Good day, and welcome to the quarter one 2018 Air France-KLM results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Frédéric Gagey, Chief Financial Officer. Please go ahead, sir.
Thank you. Good morning to everybody. Thank you for joining this conference call on the first quarter 2018 Air France-KLM. I am Erik Swelheim, the CFO of KLM, and the team of the financial communication of the group. Let us start with the key highlights of this quarter. I think there is three main elements to keep in mind. The first one is a bit technical. For you, I think it is also something a bit complex. The fact that the group has decided to move accordingly to the change in IFRS, and we have adopted since the 1st January 2018, the new standard IFRS 9, IFRS 15, and IFRS 16. You will see in the presentation some indication about the impact of these new standards, of course, the team is available to answer your question later if you want to adjust your model.
Second element, I think to keep in mind, the fact that globally speaking, the demand environment was relatively positive during this quarter. We had indicated in the presentation of the full year as of 2017 that we were expecting growth in demand, improvement in the load factor, and positive unit revenue. It is exactly what happened in spite of the strike. If you look at the first slide, you can see that the number of passengers has increased by 5% during the period. The RASK, accordingly to what we presented at the beginning of the year, is also positively oriented. During the quarter, it is a +1.2% for the unit revenue. You will see later that it is even better if you look the long haul and the medium haul feeding the two hubs.
The three amount, of course, to have in mind is effect of the strike in Air France. It is clearly not a pleasant environment in Air France during these last weeks. The strike had, of course, an extremely negative impact in terms of result. For the only first quarter, we have estimated the impact of the strike at least EUR 75 million at the current operating level. A way to show how the positive environment and the strike have impacted the group consists just to look at the evolution of the result into KLM or into Transavia, which are both improving during this quarter compared to the last year. At the group level, the result, however, due to the strike, is negative compared to last year. The current operating income is at minus EUR 118 million, which is EUR 85 million less than the last year during the same period.
Let's go to the next slide with the main financial indicator. The first quarter 2018, you see that the revenue is improving in spite of the strike. We have a change of 1.8% like for like with a big impact, of course, of the currency evolution. If you correct the revenue evolution for the Forex impact, you see that we have a revenue, which is increasing by close to 6%. It is fairly due to the evolution of the euro vis-à-vis the other currencies. Operating result, as said before, minus EUR 85 million compared to last year, and even minus EUR 100 million at constant currency. It is an operating margin, which is decreasing by minus 1.5 point compared to last year. Net result compared to last year is decreasing by EUR 126 million, partly impacted also by one provision for restructuration taken into KLM.
The free cash is at plus EUR 142 million, but I will come back later on this indicator we propose for the free cash flow. ROCE is improving, but keep in mind that it is a ROCE over the last 12 months, it's partly taking into account the effect of the improvement of the ROCE during the three last quarters of 2017. If I go page five, just for your future work about the adoption of the new IFRS standard, you have in this table the published account last year and the restated account for the first quarter 2017 and the full year 2017. We have put on the right of the slide the main impact, to explain if the changes are coming from IFRS 16, 9, or 15. Something relatively complex.
Again, you have, of course, the possibility to call the team if you need more info, and there is also some explanation, more precisely given in the press release. Just to summarize this main effect, let us say that IFRS 9 is dealing with financial instruments. It has a limited impact, and mainly a change in the methodology concerning the treatment of the time value. Concerning IFRS 15, revenue recognition from contract with customers, it is globally mainly a time issue. Some revenue are recognized later on, earlier compared to the former approach. Concerning the IFRS 16, which is of course the biggest change, we have adopted for the early adoption of this standard, as I told before, January 1st. All the lease contracts will be recognized on the balance sheet, and there will be a right of use, which will be depreciated.
Clearly, you see that impact on the table. If I look, for example, at the first quarter, you see that the current operating income is improving, if you compare the published and the restated accounts. If you go a bit below and you look at the operating income minus the cost of debt, you see that the change is far more limited because, of course, the part of the interest in the operating lease is taken into account when you go to the operating income minus the cost of debt. Let's go to the next slide to describe a bit the various businesses. Concerning the network, as I told you, we have a network for passenger capacity increasing by 3.2%, which is relatively dynamic.
In spite of that, we have a unit revenue increasing by 1%, which is exactly what I described before when I told that, in fact, the current environment and the trading environment was not so bad during this first quarter. Again, we find exactly the trends we have forecasted at the beginning of the year: positive traffic, an increasing load factor, and a positive unit revenue. Concerning the cargo, you see the capacity at +0.6% only. It is partly explained because, of course, the volume of bellies available for the cargo activity are increasing, because it goes parallelly with the evolution of the seat capacity as we add more aircraft. There is also in KLM, a change in the fleet with the progressive withdrawal of the Combi fleet. That is why we see the cargo capacity slightly below the passenger capacity.
