Good day, and welcome to the Air France-KLM Q1 2023 results presentation conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Benjamin Smith, CEO, and Steven Zaat, CFO. Please go ahead, gentlemen.
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Ladies and gentlemen, you are currently on hold for the Air France Q1 2023 Conference Call. We had some technical difficulties with the speaker line. We appreciate your patience. We will start shortly. Thank you.
Here at our headquarters in central Paris. As usual, I'll start by presenting this quarter's highlights, I will give the floor over to Steven for a detailed presentation of our results and the outlook for the coming quarters. I'll conclude the presentation and open the Q&A session. First of all, I'd like to thank all my colleagues around the world. They've worked tirelessly throughout the quarter to ensure we continue on our path to sustain profitability. Moving on to Slide 3. In the Q1 of 2023, Air France-KLM enjoyed positive commercial momentum as the airline industry continued to recover. Compared to the same quarter in 2022, the number of passengers carried was up 35%, and the group's revenues 40%, driven by vigorous market demand and a high yield environment.
We've recorded strong summer ticket sales, pointing to a busy upcoming summer holiday season. These solid forward sales have helped generate a positive adjusted operating free cash flow of EUR 700 million. Overall, this quarter, we posted an improved operating result compared to Q1 of 2022, when furlough schemes were still in effect and contributing favorably to our performance. The three-point margin increase constitutes a positive development that reflects our improved organic performance. We've also pursued efforts to reduce our net debt, which fell by almost EUR 1 billion during the quarter, bringing our net debt to EBITDA ratio to 1.6 by the end of March 2023. Our liquidity remains strong as well, with close to EUR 10 billion in cash on hand. Guaranteed loans. Speaking of which, last but not least, we have now fully repaid all government aid as planned.
This releases us from the restrictions attached to the aid and gives us back our full strategic autonomy moving forward. I'll give the floor over to our CFO, Steven, who will go into more detail about our results for the quarter.
Thanks a lot, Ben. A good morning, everybody. Thanks for being with us so early. Apologies for that, but we try to schedule it in such a way that you can also listen to the earnings call of IAG. We know, the Q1 is in our own, in our industry, always the most cold season of the year, as this travel demand is lower than actually in the other quarters. When I started as a controller in finance at KLM, we had the habit to start actually always with the Q2 . If we go to page five, and that being said, it is good to see that our passengers are coming back. We kept the revenue growth. It was, as Ben already stated, 42%.
We grew our capacity with 20%, which was actually bringing EUR 0.9 billion. At the same time, we could increase further our load factor almost to the 2019 levels. It grew from 74% - 86%, which is 12% additional fee in terms of revenues, bringing another EUR 800 million to our top line. Hand in hand with that, we could further increase the yield, which was another EUR 200 million. If you, I think the graph on the right shows it quite well. If you take out the furlough effect, which we had last year, you see actually that we are improving our results by EUR 254 million.
It's coming almost EUR 1 billion from our unit revenue development, so that was up 20.1%, including actually that cargo revenues are, let's say, at a lower level in this quarter than we did in 2022. You see that we were hit by the fuel price. Actually, there's $300 million going actually more from the hedge as fuel price start to decrease actually over the course of the quarter. Unit cost, as we guided, stable, just at 0.7%. You see that the inflation is kicking in, but at the same time, we can absorb it with the growth of our capacity. Comparing year-over-year, just looking at the operational results, we see an improvement of EUR 264 million.
You then go actually to the results per business, let's start with the very strong performance of our passenger business. We increased our capacity with 18%, unit revenue up 38% or 40%, which is coming from the load factor. In the passenger revenues, we have a 20% increase of yield. Very strong dynamics on our passenger business network, which bringing an increase of 64% in terms of revenues. On the cargo side, it's a little bit different. It is exactly what we already expected. First, there is a mechanical impact because we grow the capacity of the bellies on our passenger planes, so that will bring a load factor down actually with 12%. We see a yield down of 18% year-over-year.
It is 60% higher than what we had in 2019. Yields are coming down, but we are still significantly higher than in 2019. Brings that actually our network performance is already improving year-over-year and even absorbing there the furlough impact which we had in 2022. On Transavia. On Transavia, we see a strong capacity growth, 39%. The good news is it goes hand in hand with a very strong load factor. The load factor at Transavia is already at the same level as 2019. We increased the load factor from 78% to 91% in the Q1 2023.
Yield is down, that's 7%, but it is still 20%, more than 20% up compared to 2019. Now, for Transavia, with the growth, we always know that this Q1 is quite, it's not a leisure month, so, we see always, let's say, in this sector of, let's say, of our low-cost industry, you see always that the Q1 is usually a negative result quarter. Of course, as we grow further this business, you see that this result in the Q1 is deteriorating compared to the year before, but we will catch that up in the next quarters to come, and the profitability will also grow with the increase of our capacity.
