Q3 2024 results press release

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November 7, 2024

• Group capacity increased by 3.6% compared to last year with load factor at 89%
• Group revenues at €9.0bn, up 3.7% compared to last year
• Unit cost at +3.4% compared to 2023 due to continued higher cost levels for staff, operation and maintenance at KLM. Firm measures announced to structurally improve KLM's operational and financial performance
• Operating result stood at €1,180m, with operating margin at 13.1%. Operating result equivalent to that of last year excluding Olympic Games unit revenue impact of €160m. One-time payment of €50m to Air France staff for successful operations during the event
• 9-months Recurring adjusted operating free cash flow at €23m
• Cash at hand at €9bn and Net debt/EBITDA ratio of 1.7x
• Acquisition of a 19.9% non-controlling stake in the share capital of SAS AB successfully completed
  
  

Commenting on the results, Mr. Benjamin Smith, Group CEO, said:

“The third quarter revealed mixed trends for the Air France-KLM Group. Revenue continued to rise, driven by increased capacity and strong underlying demand. However, operating income was significantly affected by the Paris Olympic Games, impacting Air France as previously stated. At KLM, persistent cost challenges spiked higher than anticipated, putting pressure on parts of its business model and reinforcing the need for more concrete structural improvements. These measures are aligned with the Group's ongoing transformation efforts aimed at further enhancing overall performance.

Beyond their financial implications, the Olympic Games provided a unique platform to demonstrate the Group's operational expertise and capabilities while offering unparalleled visibility for France as a destination. In the long term, this will be advantageous for the Group.

We also made further progress in our decarbonization initiatives, as evidenced by the signing of a major Sustainable Aviation Fuel (SAF) purchase agreement with TotalEnergies. This contract, one of the largest ever signed by the Group, highlights our commitment to fostering the development of SAF supply chains, which is a crucial lever in reducing our carbon footprint.”

Q3 Group unit revenue broadly stable

*IFRS Operating free cash flow corrected from the repayment of deferred social charges, pensions contributions and wage taxes granted during the Covid period and payment of lease debt and interests paid and received

Third Quarter 2024: Operating result at €1.2bn and stable underlying unit revenue performance

In the third quarter 2024, Air France-KLM welcomed 27.9 million passengers which is 3.5% above last year. As capacity increased by 3.6% and traffic grew by 3.1%, the load factor was broadly stable compared to last year at 89%.

The Group unit revenue per ASK was down -0.6% at constant currency compared to last year. Cargo unit revenues per ATK was up +6.3% against a constant currency. On the passenger side, less international inbound traffic to Paris and less travel from France as a consequence of the Olympic Games, resulted in €160 million less passenger unit revenue. Corrected for this impact, the Group unit revenue was 1.4% positive.

The operating result was €162 million below last year standing at €1,180 million and was impacted by the Olympic Games impact (€160 million), an increase of the ex-fuel unit costs (€230 million), the latter almost fully compensated by an increase of unit revenues (€113 million) and a decrease of fuel & ETS unit costs (€100 million).

The Group unit cost¹ per ASK is up 3.4% versus last year and was above the outlook provided during the Q2 2024 results presentation (+2% year-over-year).

The initially estimated 2% unit cost increase is coming from higher flight related cost and higher salary cost due to collective labor agreements at Air France (impact as per April 2024) and KLM (impact as per Q4 2023), and a one-time payment of circa €50 million to Air France staff rewarding the strong operational performance during the Olympic Games.

The additional 1.4 point unit cost was caused by difficult summer operations, mainly at KLM and Transavia, resulting in higher disruption cost (€65 million), the impact of Crowdstrike €25 million and lower capacity at Transavia (-3%).

Cash

For the first nine months, the Group reported an operating cash flow of €28 million, impacted by a negative working capital coming from the deferrals. Inherited from the pandemic, these deferrals correspond to the previously guided one time pension payment of €610 million by Air France in January 2024 to the Caisse des Retraites des Personnels Navigants (CRPN) as well as the social charges and wages taxes amounting to circa €120 million per quarter.

The net capex amounted to €2.5 billion.

Recurring adjusted operating free cash flow excluding deferred social charges and wage taxes and including lease debt and net interest payment amounted to +€23 million.

The cash at hand at the end of September amounted to €9.0 billion, a decrease of €1.5 billion versus the end of 2023 mainly due to the payment of deferred pension, social charges and wages taxes inherited from the pandemic. Net Debt / EBITDA ratio stood at 1.7x, which is within our ambition of 1.5x to 2.0x.

