.
Thank you, Ben. I will now present this result of the third quarter. I go page two of the presentation, where we have the main message we would like to give you today. We think that the quarter is characterized by the good resilience of the operating results. 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 passengers, if I take the network plus Transavia together, increased by 2.3%, and the RASK, the unit revenue corrected for the currency, has improved by 2% over this quarter, which is, we think, a very good performance. Altogether, in spite of the increase of the fuel bill by more than EUR 200 million, you see the good resilience of the operating results.
For the quarter, we have an operating result above EUR 1 billion, EUR 1.065 billion more precisely, which is a slight decrease compared to last year in the range of -6%. Also, an adjusted operating free cash flow of close to zero, -EUR 14 million, but the adjusted operating free cash flow is positive over the nine 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. All in all, as the fuel bill increased, the unit cost decreased slightly by -1%, and thanks to the good commercial and sales performance, we are able to keep the operating result not too far to what it was in 2017. Another quite important achievement of the quarter is the success of the labor wage negotiation in Air France, but also in KLM.
Concerning Air France, Ben just gave you the information about the fact that the 19th of October, the company and the unions representing more than 75% of the total staff have signed agreement concerning the wage increase for a period going from beginning January 2018 up to the end of 2019, October, to be precise. You know the terms of this contract. In the same weeks, KLM has also achieved the round of negotiation with the ground people, with the acceptance by the unions representing ground people, for the proposal concerning the CLAs . 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 five of the presentation with the financial number.
I would like to insist to the development of the revenue, which is increasing by 4% compared to the third quarter 2017. If you correct for the currency's impact, this evolution will be in the range of +6%, +5.8% to be precise. We have been hit, of course, by a headwind coming from the move in currencies. Expense is different, but clearly, if you correct for currency, you see a dynamic growth of the group revenue. EBITDA is slightly decreasing, -4%, but at a good level of EUR 1,771. Again, if you correct for the currency impact, the EBITDA would have increased by 0.3%. Stability of the EBITDA. Operating result, I said that before, more than EUR 1 billion. EUR 1.065 billion, a decrease of -6% compared to last year.
Again, because of the hit of the currency movement, if you correct, we would have an operating result slightly increasing, +1%, compared to last year. Operating margin at 14%, 14.1%, during the quarter 2018. Net income close to EUR 800 million, slightly increasing compared to last year. Last year, if you remember, the net result was hit by some one-off, one of them being the impact of the new deal with the KLM cabin pension plan. In terms of net debt, we have a decrease of the net debt since January of EUR 222 million. On top of that, you have the impact of the reimbursement of the hybrid. You know that we have bought back part of the hybrid, which was in the market. We have bought back EUR 211 million, which means that this EUR 211 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 -EUR 400 million. Thanks to this evolution of the net debt, we continue to keep the net debt on EBITDA ratio at 1.4. Going to page six, we have a description of the contribution of each business to the evolution of the group result. I say that the first characteristic is a very good development of the unit revenue for all business. Concerning the network, we are at +1.8%. Concerning the cargo, still quite positive in terms of unit revenue, +6.7%. Transavia, +4.5% in unit revenue, in spite or 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%.
The revenue, which is more or less a combination of the two, increased by 4%, as I told before. I would like just take the opportunity to emphasize the very good result of Transavia. You see both the capacity and the unit revenue, quite positive development. The revenue increased by almost 11%. Also quite important, the margin during this summer period is extremely high, close to 30%. Important also, it is almost the same order of magnitude for Transavia France and Transavia Holland. We now expect to have the two companies being, of course, profitable by the end of 2018 with the same order of margin for the two Transavias, the one based in Holland, the one based in France. Concerning the maintenance, the commercial results are good. You see the revenue is increasing by 9%. The maintenance order book also increased.
It is now at $10.7 billion, which is an increase of $300 million compared to the end of 2017. You see, however, a slight reduction of the margin. 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 this activity, and we are addressing more and more carefully this new order intake in order to be focused on margin optimization. I go to the slide seven. You observe very good behavior of both capacity, traffic, and unit revenue in almost all subnetwork, with one big exception during this summer, which is Latin America. Due mainly to the difficulty in Brazil and Argentina, you see the unit revenue decreasing by 2.4%.
