OREANDA-NEWS. The Board of Directors of Air France-KLM, chaired by Alexandre de Juniac, met on May 3rd 2016 to examine the accounts for the First Quarter of the Financial Year 2016.

Key data

 

Q1 2016

Q1 2015*

Change

Passengers (thousands)

19,896

19,021

+4.6%

Capacity (EASK m)

77,444

77,232

+0.3%

Revenues (€m)

5,605

5,583

+0.4%

Change like-for-like2 (%)

 

 

-1.3%

EBITDAR (€m)

531

224

+307

EBITDA (€m)

266

-26

+292

EBITDA margin (%)

4.7

-0.5

+5.2 pt

EBITDA change like-for-like2 (€m)

 

 

+370

Operating result (€m)

-99

-417

+318

Operating margin (%)

-1.8%

-7.5%

+5.7 pt

Operating result change like-for-like2 (€m)

 

 

+397

Net result, group share (€m)

-155

-559

+404

Restated net result, group share1 (€m)

-102

-506

+404

Earnings per share (€)

(0.54)

(1.90)

+1.36

Diluted earnings per share (€)

(0.54)

(1.90)

+1.36

Adjusted earnings per share (€)

(0.36)

(1.71)

+1.35

Diluted adjusted earnings per share (€)

(0.36)

(1.71)

+1.35

Operating free cash flow1 (€m)

196

-46

+242

Net debt at end of period (€m)

4,161

4,307

-146

* Servair reclassified as discontinued operation.

The consolidated financial statements of the Group have been revised as of 1st January 2016 in order to reflect Servair as discontinued operations. The 2015 financial statements have been restated accordingly. Details of this restatement can be found in the appendix of this press release.

First Quarter 2016 total revenues were stable at 5.6 billion euros versus First Quarter 2015, down 1.3% excluding the impact of currency (like-for-like).

Currencies had a positive 95 million euro impact on revenues versus First Quarter 2015, primarily driven by the strengthening of the US dollar against the euro partly offset by the weakening of other currencies. The negative impact on costs reached 174 million euros, including a lower tailwind from currency hedging compared to the First Quarter 2015. In the First Quarter 2016, the net impact of currencies thus amounted to a negative 79 million euros.

Total operating costs were 4.9% lower year-on-year and down 7.6% on a like-for-like basis. Ex-fuel, they increased by 2.0% and by 0.3% on a like-for-like basis. Unit cost per EASK was down 1.3%, on a constant currency and fuel price basis, with a stable capacity measured in EASK (+0.3%).

Total employee costs including temporary staff were up 0.8% to 1,844 million euros. In addition, the Group recorded under “other non-current income and expenses” a 146 million euro provision for a Voluntary Departure Plan targeting 1,600 full time equivalent positions.

The fuel bill amounted to 1,096 million euros, down 25.9% and like-for-like down 30.5%. Based on the forward curve at 22 April 2016, the Full Year 2016 fuel bill is expected to reach 4.6 billion euros4

EBITDAR amounted to 531 million euros, a reported increase of 307 million euros. Like-for-like, EBITDAR increased by 371 million euros. Over the First Quarter 2016, 55% of the savings achieved on the fuel bill were retained. The positive fuel price effect of 450 million euros was partially offset by pressure on unit revenues (negative 119 million euros) and currency impacts (negative 79 million euros).

EBITDA amounted to 266 million euros, an increase of 292 million euros. Like-for-like, EBITDA increased by 370 million euros, mainly as a result of the strong Passenger network performance, which improved by 356 million euros like-for-like over the first quarter.

EBITDA per business (€m)

Q1 2016

Q1 2015

Change

Change

like-for-like

Passenger network

277

-8

+285

+356

Cargo

-42

-48

+6

+14

Maintenance

85

85

+0

-3

Transavia

-52

-58

+6

+11

Other

-2

3

-5

-8

Total

266

-26

+292

+370

* Servair reclassified as discontinued operation.

First Quarter 2016 EBITDA improved by 179 million euros like-for-like at Air France and 196 million euros like-for-like at KLM. EBITDA margins were up at both airlines, reaching 4.2% at Air France and 5.5% at KLM.

