Earnings Call: Q1 2018

May 4, 2018

Good day, and welcome to the Quarter 12018 Air France KLM Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Frederic Gaugei, 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 with Exelrahim, CFO of KLM. And the team of the financial communication of the group. So let us start with the key highlights of this quarter. I think there is 3 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 the presentation some indication about the impact of these new standards, but of course, as the team is available to answer your question later, if you want to adjust to your model. 2nd element, I think to keep in mind the fact that globally speak as a demand on Varianmont was relatively positive during this quarter. We had indicated in the presentation of the full year 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. And the RASK accordingly to what we presented at the beginning of the year is also positively oriented and during the quarter, it is +.2 percent 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 2 hubs. The three amount of course to have in mind is effect of the strike in Air France. It is clearly not a, a pleasant environment in Air France during the last weeks, the strike had, of course, an extra negative impact in terms of result. For the only first quarter, we have estimated the impact of the strike at at least 1,000,000 at the current operating level. And 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 was due to the rate is negative compared to last year. So current operating income is at minus EUR 118,000,000 which is EUR 85,000,000 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 18, you see that the revenue is improving in spite of the strike. We have a chance of 1.8% like for like with a big impact, of course, of the currency evolution, if you correct, as 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 a vis the other currencies. Operating result as said before, minus EUR 85,000,000 compared to last year and even minus EUR 100,000,000 at constant currency. So it is an operating margin with decreasing by -1.5 points compared to last year. Net result compared to last year is decreasing by EUR 126,000,000, partly impacted also by 1 provision for restructuring taken into CalM. The free cash is at plus 142,000,000 but I will come back later on this indicator we propose for the free cash flow. Zoci is improving, but keep in mind that it is a ROACE over the last 12 months. So it's partly taken into account the effect of the improvement of the Voci during the 3 last quarters of 2017. If I go page 5, 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. And we are put on the right of the slide the main impact, to explain if the changes are coming from IFRS 169 or 2015. So something relatively complex. Again, you have, of course, the possibility to call the team if you need more more info and there is also some explanation more precisely given in the press release Just to summarize his main effect, it just says 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 and concerning the IFRS 16, which is, of course, the biggest change that we have adopted for the early adoption of standard, as I told before, January 1st, all the contracts the lease contract will be recognized on the balance sheet and there would be a right of use, which would 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, but if you go a bit below and you look at the operating income minus the cost of debt, to 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 net. 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 Boursam, so which is relatively dynamic and in spite that we have a unit revenue increasing by 1%, which is exactly what I described before when I told that in fact, current annual note and the trading on variable note was not so bad during this first quarter. And again, we find exactly the trends We have forecasted at the beginning of the year, a positive traffic, an increasing load factor and a positive unit revenue concerning the cargo see the capacity at plus.6 percent only. It's partly explained because, of course, the volume of Belize available for the cargo activity are increasing because it goes primarily with the evolution of the seed capacity as we add more aircraft. But there is also in KLM, a change in the fleet with the progressive withdrawal of the combi So that's why we see the cargo capacity slightly below the passenger capacity, in spite of that, One of the big difference is the unit revenue. You see that unit revenue in the cargo is extremely positive, plus 7.3% which is currently the size of the dynamism today of this activity, thanks mainly to the economic growth in various parts of the world. Trazavia, we increased capacity by 10%. So we continue the relatively speedy growth in Transavia, both in Air France and in KLM. And you see that in spite of that unit revenue continue to improving after the good performance of last year. We have a unit revenue at +8 percent demonstrating the huge demand for low cost, for low cost seats by a part of all clients. The maintenance, the maintenance we have a change in the revenue for 3rd party increasing by 5%, demonstrating the dynamics also of this activity Let us look at the operating result for the various businesses network, we are down. And clearly, the main explanation is Ella the strike at Air France, you see that the charge is minus 1,000,000 and the