In spite of that, another big difference is the unit revenue. You see that the unit revenue in the cargo is extremely positive, +7.3%, which is clearly the sign of the dynamism today of this activity, thanks mainly to the economic growth in various parts of the world. Transavia, we increased capacity by 10%. We continue the relatively speedy growth in Transavia, both in Air France and in KLM. You see that in spite of that, the unit revenue continue to improving after the good performance of last year. We have a unit revenue at +8%, demonstrating the huge demand for low-cost seats by a part of our clients. The maintenance. We have a change in the revenue for third party, increasing by 5%, demonstrating the dynamics also of this activity. Let us look at the operating result for these various businesses. Network. We are down.
Clearly, the main explanation is, alas, the strike at Air France. You see that the change is minus EUR 76 million, and the operating margin is also going down, of course. Transavia improving compared to last year. Transavia is still negative, of course, because it is the first quarter, and you all know the seasonality of this activity, but there is an improvement. Maintenance. The slight deterioration of the operating result only explained, or totally explained by a provision coming from the end of a specific contract, which adds this accounting effect, non-cash, of course, but it is accounting effect on the operating result of the maintenance unit. Next slide. Just to describe a bit the evolution of the unit revenue per sub-networks.
As I told in the beginning, you see that the RASK in long-haul is close to +2%, which is aligned with our feeling concerning the market at the beginning of the year. You see that the unit revenue for the medium-haul hubs is also at 2.3%. You see also, and it is not a surprise, that the medium-haul point to point, which is only in fact the domestic market in France, is still with a quite negative unit revenue, minus 9%, partly explained by the shift in the pattern holidays days at the beginning of the year for the Christmas period, and also, of course, the consequences of the development of the high-speed train to the west of the country. If you look more precisely to various parts of the world concerning the long-haul, you see that North America is quite good.
We increased capacity by 2%, the traffic by 5%, and the unit revenue by 5%. Latin America also is extremely good, 10% of capacity, 12% of traffic, 6% of unit revenue. Asia also a bit less dynamic, but with the traffic of 3.3%, we increased the revenue by 2.4%. Some weaknesses in Africa and Middle East with, again, the impact of the oil producer countries in Africa, where the demand is a bit weak, and also due to the intensification of the competition, mainly to La Réunion in the Indian Ocean. You see for this sub-network, a declining revenue of -2.7%. Next slide on our commercial activity. Of course, we continue to work on the main project we have already described in the past. We are very happy with the partnership with Jet Airways. We make fast and very good value creation, thanks to this new partnership.
We have today a sharp increase of the number of passengers connecting in Amsterdam or in Paris, coming from India and connecting to the North Atlantic to mainly U.S. We are now close to 1,000 passengers a day connecting from India to the U.S. in one of our two hubs. Also, a successful introduction of the branded fares. It was a project developed together with Delta on the North Atlantic, and we see the upsell in line with our expectations. The new Flying Blue program has been launched the 1st of April. We have introduced simplified program rules for earn and tier eligibility, and we are very happy with the first consequences of this move, and a full new branding has also gone live.
Finally, a part of our sales team is fully occupied with the new distribution strategy, which has been implemented as of the 1st of April 2018. As you know, in order to accompany the transition to the new NDC technology, we have negotiated some private agreements with Amadeus or Travelport, for example, which enable the customer to access a private channel without additional distribution surcharge. I move to the next slide on the unit cost evolution. The reported change in unit cost is -0.1%. If you correct for fuel and currency, we have a +2%. I cannot say that it is a good number. Sorry, probably you are a bit disappointed with this one, of course. However, I would like to give some explanation about that. First, clearly, a large part of this increase is explained by the strike. We have estimated the effect at +1.7%.
Second, there is this exceptional one-off, which is the impact of the end of a maintenance contract, which has also an impact on the unit cost, estimated to 0.4%. If you exclude these two elements, clearly, we have unit cost at zero over the quarter. Of course, we are not exactly at the target, as you can see. Keep in mind, however, that the structural unit cost has not increased by 2%. Clearly, this evolution is fully explained by the effect of the strike and the exceptional item coming from the earlier end of a maintenance contract. On top of that, we also see that the productivity and labor costs are still deploying a negative contribution to the unit cost, estimated to -0.3%. I will come back on that in the next slide. Productivity and labor cost.