We have to keep in mind for Transavia, we had EUR 36 million in furloughs and also the fuel, and fuel and the dollar together had an impact of EUR 40 million on their results. On top of it, there were some operational difficulties. There was some maintenance at Transavia, the Netherlands side, and there were the ATC strike in France. All in all, it is promising to see that the load factor is up despite the growth in our capacity, and we will catch it up further there in the quarter to come. On the maintenance side, we're seeing an increase of 24%, so there is big demand on maintenance. The problem is actually that we are holding back by, let's say, the logistics situation, especially on the engines and the component side.
We are also hampered by the tight labor conditions, especially at KLM. That brings that we cannot actually fully exploit the growth which we want. There's a lot of demand from our customers, in this area, and we will get back on that in the quarters to come. This logistics situation, we see that everywhere in our industry, and we have to ensure that that will be solved in the quarters to come to further increase the revenue increase there. The demand is there. We signed contracts, and let's say in the quarter to come, we expect a better result. If we take a deeper dive on Air France and KLM. Air France increased their capacity with 23%, very strong growth, above 20%. That drove the revenues up with 46%.
That brought that the result is better actually than 2022, where there was a furlough of EUR 70 million in the results. An improvement of the results on the Air France side year-over-year, also driven by the transformation. We see, however, that especially on the French domestic side, we need to further optimize our network. We already cut it by 50%, but there is lower corporate demand, and that needs further optimization. On KLM, it's good to see that the situation at Schiphol is improving. We have seen also that in May, the situation is much better than what it was last year. We still have, let's say, capacity adjustment due to the tight labor market, which is impacting KLM and Schiphol.
We see that there are further complications due to the supply chain. There is, for instance, an issue with the deployability of the Embraer E195 . You have to keep in mind last year there was a furlough of EUR 140 million. Both in terms of revenue growth, doing very well compared to 2021, with growth above 20%. Let's take a look at the Worldnet. Let's, if you look at the total, you see an increase, as I already stated, of 20% in terms of capacity. We are very close to the 2019 load factor, so it's up 12%, and it goes hand in hand with a yield improvement of 18%.
In the premium segment, you see that despite the fact that there is less corporate traffic, you see that the load factor is up again above the 2019 levels and still with an increase of the yield in this segment sector. Despite the fact that corporate traffic is not fully back, if you look at the long haul, it is around 85% in terms of revenues compared to 2019. On the medium haul and the domestic, it's more in the range of 75%. You see that despite the fact that this corporate traffic is not yet fully back, we are able to fill our premium segment. The long haul, which you can see on top, is holding very strong with yields up 23%.
If we go to North America, we know that there's a strong market demand over there. We are already 12% higher than in 2019, so we grew 19% in terms of capacity with a yield increase of 23%. South America, still holding very increase of capacity of 23%, with even an a yield up with 32%. The load factor is already above the months of 2019 at 19% for the Q1 . Very strong performance on our South America network. If we go to the Caribbean, you see we reduced the capacity over there because we see that there are better opportunities in the rest of our network.
The load factor is up to 90% higher than what it was in 2019, and going hand in hand with a very strong yield development of 27%. Africa always holding strong also during the crisis. We will further develop our network over there. We grow with 21%, and we are already 3.5% higher in terms of load factor than where we were in 2019. On that side, everything is going very well. On Asia and the Middle East, we are gradually now increasing our capacity. We grew our capacity with 47%, which is still 37% lower than where we were in 2019. Load factor is getting more to the normal levels, close to 90%, 87%. The yield is also increasing.
You have to keep in mind that the yield also, a year ago was very strong because we had very tight capacity. It was quite difficult to travel so the yields in this market segment were very high. If you compare the yield versus 2019, you see that the yield is up in Asia with 42%. On the short and the medium haul, you see increase of 12%. Quite a strong performance, especially on the medium haul, in line actually with our long haul, but it's hampered in terms of yield, by the domestic, which was only up 5%. The yields on the medium haul was above the 20%.
Transavia, as already explained, a high increase of capacity, a very high load factor, but at the cost of the yield. Again, the yields are above 2019 with 20% if you compare that with the situation pre-COVID. If we go to page 9, you see a very strong cash flow development. EUR 1.5 billion change in working capital, which is fully coming from the very strong ticket sales which we had in this quarter. We see strong yields. We see strong demands. I come back on that later when I show you the current forward load factors. You see, we are actually going faster than what we have seen last year and also with very strong yields at the same time.
This additional cash flow of EUR 900 million, or after the payments of lease of EUR 683 million, you see that we could further reduce our net debt to EUR 5.5 billion, bringing actually our leverage from 1.8 - 1.5, which is at the low range of the guidance we gave, and we want to be between 1.5 and 2, and it's good to see that we are already there. That goes hand-in-hand with a very strong cash, EUR 9.7 billion, where we paid EUR 1.5 billion in terms of state-guaranteed loan from our cash. If you include that EUR 1.5 billion, you see actually that we would be even above 2022.
It is now time to pay off our debt with the solid cash positions we have. If we then go to page 10, you see, and it is, I think it's everybody is already aware, as we promised, in our previous presentation, we delivered completely what we have said. We started with a successful issuance of a sustainability-linked bonds of EUR 1 billion. We paid in March to full back the PGE, the state-guaranteed loan in France for EUR 2.5 billion, where we used EUR 1.5 of our own liquidity, and we repaid EUR 300 million of the outstanding EUR 600 million hybrid held by the French state.