operating margin is going down. Of course, Transavia improving compared to last year. Transavia is still negative, of course, because it is the 1st quarter. And you all know the seasonality of this activity, but there is an improvement. Matt announced the slight deterioration of the operating result only explained on totally explained by a provision coming from the end of a specific contract. Which adds this accounting effect, non cash, of course, which is accounting effect on the operating result of the methanol units. Next slide, just to describe a bit the evolution of the unit revenue per subnetworks, As I talked in the beginning, you see that the RASK in long haul is close to prescript of Salt, so which is aligned with or feeling concerning the market at the beginning of the year. You see that unit revenue for the medium haul hubs is also at 2.3%. And 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 great negativity to the new minus 9%, partly explained by the shift in the pattern holidays 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 that were fixed by 5 and signature revenue by 5. Latin America also is extremely a good 10% of our capacity, 12% of traffic, 6% of unit revenue, and Asia also a bit less dynamic, but with the traffic of 3.3%. We increased the rise by 2.4% some weaknesses in Africa and a 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 Reignon, in the Indian Ocean, you see for a subnetwork declining WAISCO minus 2.74. 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, and we have today a sharp increase of the number of passengers collecting in Amsterdam or in Paris coming from India and connecting to the North Atlantic to mainly U. S. We are now close to 1000 passenger connecting from India to the U. S. In 1 of 2 hubs. Also a successful introduction of the brand affairs. It was a project developed together with Delta on the North Atlantic, and we see the upsell in line with expectations. The new Flying Blue program has been launched to the 1st April. We have introduced simplify program rules for turn and key eligibility. And we are very happy with the 1st consequence of of seasonal and a full new branding has also gone live And finally, a part of our sales team is fully occupied with a new distribution strategy, which has been implemented as of the 1st 3 2018. And as you know, in order to accompany the transition to the new NDC technology, we have negotiated some private agreements with M And A Whose or travel port, for example, which enabled the customers to access a private channel with our traditional distribution surcharge. I move to the next slide on the unit cost evolution. So the corporate exchange in unit cost is minus 0 0.1%. If you're correct for fuel and currency, sorry, we are at +2 percent. I cannot say that it is a good number. And sorry, probably, you have a bit of a return with is one. Of course, however, I would like to give some explanation about that. 1st, clearly, a large part of this increase is explained by the strike, we have estimated the effect at plus 1.7%. 2nd, there is exceptional one off which is the impact of the end of a maintenance contract, which has also an impact of the unit cost estimated to 0.4 salt. If you exclude this 12 months, clearly, we have unit cost at 0 over the quarter. So of course, we are not exactly at the target. As you can see, But keep in mind, however, that the structural unit cost have not increased by 2% clearness evolution is fully explained by the effect of the strike and the exceptional item coming from the end earlier end of a methanol 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 minus 0.3 I will come back on that in the next slide. So productivity and labor costs during the quarter of the number of 50s has increased by 9 is compared to the first quarter 2017. But if you compare that to the evolution of our capacity, In spite of the strike, the employee productivity has increased during the quarter. And if you look at the evolution of the staff cost, You see that they have increased by 1,000,000 over the quarter. 1,000,000, there is in it the effect of the profit sharing mainly into 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. So productivity of employee is increasing. Labor tours are during this quarter under control and corrected for strike an 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 the reduction of minus EUR 85,000,000 is explained by the unit cost impact which is minus 100, largely including the strike impact and the higher fuel price. Which before production from currency is hitting the operating income by 83 1,000,000, you see, however, the compensation coming from the higher unit revenue for a positive contribution of 291 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 their front is more or less flat. When KLM has increased significantly its turnover. If you look at the EBITDA, the EBITDA in our front decreasing from 3.84 to 305 when the EBITDA of Calamy is increasing at the level of the operating result. Of course, the evolution similar, you'll see that the operating result of Air France is decreasing by around EUR 120,000,000 from minus 57 to minus 78 when the KLM operating results is almost doubling compared to last year. More than doubling. So we compared to last year from Q28 to plus 1,000,000 clearly, I think that it is a picture of the situation today, Karim, has totally taken been able taken to take the benefit of the good