During the quarter, the number of FTEs has increased by 900 FTEs compared to the first quarter 2017. If you compare that to the evolution of our capacity, in spite of the strike, the employee productivity has increased during the quarter. If you look at the evolution of the staff cost, you see that they have increased by EUR 35 million over the quarter. There is in it the effect of the profit sharing mainly to KLM, because last year, the same period, KLM had not yet posted any profit-sharing provision. If you correct for that, the labor cost has increased only by 0.6% compared to last year, which is, I think, a reasonable number. Productivity of employee is increasing. Labor costs are, during this quarter, under control, and corrected for strike and exceptional one-off, the unit costs are stable compared to the last year.
Next slide is just giving the operating result waterfall from Q1 2017 to Q1 2018. You see that this reduction of EUR -85 million is explained by the unit cost impact, which is EUR -100, largely including the strike impact and the higher fuel price. Which before correction from currency, is hitting the operating income by EUR 83 million. You see, however, the confrontation coming from the higher unit revenue for a positive contribution of plus EUR 91. Without surprise, if you go to the next slide, the performance between the two units of the group are totally different, which is not a surprise, of course. At the revenue level, you see that Air France is more or less flat, when KLM has increased significantly its turnover. If you look at the EBITDA, the EBITDA in Air France is decreasing from EUR 384 to EUR 305, when the EBITDA of KLM is increasing.
At the level of the operating result, of course, the evolution is similar. You see that the operating result of Air France is decreasing by around EUR 120 million, from EUR -57 to EUR -78, when the KLM operating results is almost doubling compared to last year, or more than doubling, sorry, compared to last year, from plus EUR 28 to plus EUR 60 million. Clearly, I think that it is the picture of the situation today. KLM has totally been able to take the benefit of the good trading on when in KLM, when in Air France, sorry, due to the strike, we have missed that opportunity. Next slide, on the adjusted operating free cash. There is a cash flow before voluntary departure plan and change in WCR, which is a EUR 500 million.
A great extensive WCR, because, as you know, we are in the good period of the year concerning the working capital. A net investment of EUR 900 million, then a payment of the lease debt, which is the payment in cash made during the quarter, in terms of operating lease for the depreciation part only. There is adjusted free cash flow, which is here, exactly the free cash flow we were presenting the year before. To have a more clear view, you go to page 14, where you have the evolution of the new net debt after the application of the IFRS 16. We have a net debt according to IFRS 16, which is now EUR 6.5 billion. As expected, it is not a surprise for you. We are below the adjusted net debt we were presenting up to now.
The evolution of this net debt is a decrease. As of 31st of March, this net debt is only at EUR 6.3 billion. How to explain this evolution? First, we have reimbursed some operating lease, and it has a direct impact on the debt according to the new definition. Second, we have an adjusted operating free cash, which is the definition we used before, which is also contributing to reduce the financial net debt. At the same time, we have renewed some lease, or we have signed some new lease contracts, so you have to take the debt associated to this new contract. Finally, of course, you can have a currency effect on the debt. All in all, you see these four elements explaining the evolution of the debt between the 31st of December and the end of the first quarter 2018.
Coming to the leverage KPI as we used before, we are now moving from the adjusted net debt on EBITDA to net debt according to IFRS 16, divided by the EBITDA, because I remind you that there is no EBITDA anymore. You see further, the ratio is lower than what we had before. At the end of 2017, the former ratio was at 2.1, we are now at 1.4. You also see that during the quarter, this ratio has moved from 1.4 to 1.3, so an improvement of the leverage of the group. I go now to the outlook. Concerning the revenue outlook, we present, as usual, the long-haul forward booking load factor for the next four months, May to August. You see that on average, this KPI is improving.
We are more or less +1% over the period, compared to the situation last year at the same date. We continue to be a bit in the same position as in the beginning of the Q1. There is a demand, even if there is an increase in our capacity and an increase in the capacity of the industry in and to Europe. You see that apparently, there is still a strong demand addressed to the airlines. Second, we spoke as usual also with our team in the revenue management of the group. According to their last analysis, they consider that the second quarter unit revenue is expected to be flat. Which is that there are no specific fears about the development of the unit revenue during the second quarter. Keep in mind also that the second quarter is partly impacted by the Easter shift.
