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Conference is being recorded. At this time, I would like to turn the conference over to Ben Smith, CEO, and Stephen Zat, CFO. Please go ahead, Sirs.

Okay, thank you, Operator. Good morning, everyone, and thank you for joining us this morning for the presentation of Alphonse KLM's results for the second quarter of 2024. I'm joined today by Stephen Zat, our CFO. We'll be available to take your questions at the end of this presentation. And I'll start by sharing some of this quarter's key highlights, and then I'll turn it over to Stephen for a detailed presentation of our financial performance and the outlook for the quarters ahead. And lastly, I'll wrap it up at the end and then open it up for the Q&A. So let's start by looking at our financial performance for this quarter. We transported more passengers this quarter than the same period last year. Group revenue and capacity are both up 4%. and our low factor remains stable. Our operating result is down compared to the same quarter in 2023, in part due to sluggish performance, and KLM and Transavia were the ones who were a bit sluggish, and although both companies managed to stabilize their numbers, however, Air France activity was weak due to a variety of exceptional items, in particular, a significant exposure to the Olympic Games, which negatively affected June inbound and outbound traffic in Paris, as stated in our dedicated communication on the subject earlier this month. On the balance sheet side, our net debt to EBITDA ratio stood at 1.6 times, essentially because of the high level of net investments for this quarter. Overall, our cash position is solid and our financial leverage is tightly monitored. The ongoing renewal of our fleet is progressing steadily with the continuous delivery of new generation aircraft. Today, these aircraft represent 23% of the total fleet versus 18% in June of last year. We've also further tightened our cost control initiatives with one, a 20% reduction in discretionary spending for the second half of the year, two, an acceleration of our organizational transformation, and three, a hiring freeze for non-operational overhead staff, all this while preserving core strategic investments to renew our fleet. Moving to slide four, overall our commercial strategy is showing good momentum and we're seeing positive revenue trends across multiple key areas. Progress on our premiumization strategy is paying off. Premium revenue grew 7.4% compared to last year and its share of total revenue continues to rise, thereby improving the quality mix of our revenue. The premium leisure segment has been a significant contributor and has grown considerably since 2019. both in absolute and relative terms. We expect that this trend will continue to drive revenue in the future. Other key aspects of our commercial strategy are positively affecting revenue development, including an increase of 8% in total direct sales with a direct online channel outgrowing other channels by an impressive 10% compared to last year. A 5% growth in corporate revenue driven by a healthy yield and strong momentum across medium and long-haul activity alongside a decrease in short haul business travel that reflects our domestic flight reduction plan. And lastly, an 11% growth in ancillary revenues with an increased contribution per passenger for all product groups, including seating, upgrades, baggage, and others. Moving on now to slide five. One of the key pillars of our overall strategy is the continued strengthening of our business model, notably through strong partnerships. To that end, we have successfully signed a joint venture deal with Airbus to provide Airbus A350 component maintenance services worldwide. This partnership will offer a best-in-class platform for MRO activities for the next generation of aircraft and allow us to tap into other related opportunities such as repair services, spare parts, and cost-related synergies. Going forward, we will explore the potential scalability of this joint venture to include cooperation on Airbus A220 components. We expect to close this deal by the end of 2024 or early 2025. Our strategic 19.9% minority share investment in SAS, Scandinavian Airline Systems, is another great example of mutually beneficial partnerships with a local leader that allows us to play to our respective strengths. The deal is expected to close by the next quarter. In the meantime, SAS will join the SkyTeam Alliance as of September 1st, 2024, with the new code share and interline agreements going into effect on the same date. Thanks to these agreements, Alfons and KLM customers will gain access to 33 destinations in Northern Europe from SAS's hubs in Copenhagen and Stockholm. Moving out of slide six. During our investor day in December of last year, we explained Flying Blue's contribution to the group's results, showcasing its essential role in contributing to revenue growth and building strong relationships with our clients across airlines and beyond. In the second quarter of 2024, Flying Blue continued to deliver, generating 208 million euros in revenue, including from third-party airline and non-airline partners, as the program continues to expand beyond our airline business. As of the mid-year mark, our loyalty program has steadily attracted 9% more new active members compared to the same period last year, and now boasts over 12 million total active members. We've also observed a steady 16% growth of our members earning and burning miles within the program. As I've mentioned, Flying Blue continues to partner with a growing number of non-airline businesses. For instance, this quarter we welcomed Uber, and Revolut as new commercial partners, providing our clients with ever more possibilities to earn or convert miles while using their favorite services. I'll now turn it over to Steven, who will go into more detail about our performance for the second quarter. Steven.