On the first of July the Group redeemed fully the July 2021 €300 million bonds (coupon 3%).

Sustainability

Transition plan and trajectory

Since 2019, Air France-KLM has accelerated its environmental transition and has set ambitious sustainability performance targets to highlight its sustainability commitments. The Group's ambition is to reduce its greenhouse gas (GHG) emissions by 30% by 2030 compared to 2019 (gCO₂eq/RTK). The Group aims to achieve this goal through a combination of fleet renewal, operational measures such as eco-piloting, and the incorporation of at least 10% of more sustainable aviation fuel on all its flights. These ambitious targets go beyond regulatory obligations.

Sustainability key performance measures:

Fleet Renewal: Air France-KLM is committed to renewing its fleet with more fuel-efficient and less noisy aircraft. By the end of September 2024, 24% of its fleet was composed of new-generation aircraft, compared to 19% end of September 2023. The Group plans to increase this ratio to 80% by 2030.

Compared to previous generation aircraft the A220 reduces CO₂ emissions by 20%, the A320neo family by 15%, and the A350 by 25%.

Since the end of December 2023 the following new generation aircraft were phased in, eight A350, five A320 Neo, seven A321 Neo, of which the first delivery to KLM in the third quarter, and five A220. In the same period the following old generation¹ aircraft were phased out, one 737-800, three A319, one A320 and one CRJ-1000.

More Sustainable Aviation Fuel (SAF):

Air France-KLM and TotalEnergies have signed in September an off-take agreement for TotalEnergies to supply up to 1.5 million tons of more sustainable aviation fuel (SAF) to Air France-KLM Group airlines over a 10-year period, until 2035.

This agreement marks one the largest SAF purchase contracts signed by Air France-KLM to date. In 2022 and 2023, Air France-KLM was the world's leading SAF user, representing 17% and 16% of total global production respectively.

The Group adheres to a strict sourcing policy, committing to purchasing second generation SAF that do not compete with the human or animal food chain, that are RSB or ISCC+ certified for their sustainability, and that are not produced from palm oil and do not contribute to deforestation, and which reduce CO₂ emissions by at least 65% over their entire lifecycle—from production to combustion—compared to fossil kerosene.

2024 outlook

Capacity

The Group expects its capacity in Available Seat Kilometers for Air France-KLM Group including Transavia to increase by 4% in 2024 compared to 2023.

Unit cost³

For the full year 2024, the Group expects a unit cost increase of circa +3% compared to 2023 (previously +2%) as a consequence of the unit cost increase of +3.4% in the third quarter and higher than expected cost in Q4. Less capacity and additional maintenance cost on the component business, mainly at KLM led to this outlook revision. Firm measures announced to structurally improve KLM's operational and financial performance.

See for detailed information the unit cost slide in the outlook section of the results presentation.

Capex

Full year 2024 net capex expected to be at 3 billion euros (Previously below 3 billion euros) due to timing effects related to sale of assets which are expected to be executed in 2025.

2025: Proposed increase of the solidarity tax on flight tickets ('TSBA') in France would impact the Group's profitability and competitiveness

Currently discussed in the French Parliament for the 2025 budget, this increase of the aviation tax applicable to all flights departing from France would:

• result in higher fares reducing accessibility of air travel
• impact profitability due to limitation of price elasticity, preventing the full transfer of charges to customers
• hamper our ability to deliver our sustainability trajectory without any benefit to the environment unless collected tax is allocated to the decarbonation of the aviation sector
• further reduce the competitiveness of France-based carriers and increase competitive distortion.

The Potential FY 2025 impact:

• projected incremental tax of €280m
• €90m - €170m negative on the operating result

Schiphol Airport tariff increase as of April 2025

Schiphol airport recently announced a tariff increase of 41% as per April 2025. KLM Group estimates an EBIT impact in 2025 in the range of €65m - €110m.

Business review

Network result

Compared to the third quarter 2023, total revenues increased by +2.0% to €7,351 million. The operating result stood at €899 million which was €156 million below last year against a constant currency. The decrease is explained by lower passenger unit revenue, partly compensated by higher Cargo unit revenues and a lower fuel price, and high unit cost at KLM.

