Air France KLM: Second quarter 2012 results

The passenger business saw an improved performance in the Second Quarter of 2012, but cargo suffered from the weak global trading environment. The fuel bill increased, mainly on the back of the strengthening of the dollar.

Passenger traffic rose 2.4% for virtually stable capacity (+0.3%) leading to a 1.7 point gain in the load factor to 82.8%. Unit revenue per available seat kilometre (RASK) rose 6.1%, underpinned by volumes and a positive currency effect of 2.5%. Unit revenue per passenger kilometre (RRPK) rose 4.0% and by 1.4% excluding the currency effect. Revenues rose 6.8% to 5.13 billion euros. The operating result of the passenger business amounted to -47 million euros (-140 million euros at 30th June 2011).

With a decline in traffic of 6.9% for capacity down 3.0%, the cargo business recorded a 2.7 point decline in load factor to 64.1%. Unit revenue per available tonne kilometre (RATK) declined by 2.4% and by 6.7% excluding currency effect. Revenues stood at 764 million euros (-4.4%). The operating result amounted to -62 million euros (-14 million euros a year earlier).

Maintenance saw a slight rise in revenues to 265 million euros (+1.1%) but a sharp rise in operating result to 40 million euros (23 million euros at 30th June 2011). Revenues from the Other Businesses declined 4% to 341

Total revenues for the group amounted to 6.50 billion euros against 6.22 billion euros at 30th June 2011, a rise of 4.5%, including a positive currency effect of 2.6%.

Results: first effects of Transform 2015 cost saving measures
Operating costs were tightly controlled despite the negative currency effect. They declined by 0.3% ex- fuel and rose by 3.2% including fuel cost. Unit cost per equivalent available seat kilometre (EASK), rose 3.5%, but declined 1.3% on a constant currency and fuel price basis for stable production per EASK.

The main changes in operating costs related to the fuel bill (+12.8%), while distribution and other costs fell sharply (-6.0% and -6.6% respectively). The fuel bill increased by 214 million euros under the combined effects of a 2% decline in volume, a negative currency effect of 10% and a rise in the price after hedging of 5%. Employee costs rose 1.9% to 1.97 billion euros. As in the First Quarter, KLM booked an additional pension charge of 22 million euro due to the changes in actuarial assumptions at 31 December 2011.

The operating result amounted to -66 million euros (-145 million euros at 30th June 2011). The adjusted operating result was positive, at 15 million euros. Elsewhere, Air France booked a restructuring provision of 368 million euros under non-current costs, of which 348 million in the context of the voluntary departures plan announced last June.

The net interest cost was stable at 88 million euros (87 million euros at 30th June 2011). Other financial costs and income amounted to -454 million euros (-29 million euros at 30th June 2011) of which a currency result of -86 million euros and a change in the fair value of fuel hedging instruments of -372 million euros. Nevertheless, the value of the global portfolio of currency and fuel derivatives remains positive at 30 June 2012.

Net result, group share, stood at -895 million euros (-197 million euros at 30th June 2011). The provision of 368 million euros and the change in the fair value of hedging instruments are non-cash items which do not affect the cash flow of the quarter.

First Half 2012
The passenger business saw traffic and capacity up by 3.9% and 0.9% respectively. The load factor gained 2.4 points to 82.2%. Cargo traffic fell sharply (-6.5%) for capacity down 2.5% leading to a 2.8 point drop in load factor to 64.5%. In passenger, unit revenue per available seat kilometre (RASK) gained 5.7% and 3.9% ex-currency. In cargo, unit revenue per available tonne kilometre (RATK) was down 2.5% and 5.4% ex-currency.

Total revenues amounted to 12.14 billion euros (+5.2% of which a positive currency effect of 1.9%). Operating costs rose 2.7% ex-fuel and by 5.9% including fuel. The main change came from the fuel bill, up 469 million euros. Employee costs of 3.88 billion euros were up 3.9%, including the additional pension charge of 45 million euros at KLM due to the changes in actuarial assumptions at 31 December 2011.

The operating result stood at -663 million euros (-548 million euros at 30th June 2011), and the adjusted operating result at -505 million euros.

The net interest cost declined slightly to 170 million euros versus 178 million euros a year earlier. On the other hand, other financial costs and income amounted to -178 million euros, of which -152 million euros relating to the change in fair value of hedging instruments, compared with +38 million euros for the year-earlier period.

Taking account of these factors, as well as restructuring provision booked in the Second Quarter, net income, group share was -1.26 billion euros (-564 million euros at 30th June 2011).

Financial position
In the First Half, investments net of disposals stood at 600 million euros (691 million euros at 30th June 2011). Operating cash flow was positive at 461 million euros. The group had net cash of 3.3 billion euros, of which 466 million euros from the Amadeus operation, and fully available credit lines of 1.85 billion euros at 30th June 2012.

euros at 31st December 2011). However as a result of the decline in equity, the gearing ratio3 rose significantly to 1.28 versus 1.07 at 31st December 2011. The financial cover ratios at 30 June 2012 on a sliding 12 month basis are satisfactory.

Update on collective agreement negotiations

In the framework of the improvement of productivity within the Air France-KLM group, Air France submitted for signature, at the beginning of July, collective agreement projects to its three categories of employees. As of today, the agreement with ground staff has been signed and is applicable at 1st January 2013.

The project agreement for cockpit crew is also applicable starting from 1st January 2013. The main union, SNPL Air France ALPA, has submitted it to a ballot with a favourable recommendation from its board. The results of this ballot will be known in mid-august.

Despite the approval of the main representative union, the project agreement for cabin crew has not received approval by unions representing over 30% of votes. It will not therefore replace, as planned, on 1st April 2013, the current collective agreement in force until 31st March 2013, which will instead be replaced by a text in which the counterparties in terms of remuneration and working conditions will be less favourable than the initially proposed agreement.