Other domain where the situation is still difficult to manage, the medium haul point-to-point, which is mainly the French domestic market. You see that, in spite of relatively a slightly increasing capacity, +1%, we have a RASK which is negatively oriented at -3%. On the other hand, you see the very good result of the two hubs, where the RASK for the European flight, both in Air France and in KLM, the RASK are positive, 2% at Charles de Gaulle, and in the range of 5% at Schiphol. Concerning the cost, I move page eight. We have a reported change in terms of unit cost of +2.4%. If you correct 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%.
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 nine, you can see that we have increased a bit the FTEs compared to last year, 850 for ground people, 300 for cabin, and 250 for pilot, mainly due to the capacity growth. In spite of that, we have an employee productivity which is positively oriented and at +0.6% compared to last year. If you look at the total staff cost, you see that they are slightly declining by EUR 11 million compared to the third quarter 2017. 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 after the closing date, after the 30th of 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 has not been taken in Q3. It is a post-event treatment that we have adopted. However, I would like to emphasize that even if you integrate in Q3 the effect of the new agreement, which is in the order of magnitude of EUR 12 million, the change in total staff cost would all remain 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, nothing new if I have been clear before.
You see the currency impact, EUR -88, the fuel in the range of EUR -200, and these two negative elements are compensated by the very good behavior of the unit revenue, which is contributing EUR +155, and the good performance in terms of unit cost, which is contributing EUR +55. Altogether, these various elements explain the slight decrease of the operating result compared to Q3 2017. Page 11, evolution of the operating margin revenue, EBITDA for the two company, Air France and KLM. Not a big surprise, KLM has performance higher than Air France, a margin of 18% for KLM, 11% for Air France, and the evolution compared to last year is similar in the two companies. A reduction of the margin by 1.5% for KLM, 1.8% for Air France. Page 12, let us look at the adjusted operating free cash flow.
We see at these KPIs over the nine-month period, we are posting a free cash flow since January, positive of EUR +127 million, which is explained partly, if you look at the difference compared to last year, of course, by the impact of the strike for the first months of the year into Air France. Which explains that the operating cash flow is a bit less compared to last year. You see also that we have invested a bit more than last year over the nine months of the year 2018. More important, I go page 13, we continue to reduce the adjusted net debt. You know that since the beginning of the year, we calculate this adjusted net debt accordingly to IFRS 16. Based on this new IFRS standard, the net debt end of the year 2017 was EUR 6.6 billion.
If you look at what it is today, we have a net debt end of September of EUR 6.3 billion. It is a reduction in the range of EUR 300 million. Keep also in mind that this debt is negatively impacted by the repurchase of the hybrid. When you buy back an hybrid, it is increasing your debt, because as you know, it is accounted as equity. Without the repurchase of the hybrid, the net debt would have decreased by approximately EUR 500 million. The adjusted net debt on EBITDA we show is still 1.4x, it is stable since the end of 2017. The liquidity situation is a bit lower, EUR 6.4 billion to EUR 5.7 billion. The difference is mainly explained by the fact that the holding, Air France-KLM, has reimbursed EUR 500 million in January, EUR 200 million recently with the repurchase of the hybrid.
The holding itself has not launched any new financing, 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 evolution of the long-haul forward booking load factor. They are positively oriented in October, November, December, compared to last year. For the time being, January is comparable to January 2018, in Feb, we have also a slight increase of the forward load factor for the month of February.
globally, based on the current outlook and the demand environment that remain positively oriented, we expect passenger network revenue to increase in the fourth quarter, with long-haul forward booking load factor ahead of 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 the fuel bill 2018 to 2017, we have now an increase of EUR 500 million, which is a bit more compared to what we told you at the end of half one. Concerning the evolution 2018-2019 today, in EUR, we move from EUR 5 billion in 2018 to EUR 5.9 in 2019, taking into account a positive result of the hedging policy, which is estimated at the current forward curve at EUR 550 million in 2019.