Passenger network unit revenue impacted by Olympic Games

During the third quarter 2024 capacity in Available Seat Kilometers (ASK) was 3.4% higher than last year. Traffic growth (+3.2%) was close to the capacity growth and has led to a broadly stable load factor at 89.2%. Yield corrected for currency decreased by -1.4% against a constant currency, resulting in a negative unit revenue per ASK development versus last year.

The passenger network unit revenues were impacted by the Olympic Games in Paris. The international markets showed a significant avoidance of Paris while travel between the city and other destinations was also below the usual summer average as residents in France postponed their holidays. Unit revenues declined by 1.8% against a constant currency compared to last year, although excluding the Olympic Games impact the passenger unit revenues would have been 0.1% positive.

Passengers who were avoiding destination Paris and the fewer travelers from Paris due to the Olympic Games were as much as possible replaced by transfer passenger, which had a negative impact on the yield. During the third quarter we observed therefore per region the following trends:

North Atlantic
Q3 capacity increased by 4% compared with last year while load factor remained broadly stable at 90% (-0.5pt) and yield decreased by 2.8%.

Latin America
Capacity was down 1.3% on the back of a high comparison basis while industry capacity is increasing. Load factor slightly decreased and reached 92% while yield reduced by 2.4% compared to significant high yields last year.

Asia & Middle East
Capacity in Q3 has significantly increased by 9% while load factor increased by 0.5% and reached 90%. Yield decreased by 7.4% mainly driven by high competition from Chinese carriers and demand still lagging behind in Japan and China compared to pre-covid levels.

Caribbean & Indian Ocean

After Capacity decreases in the previous quarter, this quarter the capacity increased by 3.2%. Load factor decreased by 2.3 points while yield remained broadly stable (-0.5%).

Africa
Strong yields on late bookings resulted in a yield increase of 1.2% while load factor (+0.9 point) benefited from a lower capacity (-4.3%) than last year.

Short and Medium-haul
Positive developments on capacity, yield and load factor in Europe. Despite the capacity increase by 1%, the yield increased by 0.5% and the load factor by 0.6 point.

Cargo: Strong Q3 Unit revenues

During the third quarter 2024 capacity in Available Ton Kilometers (ATK) was +1.5% higher than last year. Traffic growth (+3.1%) was above the capacity growth and has led to an increase of the load factor reaching 45.5%. Yield corrected for currency increased by +4.5% against a constant currency, resulting in an increase of unit revenue per ASK at constant currency of 6.3%.

Today's air freight market is dynamic and Asia in particular is performing well driven by e-commerce and the Red sea disruption. In response to market dynamics, a part of the Group's full freighter capacity is being redeployed to Asia.

Transavia: Q3 Operating margin improvement despite Olympic Games impact

Despite Transavia's capacity increase in available seat kilometers of 4.5%, unit revenue increased by +5.0% while the load factor slightly decreased. The implementation in the second quarter of the paid hand luggage initiative bore also fruits in the third quarter and brought more than €20 million revenues this quarter.
The operating result amounted to €225 million compared to €188 million last year driven by higher revenues. The impact of the Olympic Games on Transavia France in July and August was circa €35 million.

In the first nine months Transavia's operating result increased by €70 million to €86 million, underlining that route maturity, dynamic pricing ancillaries and Flying Blue features improvement are paying off.

Maintenance business: Third party revenues continue to grow

The maintenance segment continued its growth in the third quarter 2024. Third party revenues increased by +16.0%, showing a strong recovery especially on the engine side, which was in line with the increase in total revenues of 17.0%. During the third quarter, the supply chain disruptions were still strongly impacting the operations resulting in higher cost and loans on components.

The operating margin stood at 4.7%, which is 1.3 point lower than in 2023.

Air France's Q3 performance improved compared to last year excluding Olympic Games impact

Air France Group

*Airlines 2023 results were still including Flying Blue figures, resulting in a negative impact in the change columns

The operating result stood at €732 million which was €74 million below last year, mainly driven by the unit revenue impact of the Olympic Games in July and August (€160m), a one-time payment of €50m to Air France staff for the successful operations during the event and Flying Blue results included in last year (presented separately since 2024).

KLM unit revenue improvement more than offset by unit cost development

KLM Group

*Airlines 2023 results were still including Flying Blue figures, resulting in a negative impact in the change columns

Third quarter revenues grew by +3.6% while the cost increase outpaced the revenues significantly, driven by an increase of salary cost. Last year, during the third quarter no salary increases related to the current CLA were implemented yet, which explains, next to the growth in FTE's, the current increase in salary cost. Flight related cost and maintenance cost contributed as well to the year-over-year 8.4% increase in the cost per available seat kilometer. The capacity increase for the KLM Group was only +0.2% due to pilots shortage and maintenance issues.