trading on bag or not, 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 500,000,000 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 900,000,000 and 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. And there is an adjusted free cash flow, which is here exactly the free cash flow we were presenting the year before. So 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. So we have a net debt according to IFRS 16, which is now a EUR 6,500,000,000 So as expected, it is not a surprise for you. We are below the registered net debt we were presenting up to now. The ratio of his net debt is a decrease as the 31st March is net debt is only at 1,000,000,000. How to explain this evolution. First, we have reimbursed some operating leases. And it has a direct impact on the debt according to the new definition. So, again, we have an adjusted operating free cash, which is the definition we used before, which is also contributing to reduce the financial net debt. In the same times, we have renewed some lease or we have signed some new lease contracts. So you have to take Debt associated to this new contract. And finally, of course, you can have a currency effect on the debt. And all in all, you see these 4 elements, explaining the evolution of the debt between the 31st December and the end of the first quarter 2018. Coming to the leverage KPIs 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. And you see further the ratio is lower than what we had before. At the end of 2017, the ratio the former ratio was up 2.1. We are now at 1.4 Then you also see that during the quarter, since we show as moved from 1.4to1.3. So an improvement of the 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 4 months made to August. You see that in average, this KPI is improving were more or less, plus 1% over the period, compared to the situation last year at the same date. So 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. 2nd, we spoke as well also with our team in the revenue management of the group and according to their last analyses, they consider that the 2nd quarter unit revenue is expected to be flat So which is that they have no specific, fierce about the development of the unit revenue devices 2nd quarter. Keep in mind also that the 2nd quarter is partly impacted by the Easter shift a bit more traffic, which has been moved from April to March compared to last year. So we are, we think, trading environment, which is not too bad for the 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 65 already for 2, 3 weeks. We see that the fuel is a bit above $70 per barrel, which means that we have recalculated as we need every week the new fuel bill forecast for the year 2018. And you see that we are a bit above compared to what we had presented to you during the presentation of February. We are now compared to last year, an increase in the fuel bill of EUR 350,000,000 Also, keep in mind that this result is impacted by the positive edge result, we are now hedged close to 60%. In fact, 59. And the edge result, impacting positively the fuel bill is today in the range of $766,000,000. Next slide on the full year. Full year solid 2018 guidance, no surprise compared to the previous guidance there will be a bit less capacity development. We know look for an pace of 2.5to3.5, which is down 50 basis points compared to previous indication And of course, the adjustment is only reflecting the impact of the strike at Air France for Transavia not change We continue to foresee a solid development of 6% to 7%. Concerning the fuel bill I just explained that we are factored in the continued rise in oil prices translate in the projected fuel bill increase of 1,000,000, which is clearly higher than what we have indicated. In our last report. On currency, we now anticipate a headwind of EUR 400,000,000 compared to the former guidance, it is it can be seen as counterintuitive, but the reason is of cars and 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 their front, as well as the planned capacity adjustment. We now anticipate Tunis costs to be flat to up plus 1% for the full year And finally, the strikes impact up to now is estimated at least at EUR 300,000,000 which is fully integrated in the guidance element. I just gave to you So I think that as a consequence, it comes 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. So thank you for any reason to his presentation and now I open the floor for your questions. Thank on your telephone keypad. We do have our first question from Savi Fife from Raymond James. Please go ahead. Good morning. Just three small questions for me. First is if you if you look at slide 7, I was wondering, you know, what your expectations at least directionally are, for for the trends in in those regions, in, in 2Q. Second, just wondering what the Easter benefit to the, kind of, the passenger network in Transavia was in in in 1Q and then then the drag in 2Q. And and thirdly, just, if you look at fuel prices having risen, I'm just wondering what parts of your network you think can recover that fuel price increase with some, you know, 3 to 6 month lag and And maybe what parts of the network, maybe you you would have to, adjust your capacity thinking, and maybe post summer, summer season. Thank you. So concerning the growth for the summer period now, we continue to grow on South America, which will be in the summer close to 7%. U. S. And North Atlantic also is great