We paid the other EUR 300 million in April. In April we signed the two RCFs for an amount of EUR 2.2 billion where KLM could canceled the remaining, the direct loan and the existing credit facility, guaranteed by the Dutch state. Out of all, let's say out of the framework agreement with the Dutch state and out of the recapitalization state aid measures related to COVID. We are totally out of that COVID situation. At the same time, we are further improving actually our equity. We announced yesterday evening that we are going into exclusive discussions with Apollo, that will be for an amount of another EUR 500 million in quasi equity financing, where we use our own MRO assets at Air France.
At the same time, we are working further on, let's say, the loyalty program. We received several non-binding offers, and we are actually in current discussions to find the right potential investor for that one. Moving further in improving our equity, moving further in getting a release of all the state aid and improving our debt situation. Let's go to the outlook. If you go to the Q1 , you see we had a guidance of, sorry, we had an capacity of 92%, which was exactly into the guidance that we guided 90%-95%. We will keep that for the Q2 , so 90%-95%, and we will ramp up to 95% in the Q3 , and we will further ramp up also in the Q1 , above the 95%.
That will bring us on average on 95%. We are on the right track actually to be at 100% in 2024, when we will be at circa 95% for 2023. On page 13, as I already explained, you see the very strong forward bookings. It's actually in all our business segments, it is above the months which we had last year. We sold already 76% of the tickets for the long-haul, 67% for the short and medium-haul. Even with the increase of Transavia, you see that we sold already three-fourth of that capacity. Very strong demand going hand-in-hand with a very strong yield environment.
We see yields above the 20% in this domain holding still, despite the fact that fuel is going down. That is very good news because that is promising for the results to come. Also for the Q3 actually in all segments, we are ahead of where we were in 2022. To the fuel, you can find it on page 14. We give you all the elements to calculate the fuel bill. We used the fuel price and the oil price of last Friday, and you see that we are moving from a jet fuel of 1,000 per metric ton to a level closer to $800 per metric ton.
Keeping the yields high and at the same time reducing our fuel bill will of course improve the results in the quarters to come. The development over there is going in the right direction, and it's good to know that we have now already hedged 62% of the 2023. We're starting to, let's say, fixing the prices also for the first two quarters in 2024 at levels below, let's say, related to an oil price of below $80 per barrel. On page 15, you see our outlook. The group capacity, as already said, will be around 95%. We keep the guidance for the unit cost for 22 to be stable, and that we keep the CapEx on EUR 3 billion. Probably no surprise over there.
With that, I will hand it now over to Ben to do the final conclusions before we're going to answer all kinds of questions.
Okay. Thanks, Steven. Moving to slide 17. As I said in my introduction, the upcoming summer season promises to be particularly dynamic for all our airlines. As you can see on the map on the left, except for the Caribbean and the Indian Ocean areas, all our areas are seeing capacity growth compared to last summer. Both the new routes we keep opening from Paris, including Ottawa market opportunities will help drive our summer performance. In particular, capacity on both Air France and KLM flights to Asia will continue to recover, especially to India, Japan, and China. Transavia's momentum grows unabated, thanks to increases in capacity on strategic routes to Greece, Spain, and Portugal from the Netherlands, while Transavia France will add new destinations from several French regional cities.
In summer 2023, as you can see in the graph to the left on this next slide, capacity in all long-haul cabins will rise compared to this past summer, with a particularly strong increase in business and premium economy cabins. Overall, we have grown the share of non-economy seats by 1.7% compared to summer of last year. On top of these positive capacity developments and compared to last summer, the booking load factor for summer 2023 in all our long-haul cabins is also up with a yield that remains solid. All of these factors emphatically point to the dynamic demand we are able to capture, thanks to all of our assets, such as our diversified and leveraged network, our strong brands, and our agile teams.
Electively, they support our strategy and our premium positioning, as illustrated in particular by the launch of KLM's new premium comfort cabin. Moving on to the next slide. To conclude this presentation, I'd like to briefly highlight some of the group's major achievements during this quarter and touch on the challenges ahead. During this quarter, we have again made significant progress in restoring our balance sheet. As Steven mentioned, first, we have fully repaid all state aid received during the COVID-19 pandemic. This is an important milestone that resulted in the lifting of the operating and strategic restrictions tied to this funding, freeing us to conduct business as usual and retake control of our destiny. We just entered, as Steven mentioned, into exclusive discussions with Apollo Global Management for a EUR 500 million quasi-equity financing of engineering and maintenance assets.
We've also continued our deleveraging in line with our objectives. We stayed the course by preparing our future with innovative financial instruments by securing an ESG-linked bond and revolving credit facilities indexed to sustainability targets. These tools are helping align our financing strategy with our decarbonization plan. Currently, we keep delivering on our strategic roadmap. Thanks to the very encouraging summer ticket sales, the group continues to show strong revenue growth as well as robust cash flow generation. Our maintenance business continues to grow, driven in particular by the industrialization of our engineering and maintenance, CFM LEAP engine capabilities, and we are confident that the strategic air cargo partnership we signed with CMA CGM and entering into as of April first will create significant value for both our groups.