In total, as a conclusion for the full year guidance, concerning the capacity, we made a bit less development of capacity during summer compared to what we expected. Which means that for the full year 2018, we have now a guidance which is capacity for the passenger activity between 2% and 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% and 9%. For the fuel, as I told before, a bit higher fuel for the total year 2018. It was expected to be +EUR 450, we expect now +EUR 500 million 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, very slight movement from EUR 2-EUR 2.5, which was the range that we gave you in July, to a CapEx now between EUR 2.4 and EUR 2.6, which is mainly explained, to be honest, by a technical issue. We have reviewed recently the way we are looking at the shop visit for the operating 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. If you look at what I told concerning the debt development, we continue, of course, to have a reduction of the net debt over 2018. This is the end of the presentation, and together with Benjamin and the team around me, we are ready to answer your questions. Thanks a lot.
Ladies and gentlemen, if you would like to ask a question, you can do so now by pressing star one on your telephone. That's star one to ask a question. 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, just on your full year 2019 capacity plans. I was wondering if you could quantify them and whether they've perhaps come back a bit. Obviously, your friends in Germany brought theirs 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%, 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 Q4 on the premium side.
Another one first on, I'd like to welcome you, Ben. Also love to get your thoughts on what you've seen, particularly as we go into the pilot negotiations. Perhaps what they want above and beyond the cabin and ground, just your thoughts on 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 Frédéric answer the specific financial questions that you posed. 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 haul, between 1% and 2%. Concerning hub for the domestic network in France, for the time being, we are at -6%. Clearly, it's characterized by a growth in long haul, which is accordingly to what we said before. We are not considering today, compared to what was announced by Lufthansa yesterday, to drastically reduce capacity. It's also true that Lufthansa was far higher in terms of planned or announced capacity. Also, the capacity for 2019 are also characterized by the continuation of the restructuring in the French domestic network. Concerning sorry, the unit revenue.
It's true that if you go back page seven 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 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 some comments here. What has impressed me and what has met my expectations now that I've been here just slightly over six weeks. Following KLM and Air France my entire life, very impressed with these brands. That was obviously one of the major reasons why I decided to join the group in mid-September. Very clear that both major brands have extremely proud, very professional, and experienced team members throughout both organizations. Specifically here at Air France, 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. We saw some early positive results out of adding some focus to those three items in the first four or five weeks. Then specifically with the talks we're currently having with our pilots.
We have official talks or discussions and negotiations with this group at Air France starting on the 5th of November. I'm optimistic that if we can continue the type of dialogue we've had with all the teams that took place from week one when I started, I'm optimistic that we can make some progress on the type of discussion that we've had in the past and come to a successful conclusion of those talks. It's a bit early. We're starting on November 5th, I'm sure based on how things are relayed to the public here, that you'll be up to speed very, very quickly.
Okay. Thanks very much.
Thank you. We will now take our next question from Neil Glynn from Credit Suisse. Please go ahead. The line is open.
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, I'll follow up with 1 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've followed what you've done at Air Canada and been a part of. 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? A 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.
1 final question just on new business models, low-cost, short-haul, low-cost, long-haul. Transavia has had another very impressive performance, I saw today, clearly unit revenues leading the way there. Interested in your thoughts on the margin thresholds that would represent success for Transavia and Joon 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 market's credibility there is still somewhat limited. Thank you.
Thank you, Neil, also for your welcoming comments. In terms of our discussions, our negotiations with the various team members here, specifically at Air France, whether growth is being used as 1 of the carrots, as you described, to try to come to better conclusions. I would say it's not the major tool that we are using. As I said in my earlier response, what I think is much more important is improved transparency, trust and respect, understanding that a stable environment within our group will be an extremely important component of being more comfortable with the level of risk that is in this business that entails any type of growth. That any type of growth that we'd be looking at doing is much more difficult if we don't have stability.
I think with transparency, improved transparency, at least now I think we can have a more fruitful discussion with many of these groups. I think that's the most important. To actually dangle, are we going to add two, four, five airplanes? If we don't have those three items, I think 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 parts of the market, long haul, further medium haul. What would be acceptable with Joon? How we're going to react to the existing low-cost long haul that operate into our two major markets. Still to be determined.
I think we want to ensure that both main brands that we have are solid and have a well-thought-out future. At the same time, ensure that we are observing and coming to 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. Do we have what we need from the various options to compete effectively or in some cases, defend areas or preempt other carriers from coming in. In terms of long haul, low cost specifically, I get asked that question a lot. I think it's a bit early for me and for the team to publicly state what our position is on that and what our plans are.