dynamic. Africa a bit, slow. As indicated in the when I spoke about the unit revenue, Middle East also will be negative. And Asia will be at 3%. So 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? Concerning the few So 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. So I can just tell you that, to be honest, from time to time, the unit, so is our new 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 tariff, but mainly the balance between the demand and the capacity is what is determining the pricing. Sorry. Sorry. On the fuel answer, just wondering if you know, given the weakness in in some of the domestic markets, if that's something you'll have to revisit capacity wise, close to summer. Yes, I would say to say that It's 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 2 elements. Just for your info, it seems to be a bit better in April. And after the month of June, the effect, the base effect due to the new ISP trend will be back to 0. Because the new woods opened last year in June. So we are up to June taking the FX on the evolution of unit revenue, but after June, the base effect will disappear. But concerning this unit revenue and the domestic, we see that 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 a positive in in March, in Chosarria. Yes. Yes. And then let us say that the RASK in the unit revenue in in the month of March was clearly above last year. I will say you can explain probably, what, I don't know what, 3 or 4% of unit revenue due to the Easter shift. We now have our next question from Daniel Roeska from Sanford Bernstein. Please go ahead. Good morning, gentlemen. 3 questions, if I may. Maybe first one on the guidance for unit costs. It the full year number, could you give us a sense of what your expectation for kind of Q2 to Q4 on unit cost development, Rx? Fuel ex currency. If you kind of disregard Q1 and strikes, so kind of what's the trajectory we kind of expect for Q2 and Q4, maybe if there is a negative, so decreasing unit costs expected underlying for Q2 to 4, which initiatives drive that? Second question on Slide 12, you showed the difference performance of the 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. And so how does the KLM unit actually perform? When you take a part of passenger business and cargo business. And lastly, of course, please short update on the strike situation where are you with the, with the ballot? And what are your, let's say, longer term strategies to getting back on track with your labor force? Have you considered accelerating Transavia in June, maybe a little bit of thinking beyond the current conflict with labor, please. Okay. Concerning the second question, I give the floor to Eric CFO of, yeah, L. M, Eric? Yes, no, first of all, we do not support passenger and cargo separately anymore. We have seen indeed in KLM a quite positive improvement in cargo. Especially the unit revenues. So that the capacity is flat, the unit revenues have required positive. And a rough figure of the $32,000,000 of improvements. I would estimate from cargo, the contribution improvement is up is around 10,000,000. So once that's become. Okay, great. Thanks, Eric. Okay. Your first question on the ballot first, you will be informed about the result of this, followed by the end of the day. We expect to have the result around 6 pm. And of course, in the evening, Franskerem will communicate And of course, also Jean Marc, Jean Hayak, based on the result of his ballot, we 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 as the effect of the strike, we are seen that on the recent devastating. And clearly, we observed that after the result of the ballot, Jean Marc will find together with Fontaine. A very quick way to stop a situation, which is, I think, detrimental for everybody including people who are in strike. Confirming the unit trust steering controller of the group, Yes, if you look at the unit cost, of course, the 2nd quarter will actually be impacted by strikes. So that will be more negative. If you look at the rest of the quarters, it everywhere, it's the same trend. So we don't see a specific trend between the different quarters, except for 2, where we know that there's already an impact of the strike. But clearly, it's not because we have the strike that we are stopped work of the question of the unit cost. 1st, we demonstrate that the staff productivity increased during the quarter. 2nd, during the summer, the capacity will even accelerate compared to the winter period. As you know, there is plan, both in Air France and KLM, but I will say mainly in Air France concerning the fleet utilization and the way to increase the number of flower and ours where we see yet a different, still a different in Air France and KLM. In the two companies, we discussed that yesterday into the board of Air France KLM, the focus of the 2 teams concerning the operational performance, also the development of June with the cabin who has a 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 fleet of the unit cost evolution during that first quarter, excluding the strike and excluding the accounting noncash effect of this provision due to the earlier end. Of a maintenance contract, we have unit cost at 0. So 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 lose the difference between Air France and KLM, In KLM, the unit costs are down. If you exclude the accounting effect of the profit sharing, And in Air France, they are