Finally, I would like to emphasize the high degree of trust we enjoy with employee representatives and the stability of guarantees, as demonstrated recently by Air France cabin crews signing of a new five-year collective agreement. Looking ahead, we will continue our efforts to further consolidate our balance sheet. As previously announced, we are exploring initiatives to restore our equity by means of non-dilutive funding such as quasi-equity financing, backed by our loyalty program. From an operational point of view, we are now fully focused on the summer season that is about to begin. Our teams are getting ready to welcome our customers and offer them the best experience on the ground and on board our aircraft. The renewal of our fleet is accelerating, and we will soon welcome our first aircraft to the Airbus A320 neo family.
These aircraft not only meet the latest standards of technology and comfort, but will also spearhead our decarbonization roadmap. Our compass remains focused on operational improvements. We are relentlessly pursuing all our transformational projects at all levels of the organization in order to further strengthen our competitiveness. Thank you, and we're now opening the floor to your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one. We take our first question from Harry Gowers with JPMorgan .
Hey, morning, everyone. Thanks for taking the time. Hey, morning. First question is just on if everything goes well this summer, yields stay elevated, fuel stays relatively stable, and then you execute on the ex-fuel unit cost guidance as well. Would you say that it's feasible that you could already reach your 7% EBIT margin target in 2023 ahead of schedule? Clearly forward bookings, the environment looks very strong. Would you expect the yield rate to accelerate in Q2 relative to 2019 compared to Q1? Thanks a lot.
Okay. Again, apologies to everyone on the line. We, we're having trouble hearing your questions, they're being typed over to us. We've just got this question here. Sorry, we're not quite sure who's asked it, but we've got the question. Summer yields elevated. When would we reach 7% COI margin? Are yields accelerating?
Yeah. Thanks a lot for the question. Let's say, if you see the yields, you see that they are indeed very strong. They are above the 20%. We saw an acceleration actually when the summer bookings are getting in. We see indeed that yields are holding strong and getting better even during this quarter when we saw the bookings. If we go for the margin, of course, with this fuel price and with this very strong yields, we are getting closer to, let's say, what we guided for the midterm, what is our midterm guidance is 7%-8% in the years 2024 to 2026. In this current climate, we are getting there, and we are on the right track actually to reach that.
I hope it answers your question. It's a little bit difficult, and I apologize for that because we have to read the question here because the sound system is not working. There's a little bit delay of our answers compared to your question. We will give a full answer, of course.
Thank you. We take our next question from Sumit Mehrotra with Société Générale.
Thank you. My question is on Transavia. I've seen the elements of $36 million from furloughs, $40 million from fuel and USD. Could you please help us guide with the expectations for 2023 for Transavia? Why we haven't seen a stronger improvement in Transavia yet? Secondly, KLM operating profit. Even though we remove the support from furlough schemes from last year, we still see the KLM operating profit lagging. Could you please explain that what could lead to an improvement from here on? Thank you.
Hi, Sumit. Thanks for joining. Let's first if we go back to the Q1 , I try to explain that. We see that we grow our business so that also grow the losses because the Q1 is always a loss-making quarter. We were also holding back by, let's say, the operational climate where we were operating in. We had the strikes, the ATC strikes in France. We had, at the same time, we had maintenance aircraft on maintenance on the ground at Transavia and the Netherlands, and we still have the Schiphol situation. We will improve our result over there. We don't guide the results per business for the full year 2023. I cannot say.
As I show you, the load factor is high. We see that the bookings are coming in and also the yields is improving and the fuel is coming down. That's very promising in the quarters to come. Eric, can you take?
Good morning. It's Erik Swelheim from KLM. Yeah, regarding the question of the operating result of KLM. The Q1 , our clear priority was to get the operations stable, and we succeeded quite well in that. We had a very good operational result. You remember last year we had the difficulties at Schiphol Airport. That's now solved. We are very happy with that. If you indeed, if you correct for the furlough schemes, it is more or less the same result. Last year, we had a result which was close to breakeven. This year it was a loss. If you correct that for the furlough schemes, it's more or less the same result. We're quite optimistic, as Air France-KLM is, for the rest of the year. The summer looks well.
Forward bookings are extremely good. You will see the result for the full year, improving.
Perhaps I'll just give a little bit more color as to how we're doing on the Transavia France plan, the strategic plan. As, as you know, we are transforming the bulk of our Orly operation from Air France's regional operation operator hub and some Air France services which were extremely loss-making prior to the crisis. We're converting those slots over to Transavia flights, Transavia-operated flights, and we're moving that capacity away from the domestic market onto medium-haul European services. As we're getting the airplanes in there as quickly as possible, Transavia is hiring pilots, training pilots as fast as possible, and we are removing that capacity extremely, you know, as quickly as we can. Far, so good. It is a transition period.
We are on track. We, as you may know, we did have to deal with some air traffic controller strikes, and the bulk of them in Paris were at Orly Airport. Those are being, those were mitigated but still caused a lot of, I would say a lot of operational challenges at that, at that particular airport.