There were a bit more traffic, which has been moved from April to March compared to last year. We think the trading environment, which is not too bad for this second quarter. The next slide is presenting the evolution of the fuel bill. Clearly, since the beginning of the year, the situation is a bit changing. During the last weeks, you have seen the fuel price sometimes hitting $70, but going then back between $60 and $65. Already for two, three weeks, we see that the fuel is a bit above $70 per barrel, which means that we have recalculated, as we did every week, the new fuel bill forecast for the year 2018. You see that we are a bit above compared to what we had presented to you during the presentation of February.
We have now, compared to last year, an increase in the fuel bill of EUR 350 million. Keep in mind that this result is impacted by the positive hedge result. We are now hedged close to 60%, in fact, 59%. The hedge result impacting positively the fuel bill is today in the range of $750 million. Next slide on the full year 2018 guidance. No surprise compared to the previous guidance. There will be a bit less capacity development. We now look for an increase of 2.5 to 3.5, which is down 50 basis points compared to our previous indication. Of course, the adjustment is only reflecting the impact of the strike at Air France. For Transavia, no change. We continue to foresee a solid development of 6% to 7%.
Concerning the fuel bill, I just explained that we have factored in the continued rise in oil prices translate in the projected fuel bill increase of EUR 350 million, which is clearly higher than what we have indicated in our last report. On currency, we now anticipate a headwind of EUR 100 million compared to the former guidance. It can be seen as counterintuitive, but the reason is, of course, that the Euro has strengthened not only against the Dollar but also against all other currency. For unit cost, taking into account all the cost effect of the strikes at Air France, as well as the planned capacity adjustment, we now anticipate unit cost to be flat to up +1% for the full year. Finally, the strike's impact up to now is estimated at least at EUR 300 million, which is fully integrated in the guidance element I just gave to you.
I think that as a consequence, together with the fuel and currency headwinds I have indicated, we expect clearly now, and it is not a surprise, an operating result for the full year, which will be notably below last year. Thank you for having listened to this presentation, and now I open the floor for your questions.
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We do have our first question from Savi Fife from Owen James. Please go ahead.
Good morning. Just three small questions from me. First is, if you look at slide seven, I was wondering what your expectations, at least directionally, are for the trends in those regions in 2Q. Second, just wondering what the Easter benefit to the passenger network in Transavia was in 1Q, then the drag in 2Q. Thirdly, just if you look at fuel prices having risen, just wondering, what parts of your network you think can recover that fuel price increase, with some three to six-month lag? Maybe what parts of the network maybe you would have to adjust your capacity thinking, maybe post summer season. Thank you.
Concerning the growth for the summer period, we continue to grow on South America. It will be in the summer, close to 7%. U.S. and North Atlantic also is quite dynamic. Africa, a bit slow, as indicated when I spoke about the unit revenue. Middle East also will be negative. Asia will be at 3%. Globally speaking, the growth we planned for summer is clearly well coherent with the evolution of the unit revenue I gave during the presentation. Is that clear?
Yes.
Concerning the fuel and the way we can counterbalance the increase of the fuel cost through the unit revenue, I think it is, of course, the most important question for all airlines, I think. I would say there is no precise rule. Clearly, we believe that when the fuel price is increasing, there is more pressure internally in airlines to push the unit revenue, the revenue management to increase the tariff. To say that it is automatic, of course, will be not true, because mainly the pricing is the result of the balance between the demand and the capacities. I can just tell you that, to be honest, from time to time, the revenue management team is testing when the fuel is increasing, if you can add a fuel surcharge, looking at the reaction into the market. I would say that there is no precise rules.
When the fuel is increasing, clearly, there is more pressure to increase the tariff, mainly the balance between the demand and the capacity is what is determining the pricing.
If I may ask?
Concerning Transavia, sorry.
Just on the fuel answer.
Concerning Transavia what?
On the fuel answer, I was just wondering if, given the weakness in some of the domestic markets, if that's something you will have to revisit capacity-wise close to summer.
How to say that? It is clear that when you look at the unit revenue for the Q1 in the domestic, it is clearly negative. We have explained that, as you know, by two elements. Just so you know, it seems to be a bit better in April. After the month of June, the base effect due to the new high-speed train, will be back to zero, because the new routes opened last year in June. We are up to June, taking the effect on the evolution of the unit revenue, but after June, the base effect will disappear. Concerning this unit revenue in the domestic, we see that it is a bit better already in April, when we agree it was quite bad during the first quarter of the year. Concerning the Easter impact on Transavia, yes, of course, it is positive in March in Transavia.
