Amstelveen – Thursday, 20 November 2008

GOOD PERFORMANCE IN Q2 IN A MORE DIFFICULT ENVIRONMENT

• Revenues of 6.69 billion euros, up 3.2%
• Operating income of 405 million euros despite 35% rise in fuel bill
• Net income of 244 million euros restated for non-recurrent and non-cash items

RESULTS FOR THE FIRST HALF COMFORTABLY POSITIVE

• Revenues up 4.4% to 12.98 billion euros
• Operating income of 639 million euros
• Net income of 385 million euros restated for non-recurrent and non-cash items
• Free cash flow of 173 million euros

OBJECTIVE FOR FY 2008-09 OF OPERATING INCOME CLEARLY IN PROFIT

The board of directors of Air France-KLM convened on 19th November 2008 under the chairmanship of Jean-Cyril Spinetta to examine the accounts for the first half of Financial Year 2008-09. Mr Spinetta made the following comments on the results:
"Activity in the first half held up well in a more difficult operating environment, marked by the first signs of  economic slowdown and  a  further  sharp  rise  in  oil  prices.  Traffic was positive  and  unit  revenues resilient. We recorded revenue growth of over 4% despite the appreciation of the euro relative to other currencies. The rise in oil prices was partly offset by our hedging measures, but nevertheless added almost  700  million  euros  to  our  fuel  bill  which  amounted  to  some  3  billion  euros.  In  spite  of  these headwinds, the group generated operating income of 639 million euros in the first half and 405 million euros  in  the  second  quarter,  the  highest  among  our  European  peers  both  in  terms  of  results  and margins.”  He  concluded:  "The  deterioration  in  the  economy  has  accelerated  since  the  summer. Nevertheless,  our  flexibility  has  allowed  us  to  respond  rapidly  to  adjust  capacity,  enabling  us  to
continue to maintain high load factors. Moreover, the generation of an additional 260 million euros in savings this year will help us stabilize our costs and protect our profitability. The group is committed to making the most of its competitive advantages, and I am confident we will emerge stronger from the current crisis."

 

Good Second Quarter in a more difficult operating environment

Activity in the second quarter was affected by the economic slowdown, the rise in the oil price and the weakness of the US dollar. The passenger business held up well, with traffic up 1.7% and capacity by 3.6% (1.8% and 3.8% respectively after consolidating VLM). The load factor remained high at 83.0%, down 1.6 points.  Unit revenue excluding currency impact remained resilient. Cargo saw a slowdown during the summer, offset by a further rise in unit revenue. The very sharp rise in the oil price weighed on  profitability  for  the  quarter.  Nevertheless,  all  the  businesses  contributed  positively  to  operating income.
Revenues  rose  3.2%  to  6.69  billion  euros  after  a  negative  currency  effect  of  3.9%,  for  production measured in equivalent available seat kilometers (EASK) up 4.1%. Unit revenue measured in EASK was slightly down (-0.5%) but rose 3.6% on a constant currency basis. Operating costs were up 9.2%. Excluding the fuel charge, the rise would have been 2.3%. Unit cost measured in EASK was up 6.1%, but was  stable (+0.1%) on a constant currency and fuel price basis. In the context of the reinforced ‘Challenge 10’ cost-savings plan, the group realized 163 million euros in savings during the quarter. The main  change  in  operating  costs  related  to  the fuel  bill,  which was  up  422  million  euros  to  1.61 billion euros against 1.19 billion euros at 30th September 2007, a rise of 35.3% under the combined effect  of  a  1.0%  rise  in  volumes,  a  46.0%  increase  in  fuel  prices  after  hedging,  and  a  favorable currency effect of 12.0%.
Operating income amounted to 405 million euros (versus 725 million euros at 30th September 2007). The adjusted operating margin1 was 6.8% (12.0% a year earlier).  
Net  interest  charges  continued  to  fall,  at  10  million  euros  (-37.5%)  reflecting  the  strong  financial position of the group. ‘Other financial income and charges’ recorded a charge of 438 million euros of which  373  million  euros  relating  to  the  change  in  the  value  of  hedging  instruments  (‘time’  value), versus income of 11 million euros at 30th September 2007. After a tax credit of 57 million euros and income from  associates  of  9  million  euros,  net  income  stood  at  28  million  euros  versus  736  million euros  the  previous  year,  which  had  included proceeds  of  212  million  euros  in  respect  of Amadeus. Restated for non-recurrent and non-cash items, net income stood at 244 million euros, down 49.1%.