Understood. Many thanks, Ben.
Thank you. We will now take our next question from Andrew Lobbenberg, HSBC. Please go ahead. Your line is open.
Good morning. Ben, welcome to Europe. Can I ask about how you're thinking about solving the wound that existed between the French and Dutch arms, and how quickly you can look to try and build the group into one? Secondly, with regard to the labor situation, how do you see the pilot, the overall union elections, and specifically the elections within the SNPL, playing out and influencing your ability to bring this social situation forward? Thanks.
Your first question there on the relationships that we have within the group. I would say that a huge portion of the people I've come across, I'd say the majority of the combined teams are working actually quite well. What I would have expected, actually, in some cases better. I don't think it's a good characterization that there are major wounds or issues. Yes, we have some differences of opinions and lots of outside views on what does and works between Air France and KLM. Obviously, a very unique setup the way we have it here. There's no comparable around the world. The more we can do to optimize and do what most major groups do when they consolidate, that's obviously our goal. Many internal struggles should be addressed as quickly as possible.
Merging two cultures also with different types of competitive environments in the two major hubs, challenging. At the same time, huge opportunities. I think, as long as we are aligned within the group on how we'd like to prioritize our future, and I don't expect that to be 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 pilot elections, and specifically the SNPL, I think it's clear our pilots at Air France want a more stable airline. They want to win. They do want a sustainable future. I think more and more, there's a common belief that ways of the past have not helped anybody.
Again, if there's good transparency, there's a belief in what it is we'd like to do, it's been well demonstrated in many other airlines that the pilots here at Air France, optimistically will take the same view. As I said, we have a great group of experienced pilots here who are extremely professional, love this airline. We've just got to find a way to ensure that gets focused into a good way forward.
Brilliant. Thank you.
Thank you. We will now take our next question for Jarrod Castle from UBS. Please go ahead. The line is open.
Good morning, and welcome, Ben, as well. Just a couple of questions. Firstly, one for Ben and maybe for Frédéric. 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 the current team, if you're prepared to give any thoughts? Just in terms of the stable constant currency unit revenues you're talking about in Q4, can 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, just a bit more geographic color. In terms of next year, Frédéric, any thoughts in terms of refinancing? You've got a bit of debt coming due and what you're thinking there. Thanks.
Thank you, Jarrod, for the welcome. In terms of gaps or additions to the senior executive team, it's just over six weeks for me here. I'm still meeting everybody in Paris and in Amsterdam. The team so far are excellent. Whether there should be any additions or movement between the groups, it's a bit early for me to comment on that.
Unit revenue, I'd 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 capacity in South America together with such a decrease in the unit revenue. I just would like to warn you that we are not growing to Brazil, to Argentina. We are mainly growing to Andean countries, which are not hit by the same evolution of the currency. Globally speaking 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 two hubs, we are also expecting, as we see in the Q3, a positive development of the unit revenue.
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 forward booking, which are positively oriented in October, November, December, stable in January, and a bit increasing in February. 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 is relatively limited. I would say it is EUR 700 million for the two subsidiaries. There is nothing at the holding level, and I think it will be normally refinanced using operation collateralized by aircraft. At that stage, we have not discussed at the board level any opportunity to refinance the holding Air France-KLM at that stage.
Okay, thank you.
Thank you. We will now take our next question from Daniel Roeska from Bernstein Research. Please go ahead. The line is open.
Thanks very much. Good morning, gentlemen, and welcome, Ben, and many happy landings. Maybe picking up on that debt refinancing and cash flow aspect, maybe just a more broader common thread, if you would, on 2019, 2020. You've got several debt instruments coming up. You've also got long-haul ramping up, which would suggest a higher CapEx forward. You also talked about fleet RFP for short-haul in the past. How would you see your net debt EBITDA, our net debt, kind of to hold up in that environment? Is it fair to expect a little bit of an increase of that ratio again going forward? Second thing on short-haul growth, where are you with the fleet RFP? 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?