Sorry, unit revenue. Last year, where has it been? Yeah. Let us say that the RASK in the unit revenue in the month of March was clearly above last year. I would say, you can explain probably, I do not know what, 3% or 4% of the unit revenue due to the Easter shift.
Thank you very much.
We now have our next question from Daniel Roeska from Sanford Bernstein. Please go ahead.
Good morning, gentlemen. Three questions, if I may. Maybe first one on guidance for unit cost, you adjusted the full-year number. Could you give us a sense of what your expectation for kind of Q2 to Q4 on unit cost development are ex-fuel, ex-currency? If you kind of disregard Q1 and strikes, what's the trajectory we can expect for Q2 and four, maybe? If there is a negative, so decreasing unit cost expected underlying for Q2 to four, which initiatives drive that? Second question, on Slide 12, you showed the different performance of the Air France companies and the KLM group of companies. I was just wondering how much of the positive improvement at KLM is actually being driven by cargo. Because you commented earlier that cargo is performing very well.
KLM is a large part of the cargo business, how does the KLM unit actually perform when you take apart passenger business and cargo business? Lastly, of course, please short update on the strike situation. Where are you with the ballot? What are your, let's say, longer term strategies to getting back on track with your labor force? Have you considered accelerating Transavia in Joon? Maybe a little bit of thinking beyond the current conflict with labor, please.
Okay. Concerning the second question, I give the floor to Erik, CFO of KLM. Erik?
Yeah. First of all, just to note that we do not report passenger and cargo separately anymore. We have seen indeed in KLM a quite positive improvement in cargo, especially the unit revenues. The capacity is flat, the unit revenues have been quite positive. A rough figure of the EUR 32 million of improvement, I would estimate from cargo, the contribution improvement is around EUR 10 million. One-third is.
Okay. Great. Thanks, Erik.
Okay, your first question on the ballot. First, you will be informed about the result of this ballot by the end of the day. We expect to have the result around 6:00 P.M. Of course, in the evening, Air France-KLM will communicate. Of course, also, Jean-Marc Janaillac, based on the result of this ballot, will also indicate the way he would like to act in order to, as quick as possible, of course, to stop this period, which is clearly an extremely difficult period for the Air France teams. The effect of the strike, you have seen that on the result, are devastating. Clearly, we hope that after the result of the ballot, Jean-Marc will find, together with Franck Terner, a very quick way to stop this situation, which is, I think, detrimental for everybody, including people who are in strike.
Concerning the unit cost, Steven, controller of the group.
Yeah, if you look at the unit cost, of course, the second quarter will heavily be impacted by strike. That will be more negative. If you look at the rest of the quarters, everywhere it is the same trend. We don't see a specific trend between the different quarters, except for Q2, where we know that there's already an impact of the strike.
Clearly, it's not because we have the strike that we are stopped working on the question of the unit cost. First, we demonstrate that the staff productivity increased during the quarter. Second, during the summer, the capacity will even accelerate compared to the winter period. As you know, there is this plan, both in Air France and KLM, but I would say mainly in Air France, concerning the fleet utilization and the way to increase the number of flown hours, where we see still a difference between Air France and KLM. In the two companies, we discussed that just today into the board of Air France-KLM, the focus of the two teams concerning the operational performance. Also, the development of Joon, with the cabin crew and the new working condition, is helping to the reduction of the unit cost.
Again, I know that you cannot be totally convinced by that, but if you look at the split of the unit cost evolution during that first quarter, excluding the strike and excluding the accounting non-cash effect of this provision due to the earlier end of maintenance contract, we have unit cost at zero. Which means that we clearly are not in a situation when we see the unit cost increasing without any control. In this difficult period, we have been able to keep the unit cost stable. I will even say that if you look the difference between Air France and KLM, in KLM, the unit costs are down. If you exclude the accounting effect of the profit sharing. In Air France, they are more or less stable if you exclude the strike.
Again, we cannot convince you that the unit costs are decreasing, but at least keep in mind that corrected logically for these two elements, strike and the exceptional one-off, the unit costs are stable when you correct for currency and fuel.
One short follow-up, I think what we're worried about a little bit is the previous guidance to unit cost was -1%, -1.5%, and this basically means underlying unit cost basically stable. Has the board considered additional measures to maybe still reach the original unit cost target this year? Other airlines have been moving to buy-on-board concepts in economy. Maybe you can accelerate the distribution strategy. I'm just wondering, what are the levers you may still activate throughout the year to improve that picture?