more or less stable if you exclude the strike. So again, we cannot convince you that the unit costs are decreasing. But please keep in mind that corrected logically for these 2 elements, strike and the exceptional one of the unit costs are stable when you collect from currency and fuel. If I one short follow-up because I think what's I think what we're worried about a little bit is the previous guidance to unit cost was kind of -1-1.5 and this basically means underlying unit basically stable. Has the board considered kind of additional measures to maybe still reach the original unit cost target this year? I mean, other airlines have been moving to, to buy onboard concepts and economy. Maybe you can accelerate the 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 sure that the management need a board indication in order to work on the unit cost reduction. I think that if you look ahead the performance or the result of Air France KLM during the last 4 or 5 years, I think that year after year, we had unit cost decreasing. Last year, again, and I know that it has been a bit difficult to convince you, but including the profit sharing, the unit cost have also decreased according to the target. See here, Of course, we have clearly a huge impact of the strike in terms of unit cost. Which has to be estimated probably above 1%. And you see just by looking at these effects that it just logical for us to move the range compared to what we have announced during the during the full year guidance at the beginning of the year, yes? And again, we have already developed and presented in the past a lot of project which are all working We will now take our next question from Neil Glynn from Credit Suisse. Please go ahead. Good morning. If I could ask 3 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 April. Does that mean that those unit distribution costs should rise through the rest of the year? And 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 has led by U. S. Point of sale by EU point of sale on the transatlantic? That would be helpful. And then one final question, just in terms of competition eastwards, clearly there's been some strategic changes and various developments at those carriers and the Chinese carriers are clearly growing extremely strongly. I realize obviously you've got your own partnership in China, but Can you comment to what extent you see deflationary, competition from the East, currently, and how that differs to previous years would be Thank you. For the unit cost, if you look at the commercial cost, Actually, we always report on net unit costs, so we take the other revenues into account. And the distribution charge is taken as another revenue. So in general, we expect actually no increase coming from NDC on the unit cost. Yes, that is. Thank you. Concerning the premium, yes, it's true that when you look at the slide when we present the unit revenue We have indicated that the premium was going relatively well with the heart of 37.6% to compare to 0% for the economy, economy passengers. Yes, indeed, concerning the North Atlantic, we have, a robust the underlying demand driving the premium traffic. So 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 of the point of sale in Europe. There is one element you can consider, which is that the dollar weakening It can probably push more European tourism to U. S. And the contrary. But frankly, will give the information to Voucher 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 strong. Only, I know that you have a partnership, period, in China, but just interested how the competitive landscape is changing for you this year relative to last, for example. What is changed concerning the capacity forming to Europe for the year 2018 is that Nobody speaking, the capacity are increasing a bit higher than the years before, probably 0.4.5, above what we observed during the last year. Second element, the growth of the golf car here and the super connector, as we call them, is more or less equal to the growth of the For example, for the summer of 2018, we have a growth of the super connectors of 7.9%. And the growth excluding the car years of 7.4%. So there is an equal growth of capacity between the 2 family of players. And it is totally different compared to what we had, for example, 2 years ago. I think the number for summer 16, the growth of the super connectors when it's in the range of 15%. And for the other carriers, it was 5%. So clearly, the aggressivity that is of the players is less compared to what we observe during the last, the last years. And you have also seen, I suppose, yesterday, the paper on Emirates decreasing on growth of capacity partly due to the difficulty to higher thyroid, but also due the level of the demand according to Understood. And if I could just follow on just one final thing on that, you talk, I guess, to rationality, which is encouraging. Mean, I guess the multimillion dollar question is the fuel price is rising. How does that influence yields 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 or is it Is there far more to it than that in your view? No, again, it didn't John, clearly, when the fuel is there, some carriers can consider to anticipate the phaseout of all the aircraft. Okay. So then it has an impact on the capacity. 