How will you kind of ensure some growth for Transavia in the French point-to-point market? Lastly, Ben, if you would comment a little bit more on the broader sector level, maybe where you see the main differences between the North American market and Europe today, and how you think that will develop or should develop in Europe going forward, and how Air France-KLM will try to capitalize on that development in Europe. Thanks.
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 Freddy start and maybe re-ask some of the, maybe for some clarification, if we didn't quite grasp everything there.
Yeah. Concerning the evolution of the first of the reimbursement of the debt, I will say that the profile is relatively flat. Every year you have for the airlines in the range of EUR 700-EUR 800, which is based on the financing of aircraft. In the holding, we have EUR 400 million of the hybrid, which are coming in 2020, and EUR 600 million, which are plain vanilla bonds. If you look at the cash today at the holding level, I will see that up to 2021, there is no difficulty. Again, I think that the cash level of the company is today, the cash level at the holding and the reimbursement profile, relatively flat, give us a great comfort in terms of financing plan.
Do not forget on top of that we have still EUR 200 million in Amadeus shares and that there is also a 50% of Servair to be sold or put to the Gategroup, which is also some reserve in terms of asset ready for sale. Concerning the CapEx and concerning the ratio. We are relatively happy with the level of the adjusted net debt on EBITDA ratio. We consider that, and we spoke with some banks and some rating agencies, that in terms of financial structure, when you are at 1.3, 1.4, it is close to investment grade. Of course, I let you judge. Which means that whatever is the plan we present to the board, systematically, we try to build something where we are not deteriorating anymore this ratio, adjusted net debt on EBITDA.
Which means that in all the plan we try to build, we are focused on the sustainability and the financial stability of the group as a whole.
Thank you for the welcoming remarks. Differences from my perspective on the European versus the North American market, where I've been working for 28 years. I'm sure you're aware, in the U.S., we're down now to three major legacy type carriers and one major low-cost carrier. Somewhat similar set up here in Europe. Obviously EasyJet and Ryanair are very different to Southwest Airlines. I'm fully understanding that and looking at various opportunities. The various slot-restricted airports versus gate-restricted airports. This is going into our decisions on how we're going to move forward. Also, the Gulf exposure, Gulf Airline exposure, obviously much greater for European carriers versus North American carriers, and what our expectations and assumptions are for how that will play out going forward. 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 and which specific sectors we believe we can win in. 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. With the model there, started in the '60s and refined and optimized 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. Air France, as I said, with the huge market here in Paris, with the fact that Schiphol is not full, that we have an extremely attractive four parallel runway operation here, that we do have some constraints on the way we operate our hub with, I'd say somewhat compromised terminal situation.
Having a good relationship with Aéroports de Paris and their desire to grow and to look at a new terminal four, and the opportunity for us to play a major part in the design of that terminal, I think is something that is very good for Air France. Of course, joint ventures. We have, I think the strongest joint venture with Delta across the Atlantic now being enhanced with Virgin Atlantic. This is another area. 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 Air France-KLM, obviously going to be determined.
Also, how much flexibility we get with our labor teams, labor partners, to see 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 if the line was a little bit sketchy. The second question I put in there was around the short-haul growth next summer, kind of 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 next summer.
As I told, concerning the two 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 growth a bit more in Air France than in KLM, but in total for the group, plus 1.4%. Concerning the domestic short-haul network, as I told during the presentation, we are focused on the restructuration of this activity, the plan today for 2019 is to reduce capacity by around 6%. Cautious on the domestic, which has to be restructured and relatively positive concerning the hubs, feeding both in Air France but also in KLM at Schiphol.
Thanks.
Thank you. We will now take our next question from Damian Brewer from Royal Bank of Canada. Please go ahead. The line is open.
Good morning, everybody. Three questions if I can. First of all, just one technical financial one. On the change in accounting policy with the shop visits capitalization, could you elaborate a little bit more on where else that's impacted the financial statements, particularly if there is any reduction in charges to the income statement and how that will evolve in 2019? 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 EUR 900 million 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 focus on fuel surcharges? Do you think as that evolves, we may see more capacity reductions or any other thoughts you can share there?
The very final question, just the eight percentage point margin differential between Air France-KLM. Is KLM over earning or is Air France under earning? Thank you.