Yeah, thanks, Ben. Good morning, ladies and gentlemen. I would lie if I would not say that the second quarter is disappointing. We had a lot of headwinds like the Olympics, the iCargo impact and the negative fuel price. But we have to keep in mind that it's still the third best quarter in our history. We are comparing it with a record result in 2023 of more than 700 million. In 2017, we made 588 million. And now we are at 530 million with all these headwinds against us. Of course, we have a higher ambition, but it's still much better than what we did in 2019 when we made just 423 million. So let's take a look at the figures. Let's go to page eight. If you look, as Ben already explained, the revenues are up 4% despite a negative impact of the Olympics. That brings, at the end of the day, we have an operating result which is minus 220 million. And the graph on the right is showing actually the root causes. Let's first go to the Pax unit revenue. So the Pax unit revenue, despite the Olympics of 40 million, is still slightly up with 32 million. The cargo unit revenue, we had the impact of the iCargo. We already explained that in the last quarter call. It moved also actually to the May period. We see it's not that the operations are still very much impacted. Of course, they were impacted, but it's also that we have some bookways that the total impact of 15 million on the results of Air France cargo, and that's more or less, let's say, the cargo unit revenue decline. And if you look at the April, May, and June, you see that the cargo revenues are picking up. We started with a minus 9.5% in April and in June, we are at plus 3.2%. So there are some green springs in this results, which giving trust in the future and the recovery in our operating results year over year. Then the fuel price, it is a little bit an outlier. We know that last year, the fuel price was very low in the second quarter. It moved up later during the year. Last year, we had a fuel price of close to 750 per metric ton, and now we are at 800 per metric ton. But we will see that we have a fuel benefit in the coming quarters if we compare year over year. And then the unit cost, we already guided you that it would be up 2%. We are slightly below that with 1.7%. It's coming in, it's coming actually from all the labor cost increases we have. We signed an NRO on Air France, which kicked in in April. and the CLA increases of KLM kicked in after September, so last year. So we have a year-over-year, let's say, deterioration mainly related to the labor cost increases. The good news is that the operations are stabilizing, so we see the customer compensation is really coming down. And in June, we were even, let's say, the winners in Europe amongst our legacy carriers with KLM at number one and Air France at number two as operational performance. So very strong operational performance, despite the very complex situation which we are all in, if you also looked at all the announcements of our competition. If we then go to page nine, you see that we have a capacity increase of close to 3%. Then we have a unit revenue which is slightly down. If you take out the Olympics impacted, it was 40 million, of which 35 million was in the passenger side at Air France. It would have been up 0.6%. Then the cargo, I already explained. So we are at minus 4.4. The iCargo impact was 3.1% on the unit revenues. So if you would take that out, we are more or less flattish year over year on our unit revenue on the cargoes. And then the positive surprise, we increased capacity by 12% and unit revenue went up by 4.5% for Transavia, which is very strong, much driven also by our EBIT improvement plan. So we introduced the paid hand luggage, which brought 3.2% out of this 4.5%. And there's more to come. It was more than 20 million in the second quarter. We expect more than 60 million this year. and we expect more than 100 million next year. And with that improvement of our unit revenues, you see also that year over year, our operating results are improving at Transavia. On the maintenance, we see that we are signing contracts, we are delivering the shop visits, et cetera, but we had, let's say, some one-offs, or let's say it's related still to the operational support, We outsource the maintenance at KLM. So we wanted to make people available on the line maintenance part. And also we have a lot of costs related to the loan. So all these airframe activities to support our operations, to be best in class of our operations, are paying off in our operational performance. But we had around 20 million of impact in the maintenance. And that is, you could also say you should have that in the network, but it is still registered here in the maintenance. But the maintenance external business is very dynamic with a growth of 23% year over year. If we then go to the comparison between Air France and KLM, let's start with KLM. KLM is quite stable. It was driven by an increase in the punctuality and we also reduced our disruption costs and we had a positive unit revenue development. So all in all, it brought that we are more or less stable at KLM, despite the fact that we carved out part of the flying blue results, because those are now at the group and they were last year they were in, uh, let's say in the airline results. So for the, of the 54 million, let's say 15 million, at least would have been in, uh, the KLM results. At Air France, uh, it was a tough quarter for Air France. Uh, I already explained, we had the iCargo, which cost us 50 million. We had the Olympics, which cost us 40 million. Then the flying blue is also another 40 million. And then with all the salary increases, uh, et cetera, our unit cost is increasing by 100 million this quarter. And we had a negative fuel impact of 40 million, and the remaining part is mainly related to the geopolitics. We still miss three routes on Africa, which hurts us, which is in terms of unit revenue around 50 million. So that explains the quarterly, let's say, divergence between Air France and KLM, and we expect that to pick up in the coming quarters. Then going to the world picture, so we see a flattish unit revenue despite, again, the impact of the Olympics. The premium is doing very strong. So we increased our capacity by more than 5%. We increased our load factor to 75%, and we increased also our yield. So the premium is doing well, both from the, let's say, the leisure premium and also the corporate traffic, as explained by Ben. We see now also that the corporate traffic is going faster than our increase in capacity. And where it hurts at this moment is especially in the back. So at the economy, you see that we have a yield pressure of minus 1.7% in the economy class. Looking at the long haul, you see North America, we increased significantly capacity with 6.2%. We could keep on more or less the yield, but it had a detrimental impact on the load factor. On South America, yields are coming down, but that is no surprise. We see that the South American carriers are coming out of Chapter 11, and that brings, of course, more capacity into this market. The Caribbean, very strong, but we cut capacity there with more than 6%. And Africa, despite the fact that we lost these three routes to the west of Africa, You see that by the reduction of capacity by 6%, we are still able to have a strong yield increase year over year, and even the load factor is strong at 85%. And then Asia, Asia is growing with 14%. We had a steep increase in China with 56%. It's good to see that we are still holding up the load factor over there, but that has an impact on the yields in that region. And last but not least, Transavia on the right again, 12% growth, a flattish load factor at the high level at 90%, and a 4.5% yield