If I may, I am not so sure that the management need board indication in order to work on the unit cost reduction. I think that if you look at the performance or the result of Air France-KLM during the last four or five years, I think that year after year, we had unit cost decreasing. Last year, again, I know that it has been a bit difficult to convince you, but excluding the profit sharing, the unit cost have also decreased accordingly to the target. This year, of course, we have clearly a huge impact of the strike in terms of unit cost, which has to be estimated probably above 1%. You see just by looking at the effect, that it's just logical for us to move the range compared to what we have announced during the full year guidance at the beginning of the year.
Yeah. Again, we have already developed and presented in the past a lot of project, which are all working into the direction of the unit cost.
Thank you.
We will now take our next question from Neil Glynn from Credit Suisse. Please go ahead.
Good morning. If I could ask three questions, please. The first one, following on the unit cost side. I noticed your unit distribution costs were down in the first quarter. Just interested, obviously, your new distribution strategy kicks in on the 1st of April. Does that mean that those unit distribution costs should rise through the rest of the year? Any sense of magnitude would be helpful. The second question, with respect to your premium RASK was up 7.6% year-on-year, obviously extremely strong. Could you provide some insight in terms of, to what extent that is led by U.S. point of sale, by EU point of sale on the transatlantic? That would be helpful. One final question, just in terms of competition eastwards. Clearly, there's been some strategic changes and various developments at the Gulf carriers, and the Chinese carriers are clearly growing extremely strongly.
I realize obviously you've got your own partnership in China, can you comment to what extent you see deflationary competition from the East currently, and how that differs to previous years? That would be helpful. Thank you.
Unit cost.
For the unit cost, if you look at the commercial cost, actually, we always report on net unit cost. We take the other revenues into account, and the distribution charge is taken as an other revenue. In general, we expect actually no increase coming from NDC on the unit cost. Is it clear?
Yes, that is. Thank you.
Concerning the premium, yes, it's true that when you look at the slide, when we presented the unit revenue, we have indicated that the premium was going relatively well, with a RASK of +7.6% to compare to zero for the economy passengers. Yes, indeed, concerning the North Atlantic, we have a robust underlying demand driving the premium traffic. It's clearly one of the component which is contributing to the good behavior of the unit revenue of 5%, when you look what happened in the first quarter on the North Atlantic routes. I cannot tell you, to be honest, if it is more on the point of sale U.S. or the point of sale Europe. There is one element you can consider, which is that the dollar weakening, it can probably push more European tourism to U.S. than the contrary.
Frankly, I will give the information to Wouter, and he will answer your question a bit later. Concerning your last question, can you repeat it? Sorry.
Yes. Just interested in competition from the East. Obviously, there's been various changes at the Gulf carriers. The Chinese carriers are growing very strongly. I know that you have a partnership clearly in China, but just interested how the competitive landscape is changing for you this year relative to last, for example.
What has changed concerning the capacity forming to Europe for the year 2018 is that, globally speaking, the capacity are increasing a bit higher than the year before, probably 0.4, 0.5 above what we observed during the last year. Second element, the growth of the Gulf carrier and the super-connector, as we call them, is more or less equal to the growth of the legacy carriers. For example, for the summer of 2018, we have a growth of the super-connectors of 7.9%, and a growth excluding these carriers of 7.4%. There is an equal growth of capacity between the two family of players. It is totally different compared to what we had, for example, two years ago. I take the number for summer 2016, the growth of the super-connectors was in the range of 15%, and for the other carriers, it was 5%.
Clearly, the aggressivity, let us call it, of these players is less compared to what we observed during the last years. You have also seen, I suppose, yesterday, the paper on Emirates Decreasing of growth of capacity, partly due to the difficulty to hire pilot, but also due to the level of the demand.
Understood. If I could just follow on, just one final thing on that. You talk, I guess, to rationality, which is encouraging. The multimillion-dollar question is the fuel price is rising, how does that influence yield management across the sector as we get into the second half of the year? Does that kind of rational approach inspire confidence in you that higher fuel prices should make it to unit revenue? Is there far more to it than that in your view?
Again, it is a one billion-dollar question. Clearly, when the fuel is there, some carriers can consider to anticipate the phase out of all the aircraft. It has an impact on the capacity. Second, there is an internal pressure if the results are deteriorating because of the fuel to push the volume management to increase the fares, of course. I would say that ultimately, if you are rational, you have to consider that the unit revenue is mainly determined by the balance between the demand and the capacity, which is the ultimate parameter to see where the pricing will be in the future. Again, we know that normally and logically, when the price of the fuel is up, you should observe an increase in the unit revenue.