First Half 2008-09: operating income of 639 million euros

After a negative currency impact of 3.9%, revenues rose 4.4% in the first half to 12.98 billion euros for production measured in EASK (equivalent available seat kilometer) up 5.1%. Unit revenue measured in  EASK  was  slightly  down  (-0.3%),  but  progressed  3.7%  on  a  constant  currency  basis.  Operating costs, impacted by the oil price, were up 9.3% to 12.34 billion euros. Excluding fuel they rose 4.0%. Unit cost per EASK was up 5.1%, but by only 0.5% on a constant fuel and currency basis, thanks to realized savings of 277 million euros in the context of the ‘Challenge 10’ cost-savings program. The main operating costs evolved in line with the activity, with the exception of fuel and commercial and distribution costs. The fuel bill rose by 687 million euros, or 30.1%, to 2.97 billion euros under the combined effect of a 2.0% rise in volumes, a rise in fuel price after hedging of 41.0% and a favorable currency  effect  of  13.0%.  Commercial  and  distribution  costs  declined  10.1%  thanks  to  the  further reduction in commissions and a cut in advertising spend. Operating income amounted to 639 million euros, down 43.9% (1.14 billion euros at 30th September 2007). The adjusted operating margin1 was 5.7% (10.0% at 30th September 2007). Income from operating activities stood at 662 million euros compared with 1.48 billion euros at 30th September 2007, after 284 million euros in additional gains in respect of Amadeus and on the disposal of  shares.  Pretax  income  of  fully  consolidated  companies  was  214  million  euros  after  a  non-cash accounting charge relating to the valuation of hedging instruments (‘time’ value) of 361 million euros. Net income, group share stood at 196 million euros versus 1.15 billion euros at 30th September 2007.

 

Restated for non-recurrent and non-cash items, net income amounted to 385 million euros, a decline of 47.8%, in line with that of operating income. Earnings  per  share  amounted  to  0.66  euros,  and  diluted  earnings  per  share  to  0.63  euros  at  30th September 2008, against 4.13 euros and 3.73 euros respectively at 30th September 2007.

Financial position: free cash flow of 173 million euros

Tangible  and  intangible investments  of  the  Air France-KLM group amounted to  1.12  billion  euros  at 30th September 2008 compared with 1.28 billion euros a year earlier. They were funded by operating cash flow of 1.17 billion euros and proceeds from aircraft disposals of 123 million euros, leading to free cash flow of 173 million euros. The group’s financial position continues to be healthy, with cash of 4.4 billion  euros  and  available  credit lines  of  2  billion  euros,  of  which  the  group  drew  down 500  million euros at the beginning of October, benefiting from favorable financing terms. Shareholders’  equity  amounted  to  11.1  billion  euros,  of  which  2.27  billion  euros  relating  to  the  fair value of hedging instruments, a rise of 453 million euros relative to 31st March 2008. Net debt stood at 2.74  billion  euros  (versus  2.69  billion  euros  at  31st  March  2008).  As  a  result,  the  gearing  ratio1 remained  stable  in  comparison  with  31st  March  2008  at  0.25,  and  0.31  excluding  the  valuation  of hedging instruments. 

Outlook for Full Year 2008-09

The  operating  environment  continues  to  be  affected  by  deteriorating  economic  conditions  and significant volatility in the oil price and the euro/dollar exchange rate. The group has therefore taken a number of decisions, notably to curtail capacity growth for winter 2008, to reinforce the current cost-savings  plan  by  a  further  260  million  euros,  and  to  reduce  the  scope  of  the  investment  program. Assuming there is no further significant deterioration in the operating environment, our objective is of an operating income clearly in profit for Full Year 2008-09. 

 

 

Maintenance business

The maintenance business was affected by the decline in the dollar. Revenues dropped 1.7% in the second quarter to 229 million euros and by 1.9% to 467 million euros in the first half. Excluding the currency impact revenues would have risen 6.7% in the first half. Operating income amounted to 22 million euros in the second quarter (versus 35 million euros a year earlier) and to 37 million euros for the  first  half,  against  48  million  euros  at  30th  September  2007.  On  a  constant  currency  basis, operating income for the first half would have risen by 12.5%.
Other activities Revenues from other activities rose by 17.1% in the second quarter to 426 million euros. The leisure business recorded revenues of 312 million euros (+22.0%) while the catering business saw a rise of 6.1% to 94 million euros. Operating income of other activities rose by 11.0% to 60 million euros. For the  first  half,  revenues  rose  24.2%  to  763  million  euros,  of  which  546  million  euros  for  the  leisure business (+26.1%) and 181 million euros for catering (+24.0%). Operating income rose from 77 million euros at 30th September 2007 to 83 million euros at 30 September 2008.

Agenda

The Press Conference will be broadcast live today at 8:30 am CET on the Air France website: http://corporate.airfrance.com, with:

• Jean-Cyril Spinetta, Chaiman and CEO of Air France KLM
• Pierre-Henri Gourgeon, Deputy CEO of Air France KLM
• Philippe Calavia, Executive Vice President and CFO of Air France KLM
• Peter Hartman, President & CEO of KLM

FLEET AS OF 30 SEPTEMBER 2008