Thank you. We take our next question from Muneeba Kayani with Bank of America. Please state your name before posing your question.
Good morning. This is Muneeba Kayani from Bank of America. Thanks for taking my questions. If I actually could go back to the first question that was asked in the call, because I don't think the answer was very clear. Do you think you could reach that 7%-8% EBIT margin target this year? Is the first question. Secondly, just on yield, you're saying it's accelerating. Could you help us quantify kind of what sort of yields you're seeing in 2Q and an early read on 3Q as well? I understand it's still early days for 3Q at this point.
Hi, Muneeba, thanks for joining. As you know, we don't guide for the full year. We give a guidance for the midterm. Again, if the fuel price is going into this direction and with a strong yield environment, we are very well on the right track to reach those 7%-8% margin. We are not guiding for 2023, sorry for that. For Q2 and Q3, if I understand your question well, you ask actually if we are seeing improvement in Q3 further than what we see in Q2, or is that not the question, Muneeba?
If you could quantify what's 2Q yields, versus 2019, and also an early read on 3Q yields versus 2019, please.
Yes, we see yields above the 20%. That is what we can say about it. Of course, the yields game, and we all know that will be actually always played in the last weeks also of the booking. That's very crucial. We see very strong yields. With this high forward load factor, we can of course squeeze more these yields upwards. That's, that is, as you know, that is the booking curve where you have, let's say, the bid price and the bid price will go up further if you have these kind of load factors already in. We see very strong yields above the 20%.
Thank you. Thank you.
Thank you.
Thank you.
We take our next question from Sathish Sivakumar with Citigroup. Please state your name before posing your question.
Yeah. Thanks again. This is Sathish Sivakumar from Citigroup. I've got two questions here. First, actually on slide 18, where you compare booking load factor evolution, and basically you talk about summer '22 versus summer '23. Out of this, look versus summer 2019, any color on that would be really helpful. Second question is around the capacity outlook. You obviously now you're saying it'll be lower end of the guide around 95%, and it's mainly driven by short and medium haul segment. Is the demand softening is the key constraint there to take capacity? Or does it more about labor/capacity bottleneck that's driving the lower capacity in short and medium haul segment? Maybe the third one actually, do you have any disruption cost in Q1 related to the strikes? Thank you.
I'll take questions two and three. Regarding the strikes, the air traffic controller strikes in France, very limited impact at Roissy Charles de Gaulle, below EUR 10 million, below EUR 5 million. At Orly, yes, there was an impact, I would say we're still calculating that amount, it's probably below EUR 10 million as well. In terms of disruption and focus, it did take an enormous amount of effort from our operational teams to mitigate those losses. We are, you know, we expect those to continue in the near term. What we're understanding is those will continue one to two days a week for the foreseeable future.
After two months of experience now, I think we can significantly limit those losses even further down to where they were. On the slight reduction in capacity outlook, we've had some delays that we're forecasting on some new aircraft delivery. We are making up for that with a couple wet lease airplanes in the medium haul that are coming in. However, we expect by Q4 to be back on track with aircraft deliveries. From a pilot perspective, both at KLM and Air France were at our projected numbers.
Can you repeat the first question? Because I didn't get the exact question is.
Yeah, sure. Yeah, sure. On slide 18 of your presentation, where you give booking load factor evolution, you compare versus 2022 summer. Just wondering if you have any data on how does that look versus 2019 summer?
We see the 22 numbers actually more as the new normal. I don't have these figures compared to 2019. We see what is the, what is actually the direction is especially this is premium segment is doing very well also in the premium ecosystem.
If you, we show you, let's say the comparison with 2019 in the appendix. If you look at the appendix, you see that the premium is already 4% higher in terms of load factor than where we were in 2019, with an increase of yield of 15%. The premium holds strong. This is the 1st quarter. We know that there is less corporate traffic and that it's more difficult to fill with leisure premium in this quarter. We for sure will see an increase further in Q2 and Q3 when the leisure premium is also coming back further in our planes. The load factor is strong, we can fill all the capacity. Demand is there.
Good. Thank you.
Thank you. Ladies and gentlemen, I would like to ask you to please state your name before posing your questions. We take our next question from Alex Irving with Bernstein.
Hi, good morning, gentlemen. Alex Irving from Bernstein. Hope all is well. 2 for me, please. First on corporate travel. Could you please tell us how the recovery has evolved over the course of Q1, both in terms of volumes and in terms of revenues relative to 2019, and how do you see that evolving as we go through the rest of 2023? Second question, you talked about the strength in premium leisure demand. What evidence have you seen that suggests this is either a permanent change in behavior or alternatively, this is still the temporary aftermath of the pandemic, the demand patterns should return closer to the pre-pandemic mix? Any color on that would be much appreciated. Thank you.
Okay. On the corporate traffic front, we continue to see a return to normal. We're not, definitely not back to 100%. Where we have a significant reduction in corporate traffic still in place is in the French domestic market. As I mentioned, we are pulling capacity as quickly as we can to redeploy that capacity with Transavia to European routes on the Transatlantic and the rest of our network, including the medium haul. It's well above 70%, 75% in line with what we're seeing with our major competitors. What we call a high-end leisure demand, especially on Transatlantic, it is as strong as last year, and on some routes actually even stronger.