To know if it comes quickly and if it compensates a large part of the fuel cost is extremely difficult to say. We have internally that discussion. The yield management says, it is only the demand versus the capacity. Of course, the fuel price going up, you can have some capacity withdrawn from the market. Basically, there is no, I would say, automatic rule.
Understood. Thank you very much.
We will now take our next question from Jarrod Castle from UBS London. Please go ahead.
Thanks. Good morning, gentlemen. Coming a little bit back to the cost. You've got obviously 0 to +1. Thinking from 2019 onwards, do you still think you could do a number of at least -1% ex-fuel going forward? Especially if what's currently on the table for staff, the 7% salary increase over, I guess it's 4 years, if that came through, would you get some productivity gains as well with it? Secondly, on the whole vote, where is the upside from having this vote? Given that if you win, does it mean that the people are going to go back to work? If you lose, what does this mean for the CEO's position now, given what he said about the vote? Lastly, can you say anything on cargo pricing looking forward?
Obviously, it's been very strong, but how it's progressing during Q2. Thanks.
For cargo, yes, for the time being, they have rather a positive feeling about the development of the activity. Compared to the budget, I would say that their trend is rather to increase their forecast rather than to decrease it. Again, they are very happy with the development during the first quarter. As you know, on top of that, they are working extremely hard concerning the digitalization of the activity and the development of the negative sales performance. Let us say that for the time being, there is no negative sign concerning the development of activity in the cargo. Concerning the vote and the poll among the employees, I think it was really necessary for Jean-Marc and for Franck to mark a stop to the current situation, and to explain to unions and to try to ask to people, what do you really think about that situation?
The other solution would have been to do nothing, or would have been to give to the leader of the union what they ask, but then it was impossible. I don't say that the poll is solving everything, but I think it is extremely important for the management of Air France to at least have a clue about the reaction of employees. If clearly employees consider that to ask 6% of labor increase cost is just no more, it means something. If they say no, I think it means also something quite important. Let us wait for the result of this poll. There will be, as I told before, available tonight. Clearly, if it is a no, you know what will be the Jean-Marc reaction.
If it is a yes, I think, we think that it is for the leaders of unions, a strong signal that possibly we have been far too far in that sense that they are not supported by a majority of the Air France French employees. From that point of view, I say that at least the merit of this poll has been to cut or to introduce a change in a process which before appeared to be a bit blocked. Concerning the unit cost Erik, for the future, for the next year. Clearly, in the budget we have something which is, in the three-year plan, we have all introduced in the two airlines an assumption with negative unit cost.
Yeah. I think it depends very much on the economic environment. Clearly, we're targeting a unit cost reduction. It's too early to say at what percentage that will be. I would say slightly negative is targeted for the following years, but very much depending on the economic situation and the results, of course.
Clearly, to answer shortly your question, it is the assumption we introduce in the three and five years plan to continue to have a reduction in the unit cost. Again, I have already indicated some elements, clearly, when we build the budget or when we work on a three-year plan, it is the assumption we do.
Okay. Thank you, gentlemen.
Ladies and gentlemen, in the interest of time, if we can ask you to limit your questions to one per person from here. As a reminder, if you'd like to ask a question, it is star one on your telephone keypad, and star two if you wish to remove yourself from the queue. We will now take our next question from Damian Brewer from Royal Bank of Canada. Please go ahead.
Good morning. I am afraid I do have two questions, and we can ask both. First of all, on the strike costs you have identified, could you be clear if those include the impact on staff bonus accruals or whether that is yet to be netted off? Just some clarity on that. Secondly, on the Q1 debt, given Air France appears to have gone backwards, even if you X out the strike costs on its profitability, could you give us some feeling of how much of the group debt or the debt you have disclosed is either relates to the KLM operating entity or is guaranteed by the KLM operating entity? Thank you.
When we speak about EUR 75 million minimum for the three days of the first quarter, there is no netted impact coming from the profit sharing. The profit sharing will be calculated ultimately by the end of the year. Of course, we are now taking the provision according to our internal forecast. When we give a cost per day, which is between EUR 25 million and probably a bit more, it will be EUR 20 million, EUR 27 million. We have to finalize everything, I think that EUR 25 million is really a minimum. It is not netted by any compensation coming from a reduction of the profit sharing. Sorry, can you repeat your question concerning the KLM debt?
I am just interested, of the group debt you have disclosed for Q1, how much directly relates to KLM or over which KLM is effectively a guarantor?
Erik? No, you don't give this info. Okay, no answer from the KLM CFO, and I will not overrule him.