EBITDA per airline (€m)

Q1 2016

Q1 2015

Change

Change

like-for-like

Air France

150

14

+136

+179

EBITDA margin

4.2%

0.4%

+3.8 pt

+5.2 pt

KLM

118

-43

+161

+196

EBITDA margin

5.5%

-2.0%

+7.5 pt

+9.0 pt

Other/ eliminations

-2

3

-5

-5

Total

266

-26

+292

+370

* Servair reclassified as discontinued operation.

The operating result stood at -99 million euros versus -417 million euros, a 318 million euro improvement. Like-for-like, the operating result increased by 397 million euros.

The net result, group share stood at -155 million euros against -559 million euros a year ago.

At 31 March 2016, the trailing 12 months return on capital employed (ROCE) was 11.2%, up 6.0 points compared to 31 March 2015.

Passenger network business

Passenger network

Q1 2016

Q1 2015

Change

Change

like-for-like

Passengers (thousands)

18,003

17,366

+3.7%

 

Capacity (ASK m)

64,843

64,107

+1.1%

 

Traffic (RPK m)

54,806

52,917

+3.6%

 

Load factor

84.5%

82.5%

+2.0 pt

 

Total passenger revenues (€m)

4,473

4,421

+1.2%

-0.2%

Scheduled passenger revenues (€m)*

4,274

4,224

+1.2%

-0.2%

Unit revenue per ASK (€ cts)

6.59

6.59

+0.0%

-1.3%

Unit revenue per RPK (€ cts)

7.80

7.98

-2.3%

-3.6%

Unit cost per ASK (€ cts)

6.62

7.09

-6.7%

-9.3%

Operating result (€m)

-18

-322

+304

+375

First Quarter 2016 total passenger network revenues amounted to 4,473 million euros, up 1.2% and down 0.2% like-for-like. The operating result of the passenger network business stood at -18 million euros, versus -322 million euros over the First Quarter 2015. Like-for-like, the operating result improved by 375 million euros.

The Group maintained its strict capacity discipline, growing the total passenger network capacity during the First Quarter 2016 by 1.1%, while increasing the average loadfactor by 2.0 points to 84.5%. The traffic increased in all regions of the network, except Asia following the planned reduction in capacity. Unit revenue per Available Seat Kilometer (RASK) remained volatile, down by 1.3% overall on a like-for-like basis in the First Quarter.

Cargo business

Cargo

Q1 2016

Q1 2015

Change

Change

like-for-like

Tons (thousands)

276

301

-8.4%

 

Capacity (ATK m)

3,434

3,736

-8.1%

 

Traffic (RTK m)

2,034

2,261

-10.1%

 

Load factor

59.2%

60.5%

-1.3 pt

 

Total Cargo revenues (€m)

529

625

-15.4%

-16.9%

Scheduled cargo revenues (€m)

492

588

-16.3%

-12.8%

Unit revenue per ATK (€ cts)

14.3

15.7

-9.1%

-10.8%

Unit revenue per RTK (€ cts)

24.1

26.0

-7.1%

-8.9%

Unit cost per ATK (€ cts)

15.7

17.4

-9.6%

-11.7%

Operating result (€m)

-50

-63

+13

+16

The Group continued to restructure its cargo activity to address the weak global trade and structural air cargo industry overcapacity. During First Quarter 2016, full-freighter capacity was reduced by 32%, while belly capacity increased by 0.7%, leading to a decrease in total capacity of 8.1%. Revenue per Available Ton Kilometer (ATK) was nevertheless down by 10.8% like-for-like, reflecting the industry overcapacity, especially on flows from Asia to Europe.

The operating result stood at -50 million euros, an improvement of 16 million euros like-for-like.

Within the framework of Perform 2020, 1 MD-11 freighter was retired during the First Quarter, down to 8 full-freighters in operation. The Group plans to operate only 5 full-freighters by the end of 2016.

