30 October 2020

THIRD QUARTER 2020

Increase of demand until mid-August,

then new governmental restrictions impacted the expected level of demand recovery

The continuation of the Covid-19 crisis severely impacted the Third quarter 2020 results:

  • Revenue at 2,524 million euros, down 67% compared to last year
  • EBITDA loss at -442 million euros, limited thanks to cost control and state aid
  • Operating result at -1,046 million euros, down 1,955 million euros compared to last year
  • Net income at -1,665 million euros, including restructuring provision at -565 million euros, Covid- 19 related over-hedging at -39 million euros and fleet impairment at -31 million euros
  • Net debt at 9,308 million euros, up 3,161 million compared to end of 2019
  • At 30 September 2020, the Group has 12.4 billion euros of liquidity or credit lines at disposal

Air France and KLM have agreed with labour representatives on substantial restructuring plans and submitted them for final validation to the French and Dutch states.

OUTLOOK

Air France-KLM Group continues to implement the highest safety standards for its customers and employees to counter virus transmission risks.

After the lockdown, the Group observed a positive demand recovery trend until mid-August. Then, the negative trend reversal for the Passenger activity led the airlines of the Group to adjust downwards the capacity planned for the fall and winter period.

There is limited visibility on the demand recovery curve as customer booking behavior is much more short-term oriented and also highly dependent on the imposed travel restrictions, especially on the Long Haul network. The period of lockdown starting today in France is a new difficulty that will weigh on the Group's activities.

In this context the Group expects:

  • Capacity in Available Seat kilometers circa index 45 for KLM and inferior to index 35 for Air France in the Fourth quarter 2020 compared to 2019 for the Network passenger activity
  • Negative load factor developments for the Fourth quarter 2020, particularly on the long-haul network, and negative yield mix effects due to a delayed recovery in business traffic

The Group anticipates a challenging fourth quarter 2020, with a substantial lower EBITDA compared to Q3 2020.

Air France-KLM Group

Third quarter

Nine months

2020

Change

2020

Change1

Passengers (thousands)

8,796

-69.8%

28,124

-64.7%

Passenger Unit revenue per ASK1 (€ cts)

4.01

-42.7%

5.05

-24.5%

Operating result (€m)

-1,046

-1,955

-3,414

-4,460

Net income - Group part (€m)

-1,665

-2,026

-6,078

-6,213

Adj. operating free cash flow (€m)

-1,220

-985

-3,547

-3,663

Net debt at end of period (€m)

9,308

3,161

1 Passenger unit revenue is the aggregate of Passenger network and Transavia unit revenues, change at constant currency

1

The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 29 October 2020 to approve the financial statements for the nine months 2020. Group CEO Mr. Benjamin Smith said: "After a promising recovery during the summer, the gradual closure of international borders in the second half of August and the resurgence of the pandemic strongly impacted our results in the Third Quarter, with the Group reporting an operating loss of 1.0 billion euros. We have accelerated the implementation of cost reduction and cash preservation measures. We are also working closely with our partners on various means, such as rapid detection tests, that would allow traffic within the best sanitary conditions for our customers and employees.

Beyond these immediate necessary measures, we are engaged in a more profound transformation of our Group, with the objective of exiting this crisis in a stronger position, ready to address the future challenges of our industry. Air transport will continue to connect people and cultures, but we foresee changes in customers' expectations that we anticipate too.

We expect a challenging Fourth quarter 2020, with current forward booking sharply down compared to last year."

Business review

Network: With active management of capacity to meet the increasing demand, the Group was able to ramp up capacity with incremental cash positive flights

Third quarter

Nine months

Network

2020

Change

Change

2020

Change

Change

constant

constant

currency

currency

Total revenues (€m)

2,004

-68.6%

-68.3%

7,220

-58.8%

-58.8%

Scheduled revenues (€m)

1,856

-69.8%

-69.4%

6,753

-59.7%

-59.7%

Operating result (€m)

-990

-1,649

-1,631

-2,842

-3,555

-3,564

Third quarter 2020 revenues decreased by 68.3% at constant currency to 2,004 million euros. The operating result amounted to -990 million euros, a -1,631 million euros decrease at constant currency compared to last year. Measures were strengthened to preserve cash, including reduction of investments, cost savings measures, deferral of supplier payments and partial activity for employees.

Passenger network: Long-haul suffering from travel restrictions, ability to capture traffic when border controls are less restrictive

Third quarter

Nine months

2020

Change

Change

2020

Change

Change

Passenger network

constant

constant

currency

currency

Passengers (thousands)

6,782

-71.3%

23,671

-64.3%

Capacity (ASK m)

32,100

-59.6%

103,268

-54.1%

Traffic (RPK m)

13,752

-80.7%

66,861

-66.3%

Load factor

42.8%

-46.9 pt

64.7%

-23.5 pt

Total passenger revenues (€m)

1,329

-77.4%

-77.1%

5,512

-65.4%

-65.4%

Scheduled passenger revenues (€m)

1,265

-77.9%

-77.6%

5,271

-65.7%

-65.7%

Unit revenue per ASK (€ cts)

3.94

-45.2%

-44.5%

5.10

-25.4%

-25.3%

The passenger network activity was, as anticipated strongly reduced, at around 40% of last year's levels. The tightening of travel restrictions, border closures and absence of corporate travel delayed the expected traffic recovery. July and August were relatively strong in term of traffic compared to a disappointing September affected by restrictive travel measures.

For the third quarter, the unit revenues were down at -44.5% at constant currency compared to last year primarily due to load factors decline on Long Haul operations.