Okay. I'll keep on trying next time. Thank you.
We will now take our next question from Johan Braun from MainFirst Bank. Please go ahead.
Yes. Thank you. Good morning. Just one again on the labor dispute at Air France. I was just wondering what the mood among KLM staff actually is, given the situation at Air France. As I understand, the regular KLM wage negotiations for pilots and cabins are also still ongoing, just wondering how the situation at Air France influencing the talks at KLM.
I think, our CEO made a clear statement showing his clear support for his colleagues in France here and very much supporting the direction taken here to end the strikes as quickly as possible. As you know, last year or early this year, we had an agreement with the cabin unions. As was announced yesterday with the cockpit unions, we progressed very well. We have an agreement in principle, and it will be ratified in the coming days by the members of the pilot union. I think you've read the outlines of the agreement.
We will now take our next question from Andrew Lobbenberg from HSBC. Please go ahead.
Hi there. I was keen to understand what the prospects are of advancing the two strategic issues in France of restructuring HOP!, which appears necessary given domestic revenue trends, and negotiating the change to the Transavia France cap. How optimistic are you of being able to move forward on these strategic initiatives, given the sensitivity of the vote that comes out shortly, and the fact that I don't think any of these contingency scope clause changes or whatever are included in the salary promise. What negotiating leverage is there to advance these two processes from here?
First, concerning the restructuration, in HOP, there is an important step which has been achieved during the last week, which is an agreement with pilots concerning the merger of the three companies. You know that HOP, last year, merged Airlinair, the former Brit Air and the former Régional. The merger is progressing well, and one of the problems was to negotiate with pilots, it's done. I think it is quite important. The second step you're right on, Drew, is to continue the restructuration of mainly the domestic network of Air France, under pressure, partly due to the high-speed train, partly due to the competition from some low cost, not so much between Paris and the province, but more for the internal transversal routes.
One of the problem here is clearly to be able to negotiate with SNPL, the capability to increase the fleet of Transavia above of 40. First, we are not yet at 40, so we have still one year to go without being constrained. After that, clearly, the necessity to open the discussion with them will be necessary. Personally, I am relatively optimistic because I think that it is rational to do that step for everybody, including, of course, the pilots. The fact to be rational does not make a negotiation necessarily easy, but let us say that I am rather optimist.
We will now take our next question from James Goodall from Redburn. Please go ahead.
Oh, hi there. Just one on the private channel agreements with the GDSs and what you think the impact's going to be to your cost base. I suppose what I'm asking is if there is actually any cost base, given that through a private channel agreement, you need to incentivize the travel agent directly as opposed to the GDS providing the incentive. I guess, does that mean that you're surcharging the private channel too?
Benjamin?
No, sorry, we cannot answer that question. It's in all our private agreements.
We will now take our next question from James Hollins from Exane. Please go ahead.
Yeah. Just one from me, please. I just wondering on the mechanics of this online poll. Just wondering, well, two things. Does everyone have to vote, or is it just those that can be bothered, i.e., the ones who are incentivized? Secondly, in terms of the mechanics of if it weren't to go in Jean-Marc's or management's favor, is there a chance that by Monday morning, Jean-Marc won't be CEO of Air France-KLM? Thank you.
Concerning the technicality, it is very simple. It is an electronic vote controlled by an external company, all the Air France people concerned by the agreement for France are invited to vote on a voluntary basis. All the process is controlled by external lawyer and an external company, the result are not known yet and will be known by the end of the day. Second, yes, if it is a no, Jean-Marc Janaillac has made extremely clear that if the no will be the result of this poll, he will in fact leave the company.
We will now take our last question from Anand Bates from Deutsche Bank. Please go ahead.
Hi, morning, everyone. I just wanted to ask, with regards to the NDC stuff and the private agreements, also with regard a difficult Q1 on strikes, could you talk about how the conversations with your corporate customers are going? Whether there is any uncertainty or whether you are starting to see volumes potentially shift away as a result of those two things. Thank you.
No, we don't see that direction. We don't see any negative impact from the corporate customers.
During all the first quarter, in fact, the sales in volume with big enterprise and big accounts has behaved, I would say, very well. No apparent impact of the change in the distribution system. In view of times, I would like to thank you all to attend this presentation. Again, good luck for your work. Again, if you want more info concerning the move to the new IFRS standard, do not hesitate to call the team available to answer your question. I suppose I give you now just opportunity to go to the IAG presentation. Have a nice day.
Ladies and gentlemen, this does conclude today's call. Thank you for your participation.