Confronting the accounting, if I may, we have been, I think already extremely clear since the beginning of the year when we have adopted the three new IFRS standards. I'm a bit embarrassed by your question because I think that we have made all the comment on what is the impact of the new standard at the various level of the P&L. If you have some more precise question, do not hesitate to call Marie-Agnès and Wouter, and we will organize a link with the accounting team. Concerning the EUR 900 million of the next year. Okay, of course, you're right. It will be a question for all airlines, both in Europe and everywhere in the world. If I look also to the comments of our colleagues yesterday and the day before, it's clear that the question is again, the same.
How the airlines industry will be able to transfer part or whole of the fuel bill to the passengers. First, we are building our budget right now, we have not yet a full answer to this question. Second, we are relatively well hedged compared to airlines in other parts of the world. The hedge next year at the current price of the fuel is expected to bring a positive plus EUR 500 million, plus EUR 600 million to Air France-KLM. It gives, I think, relatively favorable position. Third, of course, we have plenty of discussion with the revenue management team, and we put pressure on them. We explain to them what is the fuel cost impact, et cetera. They are right now studying and looking at the market, the demand, the capacity development.
It is at the end of the budget that we will have a clear view on what are our expectations in the transfer of the fuel cost to our dear passengers.
Your final question there on the relative performance between our two major brands, KLM and Air France. Look, I think both of our units we need to strive for higher margins. We're not looking at saying that one is performing at a level that's adequate and that the other one, same situation is accepting that it needs to work and operate in the environment that it's in. No, I think clearly the environment in both France and 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, at least longer term, in terms of how these two units perform.
I do believe that with the opportunities that we have, we should be targeting, and we should be achieving the types of margins that our major competitors are managing to achieve and how we go about doing that and which one of our brands will perform better than the other. From an internal perspective 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. If you look back at the history of the merger, since 2004, and I've spent some time looking at this, 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.
Going forward, as we expect, and we're targeting that the entire group does perform at or above our competitors' margin positions.
Okay. Thank you.
Thank you. We will now take our last question from Michael Kuhn from Societe Generale. Please go ahead. The line is open.
Yes, good morning. Michael Kuhn from Societe Generale. Also, a warm welcome from my side. Two questions, if I may. One on the third quarter and one more strategic. Third quarter KLM operating result was pretty much stable. Air France down around about 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? Secondly, Ben, you talked about cooperations already. What's your broader view on industry consolidation and on cooperations? In which areas would you be willing to 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 cooperations, both short haul and long haul? Thank you.
Just a remark on the comparison between the two subsidiaries, or we look at the variation of the operating result or the operating margin. If I am correct, page 11, you see that in KLM, the margin is down 1.5, and in Air France, the margin is down 1.8, which means that for me, the evolution of the performance is more or less aligned between the two. I don't think that the percentage of operating result is a good metric, if I may. What for me characterize the quarter is that, of course, we know that, and we have to solve that. The margin of KLM is far higher compared to the margin of Air France, which is not new. I will say that in terms of evolution, for me, the evolution is more or less always the same between Air France and KLM.
When you look internally, the various explanation, fuel cost, labor cost, productivity, and unit revenue, I will say that the evolution are relatively well aligned between the two companies. What is not a surprise, to be honest.
You're welcome. 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 our JV with Air Europa, which will be focused more on the South American market. Our partner, China Eastern, this is already having a strong relationship there. We want to ensure that that strengthens. We have a strong position, both KLM and Air France business units in Africa. I believe there are further opportunities there. Our main, largest market here in Paris, I think is our biggest opportunity. How do we optimize our operations at Charles de Gaulle and at Orly? There'll be further work there. Specifically, how do we participate as best we can in the significant growth that's taking place here in Paris, and in what forms?
What way can we address and participate with our Air France model, with Transavia and perhaps, some of the other two models that we have. Do we look at different ways to do that in terms of aircraft type? Do we look at trying to get lower cost into those two, 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 do they get their RASK up? In what format? These are the types of studies that we're looking at, I would say the number one opportunity for us is definitely Paris, and in what form we're going to participate in the various sectors, and with which tools.
Ending this meeting, we give you rendezvous the 20th of February for the presentation of the full year 2018 result. We wish you a fantastic day today. Bye.
Ladies and gentlemen, that will conclude today's conference call and you may now all disconnect.