Maintenance business

Maintenance

Q1 2016

Q1 2015

Change

Change

like-for-like

Total revenues (€m)

1,006

960

+4.8%

  

Third party revenues (€m)

431

380

+13.4%

+7.0%

Operating result (€m)

38

35

+3

+0

Operating margin (%)

3.8%

3.6%

+0.2 pt

-0.2 pt

First Quarter 2016 third party maintenance revenues amounted to 431 million euros, up 13.4% and by 7.0% like-for-like. Revenues benefited not only from the strong dollar, but also from the contracts gained in previous years. The operating margin remained stable as a result of change in business mix from mature contracts to new growth, OEM supply chain under pressure in the engine business and labor costs inflation due to the profit sharing scheme.

The operating result stood at 38 million euros, up 3 million euros year-on-year, and stable like-for-like.

Over the period, the Group recorded a further 4% increase in its order book to 8.7 billion dollars with new contracts for CFM engines and first A350 total support contract.

Transavia

Transavia

Q1 2016

Q1 2015

Change

Change

like-for-like

Passengers (thousands)

1,893

1,656

+14.3%

 

Capacity (ASK m)

3,718

3,430

+8.4%

 

Traffic (RPK m)

3,263

3,017

+8.2%

 

Load factor

87.7%

87.9%

-0.2 pt

 

Total passenger revenues (€m)

160

146

+9.6%

+9.5%

Scheduled passenger revenues (€m)*

153

141

+8.5%

+8.4%

Unit revenue per ASK (€ cts)

4.11

4.14

-0.7%

-0.7%

Unit revenue per RPK (€ cts)

4.68

4.71

-0.5%

-0.5%

Unit cost per ASK (€ cts)

5.81

6.14

-5.3%

-7.7%

Operating result (€m)

-63

-69

+6

+11

In the First Quarter 2016, Transavia capacity was up by 8.4%, reflecting the accelerated development in France (capacity up by 18.6%). Traffic rose by 8.2%. Unit revenue per ASK decreased by 0.7% and with increased capacity, total revenues increased to 160 million euros, up 9.6%.

Unit costs were down 5.3%. At constant currency and stage length, the unit costs decreased by 11.7%. The operating result improved by 6 million euros to reach -63 million euros.

Financial situation

In € million

Q1 2016

Q1 2015

Change

Cash flow before change in WCR and Voluntary Departure Plans, continued operations

+255

-135

+390

Cash out related to Voluntary Departure Plans

-39

-30

-09

Change in Working Capital Requirement (WCR)

+524

+464

+60

Operating cash flow

+740

+299

+441

Net investments before sale & lease-back

-544

-345

-199

Cash received through sale & lease-back transactions

+0

+0

+0

Net investments after sale & lease-back

-544

-345

-199

Operating free cash flow

+196

-46

+242

* Servair reclassified as discontinued operation.

In the First Quarter 2016, the increase of 292 million euros in EBITDA resulted in a cash flow before change in WCR and cash out related to Voluntary Departure Plans of 255 million euros. The Group disbursed 39 million euros for Voluntary Departure Plans. The change in Working Capital Requirement contributed 524 million euros to operating cash flow. Net investments before sale & lease-back transactions stood at 544 million euros. As a result, operating free cash flow improved by 242 million euros.

Net debt amounted to 4.16 billion euros at 31 March 2016, versus 4.31 billion euros at 31 December 2015. The trailing 12 months adjusted net debt / EBITDAR ratio stood at 3.0x at 31 March 2016, an improvement of 0.4 points compared to 31 December 2015, and 0.8 points compared to 31 March 2015.

The 35 basis points fall in discount rates (for period > 20 years) during First Quarter 2016 led to another significant increase in the actuarial valuation of retirement obligations of more than 1.3 billion euros. The change in asset value amounted to 325 million euros during the First Quarter. The balance sheet pension situation thus moved from a net liability of 177 million euros at 31 December 2015 to a net liability of 1,164 million euros at 31 March 2016.

At 31 March 2016, equity, group share, amounted to -510 million euros, down 783 million euros over the quarter due to the strong seasonality of results (net result of -155 million euros) and an increase of 753 million euros in after tax net pension liability. The change in fair value of the fuel hedging portfolio had a positive impact of 178 million euros over the quarter.

Outlook

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. As a consequence, the Group expects the forecasted savings on the fuel bill to be significantly offset in the coming quarters by unit revenue pressure and negative currency impacts.

Under these conditions, the Group is maintaining its expectations 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