We've had in the last 3 or 4 months, the highest load factors in the history of Air France in our La Première cabins, very strong in our business cabins. Historically, Air France would put in a modified business cabin with a reduced number of seats in the summer, before the crisis because of the decrease in demand for business class seats. We are not doing that this summer based on forward bookings, we will have more capacity in business class in the summer than we did have in 2019. High-end leisure, especially into Paris, is very strong.
All right. Thanks very much.
Thank you. We take our next question from Stephen Furlong with Davy Research.
Good morning, Stephen Furlong from Davy. Question is on the cargo business. Obviously, it's normalizing from high levels in the pandemic. I just remember in the distant past, cargo was kind of a leading indicator for passenger business. I think that correlation has broken down many years ago. Maybe, Ben, you could talk about what you think of that. The second just question on the passenger business for one, you know, I guess it's an issue, but it's definitely benefiting unit revenue and yields in the industry is the supply constraints in the industry, whether it's delivery delays or employment issues in building back up from the pandemic. I was just wondering your view, Ben, how long you think these supply chain issues are going to last.
That'd be great. Thank you.
Okay. On your second question regarding tight capacity, if you see, you know, the delays that both Airbus and Boeing are forecasting for deliveries, we foresee that continuing for the next few years. When we look at the capacity of our major competitors coming into both Amsterdam and Paris, we don't see, first of all, by most of them, a return to 2019 levels. We don't see any growth in any of our major markets. As, as you may know, the biggest long haul, low cost or lower cost carrier that was at Paris CDG in 2019, Norwegian, has been replaced. They had 8 787s based at CDG in 2019.
We have 1 new 787 by Norse, which is, you know, the first, you know, new lower-cost entrant into Paris. You know, to date, we don't see any major growth in that area. Tight capacity, we're enjoying that period, and we expect it to be in place at least for the short term, until we do know eventually it will come back. We continue on our medium to long-term plan with the types of aircraft that we're bringing in to give us more flexibility.
As you know, we have our Airbus A380s that are now out, and That's really helpful, when we start to see our competitors move into routes that are important, so we can move capacity around in a relatively quick way, without completely disrupting, our bank structure. These new A350s we have at Air France, 787-10s with KLM are proving to be the right choice of airplanes. We're very happy with those.
Yeah. On the cargo side, let's say we are coming from a very specific period out of COVID. We did, if you compare Q1 versus 2020 versus 2023, where, you know, there was this tight, let's say, there was a lot of demand and there was tight supply. Now we are bringing back, let's say, the cargo capacity to a more normal levels, and it is coming actually on our belly. There is a mechanical impact as I try to explain, but still the yields are still 60% higher than in 2019. The relationship between, let's say, a decrease in unit revenue on the cargo and a recession, I don't see that so much because we are still much higher than in 2019.
We still see, again, both on the passenger and Transavia and also on the car and also on the cargo side, that the demand is there.
Got it. Thank you.
Got it. Thank you.
Thank you. We take our next question from Neil Glynn with AIR Control Tower.
Good morning, everybody. Neil Glynn from AIR Control Tower. If I could ask two questions, please. The first one with respect to a potential future dividend, given the strength of recovery. At Investor Day 2019, you mentioned a threshold operating result of EUR 1.9 billion. I'm just interested in terms of whether that's still valid today, but also how do you weigh the potential role of a future dividend versus deploying capital in M&A as a validator of a new era for Air France-KLM? Second question, your partner in South America, GOL, has now become part of the ABRA Group with Avianca, whereas at the same time, Delta's joint venture with LATAM has kicked off.
I can see logic in you expanding your relationship with GOL/ABRA, as well as logic in potentially switching allegiances to LATAM to join Delta's side there effectively. Could you explain how you think about your position in South America and those potential options, assuming they might be options? Thank you.
Yeah, thanks, Neil, for those questions. In South America, we're still studying what the best way forward for a medium, long-term positioning. First, if you start from the base, we are the number 2 operator in terms of capacity already between Europe and South America. We're starting from a high base. There are options both in Europe and in South America, how we could partner up with in a more strategic way to improve our position. We are still heavily focusing on what we can and can't do. I don't have anything to share as of today. It is a bit early. As you said, there are options. We do have a historical relationship with GOL.
We had, I think we may still have a very, very small investment in GOL that was put together just to solidify the relationship many years ago. The relationship with GOL is solid. As you mentioned, LATAM does have now a immunized JV with our partner, Delta. Discussions, and potentials with LATAM are now in the, you know, they're now, they're now available to take place in a very different context.
Your question about operating results versus dividends. We are still on the path to, let's say, restore our equity. That is the path which we are heading to. We are heading to a positive equity, let's say, in the period to come. We are going to define the dividends. That's not, let's say, the topic for the moment. Let's restore our equity first before we get to that topic. On the deploying of capital over, we just have a very, let's say, a stringent approach to it. Every euro we invest, it should have return on capital. We will use the same for M&A. We use the same for planes.