2nd, there is an internal pressure in the visible target area team because of the fuel to push the new management to increase the face, of course. But I will say that ultimately, if you are a rational, you have to go there 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 shore is up you should observe an increase in the unit revenue. But to know if it comes quickly and if it's consulted, the last part of should cost is extremely difficult to say. We have internally the discussion. The main management says, sorry, it is only the demand versus the capacity. And, of course, the fuel price going up, you can have some capacity withdrawn from the market. But basically, there is no, I would say, automatic rule. Understood. Thank you very much. We will now take our next question from Jeff Castle from UBS London. Please go ahead. Thanks. Good morning gentlemen. Just coming a little bit back to the costs. You've got obviously 0 to +1. Just thinking kind of from 2019 onwards? I mean, do you still think you could do a number of at least minus 1% ex fuel going forward? And 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 would you get some productivity gains as well with it? Secondly, just on the kind of whole vote, I mean, 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? And if you lose, what does this mean for the CEO's position now? Given, what he said about, the vote. And then just lastly, can you say anything on cargo pricing looking forward? Obviously, it's been very strong, but how it's progressing during Q2? Thanks. Okay. For cargo, yes, for the time being, they have rather positive feeling about the development of the activity compared to the budget. I would say that their trend is rather to increase the forecast rather than to decrease it. And again, they are very me with the development during the first quarter. As you know, on top of that, they are working extremely hard concerning that utilization of the activity and the development of the negative sales performance. So let us say that for the time being, there is no negative signs concerning the development of activity in the cargo concerning the vote and the pull among the employees. I think it was really necessary for Jean Marc and for Frank to mark talk 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 asked that Talip was impossible. So I think that I don't feel that the proof is solving everything. But I think this extremely important for the management of Air France to at least have a clue about the reaction of employees. It's clearly, employees consider that to ask, 64% of labor increase cost is just no more. It means something. If they say no, I think it meets also something quite important. So let's just wait for the result of this pool there will be, as I told before, available tonight. Clearly, if it is a no, you know, what would be the Jean Marc reaction, if it is a yes, I think, and we think that it is for the leader of a few years, a strong signal. That possibly we have been far too far in that town that they are not supported by majority of the Air France French employees. And from that point of view, I think that as is the merit of this pool has been to cut or to introduce a change in a process, which before, appear to be a bit blocked Concerning the unit cost, Eric, for the future, for the next year. Clearly, the budget we have something, which is our intermediate in the 3 year plan. We have all introduced in the 2 airlines an assumption with negative unit cost? Yes. 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. So I would say slightly negative is targeted for the following years. It's very much depending on the economic situation and the results report. So, but clearly, it is to answer shortly operation. It is the assumption we introduced in the 3 5 years. Plan to continue to have a reduction in the unit cost. And again, I have already indicated some an amount, but clearly, when we build a budget or when we work on a 3 year plan, it is the assumption we do. Thank you, gentlemen. Ladies and gentlemen, in the interest of time, if we can ask you to limit your questions to one person from here. We will now take our next question from Damian Brewer from Royal Bank of Canada. Please go ahead. Good morning, Alfred. I do have two questions. I'm going to ask both. First of all, on the strike cost you've identified, Could you be clear if those include the impact on staff bonus accruals or whether that's yet to be netted off? Just some clarity on that. And secondly, on the Q1 debt, given Air France appears to have gone backwards even if you ex out the strike costs on its profitability. Could you give us some feeling of how much of the group debt or the debt you've disclosed is either related to the KLM operating entity or is guaranteed by the KLM operating entity? Thank you. So when we speak about 75 minimum for the 3 days of the first quarter, there is no netted impact coming from the profit sharing. Yes, the profit sharing would be calculated immediately by theendoftheyear. Of course, we are now taking the provision according to internal forecast But when we give cost per day, which is between 25 and probably a bit more, it will be 2027 we have to finalize everything, but I think that 25 is really a minimum. It is not netted by any compensation coming from a reduction of the profit sharing. So can you repeat your question concerning the KLM debt? Yes, I'm just interested as the group debt you've disclosed for Q1, how much directly relates to KLM or over which KLM is effectively a guarantor? Eric, no, you're not using it in full. Okay. So