Air France KLM: Full Year 2015 Results

OREANDA-NEWS. Air France KLM - Full Year 2015 Results.

Fourth Quarter 2015

In the Fourth Quarter 2015, total revenues stood at 6.3 billion euros versus 6.2 billion euros in 2014, up 2.2%, but down -3.4% on a like-for-like basis. Currencies had a positive 276 million euro impact on revenues, primarily due to the strengthening of the dollar against the euro.

EBITDAR stood at 816 million euros, up by 273 million euros versus 2014. EBITDA amounted to 551 million euros, up by 235 million euros. On a like-for-like basis, EBITDA increased by 188 million euros, primarily driven by the strong increase of the passenger network performance.

The operating result stood at 150 million euros versus -169 million euros in 2014. Currencies had a 59 million euro negative impact on the operating result in Fourth Quarter 2015.

Passenger network

Passenger network	Full Year 2015	Full Year 2014	Change	Change like-for-like
Passengers (thousands)	79,016	77,450	+2.0%
Capacity (ASK m)	276,899	270,789	+2.3%	+0.7%
Traffic (RPK m)	235,715	229,347	+2.8%	+1.2%
Load factor	85.1%	84.7%	+0.4 pt	+0.4 pt
Total passenger revenues (€m)	20,541	19,570	+5.0%	-2.6%
Scheduled passenger revenues (€m)*	19,707	18,740	+5.2%	-2.6%
Unit revenue per ASK (€ cts)	7.12	6.92	+2.8%	-3.3%
Unit revenue per RPK (€ cts)	8.36	8.17	+2.3%	-3.7%
Unit cost per ASK (€ cts)	6.81	6.95	-2.0%	-6.7%
Operating result (€m)	842	-83	+925	+687
Of which long-haul (estimated)	1,140	740	+400
Of which medium-haul hub feeding (est.)	-230	-320	+90
Of which medium-haul point-to-point (est.)	-70	-120	+50

* FY 2014 restated for change in revenue allocation (45 million euros transferred from “other passenger” to “scheduled passenger revenues”)

Full Year 2015 total passenger revenues amounted to 20,541 million euros, up 5.0% and down 2.6% like-for-like. The operating result of the passenger business stood at 842 million euros, versus a loss of 83 million euros over the Full Year 2014, an increase of 925 million euros. Like-for-like, the operating result improved by 687 million euros.

The Group maintained its strict capacity discipline, increasing total passenger capacity by 0.7% excluding the strike impact. Unit revenue per Available Seat Kilometer (RASK) remained volatile, up 2.0% in nominal value strike corrected and down by 3.3% on a like-for-like basis.

On the long-haul network, the capacity measured in ASKs was up 3.0%, while unit revenue was down 4.4% excluding currency impact, affected by the capacity-demand imbalances observed on different parts of the network, and by the large drop in demand out of Brazil and Japan. In addition, several routes were affected by travel budget reductions implemented by oil and gas related customers, notably to Africa. Nevertheless, the estimated long-haul operating result was up 400 million euros to 1,140 million euros.

As planned, medium-haul point-to-point capacity (excluding the Paris and Amsterdam hubs) was further reduced by 11.5%, leading to a significant improvement in unit revenue of +7.0% like-for-like contributing to the improvement of the point-to-point operating result by 50 million euros. The medium-haul feeding activity (the Paris and Amsterdam hubs) unit revenues decreased by 1.6% like-for-like. The medium-haul hub feeding estimated operating result stood at a loss of 230 million euros, an improvement of 90 million euros versus Full Year 2014.

The unit cost per Available Seat Kilometer (CASK) was further reduced by 6.7% like-for-like. Excluding the positive impact of the fuel bill and the additional pension charges, the CASK decreased by 0.5% over the year.

Over the Full Year 2016, the Group will maintain its strict capacity discipline in the passenger business, with planned stable capacity.