We will look at the returns on equity or capital, what we put in. If you talk about M&A, it should bring synergies to them, to us, that it brings a return, because it's important that we invest in profitable business, in our industry.
Thank you. We take our next question from Andrew Lobbenberg with Barclays.
Morning, guys. Can I ask for an update on what happens in the pantomime, I think, at Schiphol in terms of the capacity planning and the potential capacity reductions? There was a successful legal challenge to the government's plans to cut capacity, I think they're appealing that. What's your latest understanding, and how do you manage through the uncertainty? Second question would take us back to China and at the full year results for 2022, Ben, you spoke pretty confidently about potential profitability on those routes. We're seeing some press reports most recently that you're looking at trying to establish a more level competitive playing field relative to the Chinese who are over flying Russia.
How optimistic are you that you guys can make money flying to and from China? How do you think that market or that political situation might develop? Thank you.
Okay, thanks a lot, Andrew. In terms of the situation at Schiphol, where the Dutch state is looking to reduce the number of slots, for a number of reasons, for noise, certain types of pollution, we're working hard to find other solutions to be able to do that as opposed to a strict slot reduction. It's a major effort that we have in place. There also have to be a European Commission Union approval of the Dutch state's proposal, which has yet to be heard and then after that, to be ruled on. We're cautiously optimistic that something will be put in place that does not derail our medium-term plans as it relates to our summer capacity and any impact on that.
We are going to be able to plan and fly our entire summer capacity. It's not going to restrict the number of movements because the full return of 2019 activity by other airlines and even by ourselves is not back to the 500,000 movement that we had in place at, in 2019. For this year, it's not blocking any of our capacity growth. When it comes to China, the yields are very strong because capacity is extremely tight. In terms of profitability, there's no issue today between China and France or the Netherlands. We are, you know, as you just mentioned, the playing field is not level, so we're not directly involved with the negotiations.
This is done by the DGAC, which is the, which is similar to a Department of Transport in France. It has the negotiations with their counterparts in Russia. They will do their best to create a level playing field. Until that's done, the bilateral stays in the temporary levels that were in place during the crisis, which limited the number of flights. For us, it was 4. Similar for the Chinese airlines. That's, you know, under demand. We are looking to increase that, but in a way that is on a level playing field. Right now, the routes are. There's no issue. We're not losing money on China. We have plenty of other areas in the world where we can put that capacity.
We plan to put up to 5 777 into China in summer of 2023. We have 2 scheduled for right now, and the rest of those aircraft are just, you know, most of them are on the Atlantic. It's not a concern as of yet.
Brilliant. Thanks.
Thank you. We take our next question from Jarrod Castle, UBS.
Good morning, everyone. Hopefully everyone can hear me. 3, if I may. One, any updates on thoughts around the Portuguese carrier TAP? Secondly, obviously, you know, this memorandum on the quasi-equity deal with Apollo, and I think you said on the call you'd also be looking to potentially do something with the loyalty program. Just interested in kind of, I guess, the implied cost of these deals, you know, the cost of capital for doing these deals versus, let's say, other sources of funding. And then just lastly, over the medium term, you know, I guess around the E in ESG, you know, we've had the EU pass the 2% SAF and then, you know, the ramp up to, you know, what will be 70%, I guess, by 2050.
We've got a big step down in pre-ETS certificates coming next year and then the following years. just in principle, I mean, will you pass these costs or try pass these costs on, onto customers, or do you try mitigate through other areas of cost cutting? Thanks.
Okay. Thanks, Jarrod. On your first question regarding TAP, as I've mentioned before, we do find it a very interesting opportunity. It's not yet an opportunity, but one that we expect to come into play. There still needs to be a government motion passed in Portugal to open formally the sale process, which the Portuguese government has publicly stated they do plan to start just before summer during summer. If it is put in the format that we think is interesting, then we plan to participate in that process.
As you know, TAP has a, you know, very strong position geographically at the southernmost point in Europe, towards South America, and they do have a very strong network to Brazil with 11 cities online, non-stop out of Lisbon. It's very interesting and could be potentially accretive to our bottom line performance. However, we are notI'm going to enter any type of M&A that puts risk to 7%-8% margin we are looking, we've committed to in the next 2-3 years. To, you know, if we believe that it fits within our risk profile, we'll move forward, and we'll put as much effort as we can into it.
Keeping in mind that the margin is much more important for us that, we committed to in the market. We don't want growth just for the sake of growing.
I will answer your other two questions. First on the quasi-equity. We don't, let's say, provision now the cost of capital. Let's say I can tell you it is quite close to what we had, let's say, on the previous deal. It looks, for us, let's say, quite good. We will get to there if we have the full agreement. On the ETS side, of course we will pass this cost to our customers. It's not only for us, it is for all the European carriers. Low cost, everybody who operates in Europe, they have to pay this cost, and this cost needs to pass through to our customers. I think that is clear.
It will be impacting, of course, more the local segments than, let's say, the more legacy carriers because it has a bigger impact, let's say, on their cost levels than it is for the other ones. These costs will be passed through to the customer.