increase, mainly driven also by the ancillaries. The short and medium haul, let's say our European network, it's a little bit of a mixed impact. We grew at KLM more than at Air France. That has an impact on the average yield, and otherwise we would have been slightly up. If you then go then to page 12, you see that we were slightly negative in operating free cash. We still have a positive impact of the working capital. We had a high investment level, but the high investment level is on purpose. We try to get the planes in before the summer. And that results that we have a higher investment in the first half year than we will have the second half year. We will phase out the old planes after the summer. We had five new A350s at Air France, we had eight A320s and 21s at Transavia, and we had four A220s for Air France. If you then take out the exceptionals, I explained that already last time, we had a payment of more than 600 million to the pilots pension funds, and we still have to pay back to the states, the social charges and the wage tax at KLM. If you take that $850 million out and you include the payment of the lease and the net interest, you see that we are having a positive adjusted operating free cash flow. That brings the leverage to $6.2 billion, which is, let's say, the leverage at $1.6 billion, which is, let's say, in the guidance, which we gave between $1.5 billion and the $2 billion, and we still have a solid cash at hand. We took actions on the CAPEX, so we will guide you also that we are going to less than $3 billion to optimize the CAPEX in such a way to protect our adjusted operating free cash flow. Then let's go to the outlook. This is, of course, I know for all the investors who are listening, what is the $1 billion question? How will the summer look like? Now, you see that the booking load factor on the long haul and the short, medium haul and on Transavia is, let's say, deteriorating compared to last year, but that's mainly explained to the Olympics. The impact of the Olympics has really been done on a line-by-line item and also comparison with KLM, so we could exactly see on which route it was coming. But at the end of the day, we, of course, don't know all the customers which didn't come. But it gives the trend, the differential between Air France and KLM in this quarter. If you look at it, we have an impact of the Olympic of 200 million, 40 million is in Q2, 160 million is in the third quarter and 125 million is on the passenger business of Air France. That is a vast impact of around 2%. If we would not have this impact, We should be slightly positive on Air France KLM level in the third quarter RASC. If you look at Transavia, the impact is in the third quarter, 35 million. There was 5 million in Q2. In Q3, it will be 35 million. That is a RASC impact of around 4%. And we still expect that Transavia, because the RASC is very strong at the moment, will be positive in the third quarter. And what is good to see is that if you look at the post-Olympic Games, so if you look at Q4, you see that our booking load factor is exactly in line as what it was last year. So in that view, we see really that Q3 is an outlier coming from the Olympics in Paris. Let's then move to page 15, looking at the unit cost. So we announced already last time that we take measures and we have stopped hiring people at the corporate. So the SENA, we have a total hiring fees, which will lead to job reductions. We continue with new fleet delivery, which will also support our unit cost. We cut our marketing cost further, and we took an action to cut 20% of our discretionary cost in the second half year. What are these costs? Those are duty travel, those are legal, those are consultancy, those are IT supplies, all the costs which we can cut without hurting our operations. And we have a strong control on that. We discuss that every two to three weeks in our JEC, and we are all focusing on to make sure that at the end of the day, we deliver on the unit cost, as we did in the second quarter, because we are still lower than what we had forecasted for this quarter. We expect 2% in Q3, which is still related to the salary increases, partly at Air France because what we gave in the annual per April and also on KLM because the salary increase of KLM started at the end of September. So that still, if you compare quarter over quarter, there is an impact. You see that on Q4, we expect to be zero-ish in terms of unit costs. We will not have the customer compensation of last year. And at the same time, all the increase of labor costs are already in our cost levels of the fourth quarter last year. Then on the hedge or on the fuel bills, better to say. So we had a headwind in the second quarter. We will have a tailwind in the third and the fourth quarter. In the third quarter, we expect around 80 million positive impact coming from the fuel price. And in Q4, we expect even more than 200 million. so uh and and with that it's good to know that we already hedged the 70 for the full year and we have already had 34 of next year so well protected for that and we see that the fuel price actually in the last weeks is coming down let's go then to page 17 so the group capacity we guide now at four percent we are really really aiming to stabilize the operation so we took some capacity out So, previously, we were at 5%. We are now aiming at 4% to stabilize the operations even further. And on the unit cost, we are, let's say, at the high range of the 1% to 2%. So, we guide now 2% because we reduced our capacity. And usually, 1% capacity is 0.3% in terms of unit cost. And in net capex, we will optimize that further to make sure that we are below the 3 billion for the full year. Then we come to page 18, and I think this is a very important page. Let's first start. I think we really have some headwinds this year. We had a tight labor market in the Netherlands. It was difficult to have all the maintenance people on board. We had issues. We have issues on the supply chain. We are partly solving it, but it's not completely solved, and it takes some time to solve that. But in the coming years, that needs to be solved. That led to higher customer compensation, that led also to lower capacity, which also has a negative impact on our productivity. And it also led to fewer inefficiencies because you are going to speed faster to make up in your operation. In total, that is at least 300 million, which we have currently in our results and mainly is coming actually from the last two months. Then we have the Olympics, 200 million. The Olympics, you do it once in the 100 years. So we don't expect that this comes soon in the years to come. And then we had the unfortunate high cargo impact of 35 million. So in total, there is 500 million, which will catch up in 25, if you compare that to 2024. And we continue with all our initiatives. We continue to recruit pilots and make sure that we have sufficient maintenance stuff, which is now The maintenance staff is getting under control. We will further increase our fleet utilization and our punctuality. And we stand by our 2 billion structural improvement plan to 2028 versus 2023. The fleet renewal is going on. That's 5%. The productivity will come when we have all the operations back on track and especially fly more also on the long haul. The revenue initiatives, we have seen the loyalty. It was growing with 10%. The ancillaries grew, as Ben explained, by 11%, and we expect even a further growth in the third and the fourth quarter. And the paid hand luggage, as an example, we spoke about increasing our ancillaries on Transavia. 60 million it will bring this year, and it will bring more than 100 million in the years to come. With that, I hand over for Ben for the conclusive slides.