Passenger network	Q4 2015	Q4 2014	Change	Change Like-for-like
Passengers (thousands)	19,156	19,095	+0.3%
Capacity (ASK m)	67,636	67,019	+0.9%	+0.9%
Traffic (RPK m)	56,719	55,763	+1.7%	+1.7%
Load factor	83.9%	83.2%	+0.7 pt	+0.7 pt
Total passenger revenues (€m)	4,983	4,861	+2.5%	-2.7%
Scheduled passenger revenues (€m)*	4,787	4,648	+3.0%	-2.3%
Unit revenue per ASK (€ cts)	7.08	6.94	+2.1%	-3.2%
Unit revenue per RPK (€ cts)	8.44	8.34	+1.3%	-4.0%
Unit cost per ASK (€ cts)	6.85	7.19	-4.8%	-9.9%
Operating result (€m)	156	-171	+327	+292

* Q4 2014 restated for change in revenue allocation (16 million euros transferred from “other passenger” to “scheduled passenger revenues”)

In the Fourth Quarter of 2015, passenger revenues amounted to 4,983 million euros, up 2.5%, but down 2.7% like-for-like. The revenues were impacted by the terrorist attacks in Paris in November 2015, with an estimated negative impact of 120 million euros. The operating result of the passenger business stood at 156 million euros, versus -171 million euros in the same period last year, up 327 million euros on a reported basis and up 292 million euros like-for-like.

Unit revenue per Available Seat Kilometer (RASK) increased by 2.1% and decreased by 3.2% like-for-like.

Cargo business

Cargo	Full Year 2015	Full Year 2014	Change	Change Like-for-like
Tons (thousands)	1,206	1,303	-7.5%
Capacity (ATK m)	14,908	15,608	-4.5%	-5.8%
Traffic (RTK m)	9,008	9,843	-8.5%	-10.0%
Load factor	60.4%	63.1%	-2.6 pt	-2.7 pt
Total external revenues (€m)	2,425	2,681	-9.5%	-17.4%
Scheduled cargo revenues (€m)	2,263	2,509	-9.8%	-17.8%
Unit revenue per ATK (€ cts)	15.18	16.08	-5.6%	-12.8%
Unit revenue per RTK (€ cts)	25.12	25.49	-1.4%	-8.8%
Unit cost per ATK (€ cts)	16.82	17.43	-3.5%	-10.8%
Operating result (€m)	-245	-212	-33	-14

The Group continued to restructure its Cargo activity to address weak global trade from/to Europe and structural air cargo industry overcapacity. During Full Year 2015, full-freighter capacity was reduced by more than 23%, leading to a strike-adjusted decrease in total capacity of 5.8%. Revenue per Available Ton Kilometer (ATK) was down by 12.8% like-for-like, reflecting the persistently weak demand.

Cargo unit cost was down 10.8% like-for-like, as a result of the lower fuel price and of the good cost performance. Unit cost excluding fuel price and currency was down 2.5% in spite of the capacity reduction. Headcount was reduced by 8.8% over the course of the year.

Within the framework of Perform 2020, the Group phased out 5 full-freighters during 2015 and plans to operate only 5 full-freighters by summer 2016. This reduction should enable the full-freighter business to return to operating breakeven in 2017. The loss for the full-freighter activity was reduced to 42 million euro, a significant decrease by 55 million euros during Full year 2015.

Cargo	Q4 2015	Q4 2014	Change	Change Like-for-like
Tons (thousands)	309	334	-7.7%
Capacity (ATK m)	3,631	3,944	-7.9%	-7.9%
Traffic (RTK m)	2,297	2,546	-9.8%	-9.8%
Load factor	63.3%	64.6%	-1.3 pt	-1.3 pt
Total Cargo revenues (€m)	612	714	-14.3%	-19.5%
Scheduled cargo revenues (€m)	567	676	-16.1%	-21.3%
Unit revenue per ATK (€ cts)	15.62	17.14	-8.9%	-14.6%
Unit revenue per RTK (€ cts)	24.68	26.55	-7.0%	-12.8%
Unit cost per ATK (€ cts)	16.25	17.90	-9.2%	-14.9%
Operating result (€m)	-23	-31	+8	+9

In the Fourth Quarter of 2015, cargo revenues amounted to 612 million euros, down 14.3%. On a like-for-like basis, revenue were down by 19.5% and unit revenue per Available Ton Kilometer (RATK) decreased by 14.6%.

The Group continued its efforts to reduce unit costs, down 14.9% on a like-for-like basis. The operating result improved by 9 million euros like-for-like.