Thanks very much.
Thanks very much.
Thank you. We take our next question from Johannes Braun with Stifel.
Yes. Hi, good morning. Thanks for taking my questions. Actually, I only have one topic. Your main competitor is talking a lot about bottlenecks in the broader travel ecosystem. I mean, you already mentioned the aircraft delivery delays that you're also experiencing, I think the narrative is that the bottlenecks go deeper than that. Also engines, airport labor, spare parts, business class seats, laboratories, everything seems to be in short supply currently. Therefore, this keeps capacity growth in the industry low despite strong demand. Which of course, will keep supply demand in the industry in a favorable position for years to come, which obviously will be very positive for yields. Do you agree that this is the case?
Do you see the same kind of positive outlook for supply demand in the industry for the coming years? That would be my question.
Hi, Johannes. Good morning. I read your vision on the supplier side. I think you are quite well. I think I stressed the point when we talked about our maintenance activity. We see that there is indeed on the engine side and the component side, there is, let's say, the logistics is not fully, let's say, there where it was before the COVID crisis. We expect that it will be restored. Of course, that will not restore all the planes because there's a lot of planes which has been phased out during the crisis. There will still be tight supply.
I see your point that the delays of new planes getting in due to these logistic problems will even tighter further the supply side, which is good for our industry, so to say, from a profitability standpoint. That is your question. I can see your view. We had these issues also in Q1, both on MRO but also on the Transavia. We see it.
Perhaps give a little bit more color. We have predicted the retirement of up to 41 wide body airplanes late last year and moving into throughout 2023 and early 2024. 30 777-200s, older ones at Air France, 15 A330-200s Air France, and up to 11 A330s at KLM. Many of these aircraft are owned, if we can keep these aircraft longer than planned to ensure that we balance out the capacity demand balance to maximize profits. We're happy we've got those airplanes available if necessary. These are not A380s . Some of our competitors need to activate their mid-size airplanes, you know, 250 seats, 300 seats, very flexible airplanes.
I think it better positions us versus some of our competitors in terms of being more agile when it comes to how slow and how late some of these important items are to ensure that our business runs.
Okay, thanks.
Thank you.
Thank you. As a reminder, please press star 1 to ask a question. We take our next question from Achal Kumar with HSBC.
Hi, this is Achal from HSBC. First of all, going back to the cargo business, of course, you said that you are sort of shifting planes towards more passenger side, but I mean, and then, and cargo remains very strong versus 2019. Is there any color you can provide, going ahead, in terms of cargo yields in Q2 and Q3? If you could please give us a bit of a color on cargo, that'd be very helpful. Secondly, in terms of your quasi-equity, going back to this thing, the loyalty one, I'm not sure if you can give a bit more color in terms of what kind of valuation you're looking at for loyalty business, you know, and all that sort of thing.
If you could please give us a bit more color there, it'll be helpful. Finally, on the fuel cost going down, I mean fuel prices going down, of course, you know, at the moment demand supply equation is very, very favorable and hence the yield remains strong. Do you think at some point of time, you'll start passing on the falling fuel price to the customers? Then, if you see that, when do you think in next year, especially, or would it be very selectively on the route-wise in the short haul, rather than long haul? Thanks.
Good morning, Sathish. Did you, we lost a bit you on the cargo. If you can repeat that question, we'll give you the answer on the.
Yeah, sure. I was asking for a bit of color on cargo, volumes and yields going into Q2 and Q3. Of course, you mentioned that, you are shifting planes towards more towards passengers. But on the cargo side, you said the yields still remain very strong, versus 2019, in Q1. But what about Q2 and Q3? If you could give us a bit of a color on, yields and volume going into Q2 and Q2 and Q3, that'll be very helpful.
Okay. If you look at the. I indeed, give an illustration also compared to 2019. I would say we see more or less the same figures for Q2 and Q3 as what we see in this quarter, but we already saw a drop in the unit revenue of the cargo in the Q4 . They'll be less impacted in the Q4 , which is always, by the way, a very strong season in the cargo market. With the deployment of more passenger planes, we will see the impact on the unit revenue for the cargo, especially coming from the belly side, of course, in the same kind of range. On the quasi equity, yes, let's, I cannot announce that at this moment.
We are, we have, let's say offers on the table. We will work on it, when we are ready, we will announce the amount like we did today for the MRO, and we expect that will coming in the coming period. Just wait, and you will see the valuation. Then on fuel, I think, of course there is a relationship usually between fuel and yields. We have seen in the past that due to the fact that actually the supply and demand, there's still, let's say, more demand than supply, that we can still keep these yields at this level. We see that actually everybody knew already that the fuel price would drop in the second and the third quarter. You saw that actually already coming.
We still could keep the high yields into place. For the moment we don't expect there to be an impact.
Thank you.
Thank you. That concludes our Q&A session today. With this, I would like to turn the call back over to your hosts today for any additional and closing remarks.
Okay. We would like to thank all of you for taking the time to listen to our call today. Appreciate it.
Thank you. That concludes today's conference call. You may now disconnect.