Okay. Um, all right. Thanks. Uh, thanks Steven. Um, so as, as we said quite a few times already, uh, in a global reach and extraordinary scale of hosting the Olympic and Paralympic games in Paris, I mean, definitely an honor shared nationwide. And of course, uh, with Air France and the greater group Air France KLM. So Air France is, uh, a proud official sponsor or official partner of the games. Definitely an event of this magnitude in the middle of the peak summer travel season has led to these short-term consequences on our financial results. As we communicated earlier this month, we expect a negative effect on group traffic and revenue during the June to August period. As we said, we broke that down into three phases with slightly different outcomes, so ahead of the games as of June. We've observed a drop in inbound and outbound traffic as local international tourists chose to temporarily avoid Paris. That's not just happening in the airline sector. We're continuing to see that in July. During the Games, we foresee mainly outbound traffic to remain significantly impacted as French travel demand continues to trend below last year's. And during the Paralympic Games later in August, And onwards, we expect to see improvement with better trends and progressive normalization of all of our flows. So to protect our revenue, we've already put in place mitigation measures by stimulating yields and volumes through pricing and marketing initiatives. And despite the short-term impact of the Olympics, we remain very proud of this once-in-a-lifetime partnership. We're convinced that the event will be a unique and special moment that will leave a lasting positive impression of France and, obviously, by extension, Let's now move to slide 21. So 2024 was very important for the group. We celebrated our 20th anniversary as a combined airline group. As a global company and a leading employer, the group is proud of its significant socioeconomic impact, including an estimated positive contribution of 1.9% and 2.3% GDP to the respective economies of France, and the netherlands the group's combined impact in both economies is estimated at over 70 billion euros with almost 49 billion euros in france and 22 billion euros in the netherlands our group is also a proud contributor to local employment directly and indirectly supporting 820 000 skilled jobs in both countries i'd like to recognize all our employees and stakeholders for their efforts and hard work that contribute to our group's success AFRAN's KLM's unique footprint reaching outward from our home countries is critical when it comes to spreading our global image worldwide. Together, I look forward to writing the next chapter in our group's future legacy. Moving on to the final slide, I'd like to briefly summarize some of the key aspects from the past six months and look at the road ahead. The group stands committed to deploying its strategic roadmap that we first introduced at the end of 2019. All in all, our business model is robust and resilient, leveraging our unique assets and strong competitive positioning. We are confident in our mid-term and long-term objectives, and we firmly believe that we can deliver on them as promised. Our transformation program is on track. We remain focused on addressing challenging external factors, many of which are unique to France. On the sustainability front, we will continue to make progress on the delivery of new generation aircraft, Each quarter brings us closer to achieving our overall fleet renewal targets, a key pillar of our decarbonization strategy. This is in addition to our efforts to accelerate sustainable aviation fuel production, a subject we firmly believe should be a cross-industry and global priority. Finally, the continued development of key partnerships supports our business model and provides our customers with access to a broader range of high-quality services, as highlighted by the examples of the Airbus joint venture, and our strategic investment in SAS. We expect to close both these deals, as I said, later this year. Thank you for your time and attention. We're now available to answer any of your questions.