Maintenance

Maintenance	Full Year 2015	Full Year 2014	Change	Change Like-for-like
Total revenues (€m)	4,012	3,392	+18.3%
Third party revenues (€m)	1,577	1,251	+26.1%	7.3%
Operating result (€m)	214	174	+40	-20
Operating margin (%)	5.3%	5.1%	+0.2 pt	-0.8 pt

Full Year 2015 third party maintenance revenues amounted to 1,577 million euros, up 26.1% and by 7.3% like-for-like. Revenues benefited not only from the strong dollar relative to the euro and from the contracts gained in previous years.

Over the period, the Group recorded a 12% increase in its order book to 8.4 billion dollars, including significant contract wins with contracts for GE90 engines and B787 components.

The operating result amounted to 214 million euros, up 40 million, corresponding to an operating margin of 5.3%. Like-for-like, the operating results decreased by 20 million euros.

Maintenance	Q4 2015	Q4 2014	Change	Change Like-for-like
Total revenues (€m)	1,080	919	+17.5%
Third party revenues (€m)	429	356	+20.5%	6.0%
Operating result (€m)	47	61	-14	-23
Operating margin (%)	4.4%	6.6%	-2.3 pt	-2.7 pt

In the Fourth Quarter of 2015, third party maintenance revenues were 429 million euros, up 20.5% and up 6.0% like-for-like. The operating result decreased by 14 million euros to 47 million euros.

Transavia

Transavia	Full Year 2015	Full Year 2014*	Change
Passengers (thousands)	10,805	9,908	+9.1%
Capacity (ASK m)	22,432	21,299	+5.3%
Traffic (RPK m)	20,169	19,136	+5.4%
Load factor	89.9%	89.8%	+0.1 pt
Total passenger revenues (€m)	1,099	1,056	+4.1%
Scheduled passenger revenues (€m)	1,086	1,046	+3.8%
Unit revenue per ASK (€ cts)	4.84	4.92	-1.6%
Unit revenue per RPK (€ cts)	5.38	5.48	-1.7%
Unit cost per ASK (€ cts)	5.00	5.09	-1.8%
Operating result (€m)	-35	-36	+1

* FY 2014 restated for change in revenue allocation (45 million euros transferred from “other passenger” to “scheduled passenger revenues”)

In the Full Year 2015, as planned within the Perform 2020 framework, Transavia capacity was up by 5.3%, reflecting the accelerated development in France (capacity up by 24.6%) and the ongoing repositioning in the Netherlands (with scheduled capacity up 17% and charter capacity down 13%). Traffic rose by 5.4% and passengers approached 11 million. The load factor remained high (89.9%, up 0.1 point) despite the strong increase in capacity.

Total revenues stood at 1,099 million euros, up 4.1%. Unit revenue per ASK decreased by 1.6% while unit cost per ASK decreased by 1.8%. The operating result was -35 million euros, up 1 million euro.

The development of Transavia will further accelerate in 2016 with overall ASK + 15%, with the main contributions being the growth in capacity in Transavia France and the opening of the new Munich base in March 2016, starting with 4 B737-aircraft serving 18 destinations.

Transavia	Q4 2015	Q4 2014*	Change
Passengers (thousands)	2,167	1,952	+11.0%
Capacity (ASK m)	4,592	4,316	+6.4%
Traffic (RPK m)	4,006	3,794	+5.6%
Load factor	87.2%	87.9%	-0.7 pt
Total passenger revenues (€m)	207	193	+7.2%
Scheduled passenger revenues (€m)	205	191	+7.3%
Unit revenue per ASK (€ cts)	4.45	4.47	-0.4%
Unit revenue per RPK (€ cts)	5.10	5.09	+0.3%
Unit cost per ASK (€ cts)	5.25	5.25	+0.1%
Operating result (€m)	-37	-34	-3

* Q4 2014 restated for change in revenue allocation (10 million euros transferred from “other passenger” to “scheduled passenger revenues”)

In the Fourth Quarter of 2015, Transavia capacity was up 6.4%. Traffic rose by 5.6% resulting in a load factor decrease of 0.7 point to 87.2%. Unit revenue per ASK was down 0.4%. Transavia’s total revenue stood at 207 million euros, up 7.2%. The operating result was -37 million euros, down 3 million euros year-on-year.

Other business: Catering

Catering	Full Year 2015	Full Year 2014	Change
Total revenues (€m)	947	871	+8.7%
Third party revenues (€m)	374	311	+20.3%
EBITDA (€m)	62	42	+20
Operating result (€m)	37	18	+19

In Full Year 2015, third party catering revenues amounted to 374 million euros, up 20.3%, reflecting the signature of new contracts and the launch of new operations in Africa, Asia and Latin America. The operating result stood at 37 million euros, up 19 million euros.