no answer from the Calum 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 Thorne from MainFirst Bank. Please go ahead. Yes, thank you. Good morning. Just one again on the labor dispute at Air Force. Was just wondering what the mood among KLM stuff actually is, given the situation that Air Force So as I understand the regular KLM wage negotiations for pilots and cabins are also still ongoing. So just wondering how the situation at Air Force influencing the talks at KLM? No, I think, and let's say, our CEO made a clear statement showing that clear report for his colleagues in France here and very much supporting the direction taken here and the strikes as quickly as possible. As you know, last year or early this year, we had an agreement with the Kevin Unions And as was announced yesterday with the cockpit unions, we are, we progressed very well with an agreement in principle will be notified in the coming days by the members of the pilot union. And I think you've got the 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 2 strategic issues in France of restructuring hop, which appears necessary given domestic revenue trends and negotiating that the change to the Transavia France cap you know, how optimistic are you of being able to move forward on these strategic initiatives given the sensitive of the vote that comes out shortly. And, you know, the fact that I don't think any of these contingency, you know, scope calls changes or whatever are are included in the salary promise. So, you know, what negotiating leverage is that to advance these 2 processes from here? First, concerning those situations. So in Hobbs, there is an important step which has been achieved during the last week is an agreement with pilots concerning the merger of the 3 companies. You know, that helped last merged early in the former returns from regionals. So the merger progressing well. And one of the problem was to negotiate with pilots. It's done. And I think it is quite important. The second step you're right, Andrew, is to continue the restructuring of the, mainly the domestic network of Air France under pressure, partly due to the high speed trend, partly due to the competition from some low cost not so much between Paris and the province, but more for the internal stronger style routes. One of the problem here is clearly to be able to negotiate with the SNPL, the capability to increase the fleet of Transavia above 40. First, we are not yet at 40. So we are still 1 year to go without being constrained, but after that, clearly, the net to open the discussion with them will be will be necessary. Personally, I am relatively optimistic. Because I feel that it is rational to do that step for everybody, including, of course, the pilots. But fact to be rational does not make a negotiation necessarily easy, but they said that I am also optimist. We will now take our next question from James Goodall from Redburn. Please go ahead. Hi, there. Just one on the private channel agreements with the GDSs and what do you think the impact is going to be to your cost base? I suppose that I'm asking you 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 incentive. So I guess does that mean that you're surcharging the private channel too? So, we cannot answer that question. It's in our private agreements. We will now take our next question from James Hollins from Exane. Please go ahead. Yes. Just one for me, please. I was just wondering on the mechanics of this online poll. Just wondering what two things did does everyone have to vote, or is it just those that can be bothered, I. E. The ones who are incentivized? And 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. So concerning the technicality is very simple. It is an electronic vote controlled by an external company. And all the Air France people concerned by the agreement for France are invited to vote on a voluntary basis. And it will be all the processes controlled by external, external lawyer and an external company. And the result will be I'm not known yet will be no, no, sorry, by the end of the day. 2nd, yes, if it is a no, Jean Marc has made extremely clear that is no will be the result of pool, he will in fact leave the company. We will now take our last question from Ann Ann Speitz from Deutsche Bank. Please go ahead. Oh, hi. Hi. Good morning, everyone. I just wanted to ask, with regards to the NDC stuff and the private agreements and also with regard a difficult Q1 on strikes. Could you talk about how the conversations with your corporate customers are going? And whether there is any uncertainty or whether you are starting to see volumes potentially shift away as a result of those 2 things? Thank you. No, we don't see the direction. So we don't see any that impact from the corporate business. During all the first quarter, in fact, the sales volume with a big enterprise and big accounts as behavior was very well. There's no apparent impact of the change in the distribution system. Yes. So in view of times, I would like to Thank you all to our attempt this presentation. Again, good luck for your work. And again, if you have more info concerning the move to the new IFRS standard, do not hesitate to call the teams available to answer your questions. And I suppose I give you now just the opportunity to go to the IHA presentation. So have a nice day. Ladies and gentlemen, this does conclude today's call. Thank you for your participation.