Thank you, sir. If you would like to ask a question, please press star 1 on your telephone keypad. If you change your mind and want to withdraw your question, it's star 2. Please ensure your lines are unmuted locally, as you'll be prompted when to ask your question. The first question comes from a line of Alex Irvine from Bernstein. Please go ahead.

Hi, good morning, gentlemen. Thanks for taking the questions. Two from me, please. First of all, on slide four, your sales mix. You call out premium, direct, corporate, and ancillary is up between 5% and 11%, but total passenger revenue only up 3.8%. Implication, there's a big mix shift within leisure from indirect to direct channels. Have you made material changes to your distribution strategy to drive this? And if so, how do you think about revenue and cost opportunity? Second question is on SAS. You mentioned SkyTeam, you mentioned CodeShare, you mentioned Interline. What does the past look like to them joining your Atlantic joint venture? And do you expect resistance from regulators here?

Thank you.

Hi, Alex. Good morning. Thanks for your questions.

I'll start with the second one. So SAS, we're anticipating obviously a challenging time. It will be a challenge to get it through the antitrust immunity process in the United States under the current administration. Obviously, as you know, things potentially could change in the coming months. But when you look at the two groups that we compete against across the Atlantic, this on its whole appears what we believe would be the easiest airline to integrate and justify a benefit to consumers out of Scandinavia. So overall, of all the potential airlines that could be requested to join one of the three alliances, this one seems to be the most straightforward. It'll definitely, in terms of effort, depend on which administration is in place in the United States. And on the first question, in terms of distribution strategies, nothing has changed. It's our sales teams which are pushing all of our corporate customers and our marketing teams our direct customers the same way they have been in the past, and the results continue to come through. So no unique change in the last quarter. Thanks.