Financial situation

In € million	Full Year 2015	Full Year 2014	Change
Cash flow before change in WCR and Voluntary Departure Plans, continued operations	+1,997	+1,039	+958
Cash out related to Voluntary Departure Plans	-172	-154	-18
Change in Working Capital Requirement (WCR)	+75	+113	-38
Operating cash flow	+1,900	+998	+902
Net investments before sale & lease-back	-1,294	-1,360	+66
Cash received through sale & lease-back transactions	-	+198	-198
Net investments after sale & lease-back	-1,294	-1,162	-132
Operating free cash flow	+606	-164	+770
Of which intangible asset disposal (LHR slots)	+246	-	+246
Adjusted operating free cash flow	+360	-164	+524

In Full Year 2015, the operating cash flow before change in working capital requirement (WCR) and cash out related to Voluntary Departure Plans increased by 958 million euros to 1,997 million euros, .

The Group disbursed 172 million euros for Voluntary Departure Plans. The change in WCR contributed 75 million euros to operating cash flow. Net investments stood at 1,294 million euros, including the disposal of the London Heathrow slots amounting to 246 million euros. Excluding the slots, net investments stood at 1,540, an increase of 378 million euros.

As a result, operating free cash flow amounted to 606 million euros, versus a negative 164 million euros a year earlier.

Operating free cash flow does not include free cash flow from financial investments, including the cash-in of 327 million euros from the sale of Amadeus shares in January and the hybrid bond transaction in April raising 600 million euros.

Net debt amounted to 4.3 billion euros at 31 December 2015, versus 5.4 billion euros at 31 December 2014. The 12 months trailing adjusted net debt / EBITDAR ratio stood at 3.3x at 31 December 2015 compared to 4.0x at 31 December 2014 excluding strike impact.

The balance sheet pension situation moved from a net liability of 710 million euros at 31 December 2014 to a net liability of 222 million euros at 31 December 2015, an improvement of 488 million euros as a result of changes in actuarial assumptions (pension indexation) and 10 year discount rate (1.65% to 1.80%).

The Group continues to enjoy a good level of liquidity, with net cash of 3.8 billion euros at 31 December 2015, and undrawn credit lines of 1.78 billion euros that were renewed in 2015.

Outlook

The Group is currently deploying all the operational initiatives planned within the framework of the strategic plan Perform 2020:

• The continuous development of the passenger network business based on an upgraded product offer, an increased customer focus, a stronger positioning of brands and the reinforcement of strategic partnerships.
• The further optimization of its Air France point-to-point operations, with the creation of a single structure, aiming at a return to operating breakeven by 2017.
• A new step in the accelerated development in the European leisure market, under the Transavia brand, growing by 20% on the French market in 2016 and the opening of the new Munich base in March 2016 with 101 weekly flights throughout the 2016 summer season
• The finalisation of the cargo repositioning with a fleet reduced to 5 full-freighter as per June 2016
• The continuous development of the maintenance business

In parallel, a structured approach to achieve unit cost reduction is being deployed across all entities of the Group, and cost reduction initiatives are being rolled out.

The global context in 2016 remains highly uncertain regarding fuel prices, the continuation of the overcapacity situation on several markets and the geopolitical and economic context in which we operate. In consequence, the Group expects the expected savings on the fuel bill to be significantly offset by unit revenue pressure and negative currency impacts.

Under these conditions, the Group is expecting for 2016:

• Free operating cash flow generation after disposals between 0.6 billion euros and 1.0 billion euros. The 2016 investment plan (between 1.6 billion euros and 2.0 billion euros) and disposals programme (between 0.2 billion euros and 0.5 billion euros) will be adjusted depending upon operating cashflow generation
• 2016 unit cost reduction target around 1%
• Further significant reduction in net debt

Based on current market conditions and without any major adverse event, the Group is retaining its unit cost reduction target being an average of 1.5% per year, amending the related period from 2015-2017 to 2016-2018.

The Group is maintaining its medium term financial targets:

• Adjusted net debt²/EBITDAR ratio of around 2.5 by end 2017
• Base businesses to consistently generate annual positive free cash flow
• ROCE of 9% to 11% in 2017