As a reaction on the rising costs, KLM announced in October firm measures to structurally improve the company's operational and financial performance. These measures focus on increasing productivity and simplifying the organization, cutting costs and deferring or postponing investments. These interventions are made necessary by the rising cost of equipment, staff and airport fees. Furthermore, KLM is engaged in an extensive fleet renewal - a multi-billion dollar investment aimed at cleaner, quieter and more fuel-efficient flying.

KLM's 'Back on Track' targets a €450m short-term EBIT improvement and EBIT Margin above 8% by 2026-2028 via:

• Increasing labour productivity by at least 5% by 2025, including through automation, mechanization and reducing absenteeism.
• Resolve the impact of the pilot shortage and ensure that KLM can operate all flights with its pilots, with a better balance between intercontinental and European flights.
• Due to the shortage of technicians and ongoing supply problems of parts, KLM can operate fewer flights. Measures are being taken at Engineering & Maintenance to reduce the number of cancellations.
• Improvement of existing, and introduction of new products on board. Trials are underway with an expanded catering offer and optimization of aircraft layout, aimed at increasing revenues by at least €100 million a year.
• Measures to simplify the organisation, achieve more synergy, get rid of overlap and overhead. One example is the planned reorganization of flight services and training organizations.
• Finally, KLM will explore options for outsourcing, divesting or discontinuing activities that do not directly contribute to flight operations.

For KLM Catering Services (KCS) KLM is exploring strategic options to make KCS future proof as investment in KCS is imminent. Any strategic option needs to ensure cost efficiency, maintaining operational control, assure the quality for passengers and supporting KLM's sustainability and personalized catering goals.

Continued momentum for Flying Blue Miles

Flying Blue Miles

In the third quarter Flying Blue miles generated €200 millions of total revenue, including third party airline and non-airline partners. The operating margin stood at 27.5%.

Flying Blue steadily attracts new members, benefiting from a good momentum of the commercial partnerships.

Nb: Sum of individual airline and Flying Blue results does not add up to AF-KLM total due to intercompany eliminations at Group level.

******

The results presentation is available at www.airfranceklm.com on November 7, 2024 from 8:15 am CET.

A conference call hosted by Mr. Smith (CEO) and Mr. Zaat (CFO) will be held on November 7, 2024 at 09.30 am CET.

To connect to the webcast, please use below link:

https://channel.royalcast.com/landingpage/airfranceklm/20241107_1/

Income statement

Consolidated balance sheet

Statement of Consolidated Cash Flows from January 1 until September 30

*Restated figures include the change in presentation for the reclassification of interest received and paid from cash flow from operating activities to respectively cash flow from investing activities and cash flow from financing activities

Net debt

Recurring adjusted operating free cash flow

*Restated figures include the change in presentation for the reclassification of interest received and paid from cash flow from operating activities to respectively cash flow from investing activities and cash flow from financing activities

^{(1) Exceptional payments made/(received), restated from operating free cash flow for the calculation of recurring operating free cash flow adjusted, correspond to the repayment of deferred social charges, pensions contributions and wage taxes granted during the Covid period.}

Return on capital employed (ROCE)

Unit cost: net cost per ASK

Unit cost per ASK excluding fuel and ETS vs Q3 2023: +5.3% and vs 9m 2023: +4.1%
Definition: Unit cost = (total operating expenses - fuel - carbon emission - total other revenues) / Group Capacity in ASK

Group fleet at 30 September 2024

2024 TRAFFIC

Passenger network activity

Transavia activity

Total Group passenger activity

Cargo activity

Air France activity

KLM activity

1 at constant fuel, constant currency and excluding ETS
¹ One A380 which was phased out from operation in 2020, was sold this quarter 2New generation fleet / Fleet in operation
3 against a constant fuel price, constant currency and excluding Emission Trading Scheme cost (ETS)
1 ^{Compared with previous periods, working capital has been restated to exclude the deferral of social and fiscal charges granted following the Covid.}
2 ^{Excluding the report of social & fiscal charges granted consequently to Covid.}
5 Excluding Transavia

Attachment

• Q3 2024 - AFKLM - Press release