2

The Group's strategy was to only operate incremental cash positive flight and several routes were taking advantage of the strong worldwide cargo demand while having few passenger on board.

The visiting friend and relative demand was driving the summer traffic, with the French Domestic, African

  • Middle East and Caribbean & Indian Ocean as the more resilient with a unit revenue performance between -22% and -27% at constant currency.

The medium-haul performance was mixed during summer, with some leisure destinations such as Italy, Spain, Portugal and Greece benefiting from easing travel restrictions and other strongly affected by quarantine and testing process like UK or Germany.

North Atlantic, South American and Asian networks continued to be strongly affected by the border restrictions in place with an important decline in capacity and passenger traffic during summer.

Cargo: Continued strong performance of cargo due to the gap between industry capacity and demand

Third quarter

Nine months

Cargo business

2020

Change

Change

2020

Change

Change

constant

constant

currency

currency

Tons (thousands)

220

-20.0%

611

-25.7%

Capacity (ATK m)

2,537

-33.3%

7,309

-32.9%

Traffic (RTK m)

1,735

-17.0%

4,747

-24.2%

Load factor

68.4%

+13.4 pt

65.0%

+7.5 pt

Total Cargo revenues (€m)

676

+31.7%

+34.1%

1,708

+7.1%

+6.9%

Scheduled cargo revenues (€m)

592

+35.7%

+38.0%

1,482

+8.7%

+8.4%

Unit revenue per ATK (€ cts )

23.35

+104.0%

+107.6%

20.28

+62.0%

+61.6%

Global air cargo capacity is at the end of the Third quarter 2020 approximately 15% lower than 2019. Tightening of supply and demand levels increased yields by significant amount over the past months.

September was the fifth consecutive month of gradual air cargo market improvements and Air France- KLM's Cargo activity continued to strongly perform with a unit revenue at constant currency up 104.0% in the Third quarter 2020. The Cargo capacity of the Group has been down 33.3%, primarily driven by the reduction in belly capacity of passenger aircraft partly offset by the increase of the full freighters' capacity and mini cargo flights (passenger aircraft with only belly capacity commercialized). The load factors were strongly up 13.4 points for the quarter.

On the demand side, world-wide air freight volumes are down due to Covid-19 crisis but are expected to rebound to 90 to 95% of pre Covid-19 levels in 2021. The supply-demand gap of the past months is foreseen to narrow as industry capacity supply will increase and will depend on the passenger traffic recovery. Air France-KLM is in preparation to transport the future Covid-19 vaccines.

3

Transavia operating loss in the Third quarter at -13 million euros, impacted by border restrictions reinstatement

Third quarter

Nine months

Transavia

2020

Change

2020

Change

Passengers (thousands)

2,014

-63.3%

4,453

-66.6%

Capacity (ASK m)

6,009

-44.7%

11,178

-57.4%

Traffic (RPK m)

3,869

-61.8%

8,505

-64.9%

Load factor

64.4%

-28.7 pt

76.1%

-16.4 pt

Total passenger revenues (€m)

262

-60.6%

521

-62.9%

Unit revenue per ASK (€ cts)

4.38

-30.2%

4.55

-16.3%

Unit cost per ASK (€ cts)

4.61

-1.3%

6.39

+32.5%

Operating result (€m)

-13

-189

-206

-364

The Third quarter operating result ended 189 million euros lower compared to last year at an operational loss of -13 million euros, as a result of the Covid-19 crisis.

Activity levels were close to 55% of last year's level, with an unit revenue down -30,2% compared to the Third quarter 2019. Transavia France and Holland were able to capture traffic and fill their planes with reasonable load factors and good yields on several leisure destinations. Spain, Greece, Portugal and Italy routes were the most resilient during the quarter. However, severe travel restrictions from the Netherlands to Spain and Greece in the course of the third quarter, did put pressure on activity levels and loadfactor.

Transavia France will expend its French Domestic operation starting in November 2020 from Paris Orly and provinces airports.

However, the resurgence of Covid-19 and border restrictions have slowed down Transavia in the traffic recovery.

Strict cash preservation measures are still in place including reduction of investments, cost savings measures, deferral of supplier payments and partial activity measures.

Maintenance business operating result for Third quarter 2020 at -46 million euros, impacted by Covid-19

Third quarter

Nine months

Maintenance

2020

Change

Change

2020

Change

Change

constant

constant

currency

currency

Total revenues (€m)

616

-47.1%

2,255

-34.7%

Third-party revenues (€m)

247

-54.5%

-53.1%

963

-40.7%

-41.6%

Operating result (€m)

-46

-117

-111

-366

-536

-542

Operating margin (%)

-7.4%

-13.5 pt

-13.1 pt

-16.2%

-21.2 pt

-21.3 pt

The Third quarter operating result stood at -46 million euros, a decrease of 117 million euros, highly impacted by the Covid-19 crisis. Revenues declined and were also impacted by the Air France-KLM Group airlines decrease in activity.

During the Third quarter, contracts signature have restarted and will be included in the order book before year end. The Maintenance business is carefully managing agreements with clients on payment terms.

Operating costs have been reduced in the Third quarter 2020 by a reduced maintenance activity level, partial activity pay schemes for employees and other initiated cost savings measures.

The Maintenance order book is assessed to 9.3 billion dollars at 30 September 2020 a decrease of 2.2 billion dollars compared to 31 December 2019, explained by the Covid-19 crisis effects already occurring and expected.

4

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Air France-KLM SA published this content on 30 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 October 2020 06:24:03 UTC