The next question comes from a line of . Please go ahead.

Yes, good morning. Thank you for taking my questions. Three, please. First, could you please talk about the performance of KLM during the Olympic Games? Are they benefiting from a shift of transit traffic from Paris to Amsterdam? Second, some European airlines announced that they expect to receive only 40 to 50 percent of the scheduled airplanes next year. Could you please give us an update on your discussions with Airbus and the airplanes you expect to receive this and next year? I know that you revised down the CAPEX guidance for this year. And third, we are now a few months from the SAF quota of 2% in Europe. You probably have more experience with SAF than most of the other airlines since there is a SAF quota in France. Do you expect SAF volumes to be available for you to meet a 2% quota next year? And if not, what could be consequences? Thank you very much.

Hi, we were just dividing your questions. So first on, is there a shift to KLM? No, not really. What we see more is that we are first, there's an impact on the bookings, but we also are having more connecting traffic at Air France. So we fill it up actually by connecting traffic instead of moving the passengers to KLM, because there's already a big demand over there. And we are talking about peak summer demand. And we compare always year over year, but there's still the yields and still the demand is still very strong in this period. If we talk about sustainable aviation fuel, what we are seeing actually in the market is that the prices are slightly coming down, so to our surprise, because the mandate is getting there. As you say, indeed, we have a lot of experience. I think we are the most experienced airline in the world on this topic, and we are very well positioned and taking advantage also of the lowering prices currently in the market. The question for Elvis is for Ben.

In terms of... aircraft deliveries, we have five remaining 787-10s to be delivered from an original order at KLM. As of today, the information we have is there are some slight delays by a couple of months on those five. So some of the CAPEX that was scheduled for next year may slip into the year after. No major delays as far as today. And the Airbus A350s, A350s, 20 NEOs and A220s. Same thing here. The information we have from Airbus, no significant major delays a few months here and there. So some of the CapEx that was planned for next year will shift because of that into 2026. Some of the CapEx for the latter half of this year may actually shift into 2025. Super.

Thank you very much.

The next question comes from a line of Satish Sivakumar from Citi. Please go ahead.

Hello, thanks again for taking my questions. I've got two questions here. First, can you just update on the Paris or Libya organization with regards to Trans-Arabia and Air France, where we are on the timeline? And then the second one is around the cost. You pointed out to 2% increase year-on-year XUL, how much of it is actually driven by a function of lower capacity that you could guide today to focus in? And then does this include the measures that you announced today as part of non-operational staff and operational expenses cutting down into the marketing?

Thank you. Yes, Satish, I didn't quite understand the last question. If you could repeat, please.

Sorry, on the Paris only, can you update on the reorganization, like where we are on the reorganization?

Well, that question we got, but your last question, that one we didn't hear. It didn't come through clearly.

Okay. Okay.

So, we can't hear you anymore, but I'll just start with your first question. on our transformation efforts at Paris Orly Airport. Of course, this is an extremely complex transformation that we've got going on, multi-years. It is going as planned. The base of this transformation is to address decades of losses, in particular out of Paris Orly and the rest of the French domestic market. As we've said many times, the assets that we have that we're trying to deploy as quickly as we can to rectify the losses of Orly are the expansion, the use of our low-cost carrier, Transavia, as well as putting in place some of the benefits and services that Flying Blue Elite benefits offer, now being made available to Transavia customers, and leveraging the portfolio of slots that the group offers has at Orly, which make up 50% of the slots to a more diverse route network that removes our exposure or lessens our exposure in the domestic market to other destinations within Europe, North Africa, and the Middle East, while simultaneously bringing in new aircraft, A320, neo-family aircraft to replace older 737 NGs. We've also got Air France staff, which need to be transferred to CDG or need to be offered voluntary departure packages. That is a complex operation. We've also got local communities, some of the Air France destinations that will be transferred to Transavia that need to well understand the impact on those destinations, which from our perspective are minimal. All this within a very, very, I'd say, media focus that is obviously quite challenging. We're sticking to our plan. We have, I would say, what we did not expect is a fast drop in demand on some of our key French domestic markets. As an example, Paris to Marseille, down 50% to 60%. That was not in the original plan. But other than that, going forward, we expect Air France to be out of Orly in 2026, with the exception of flights to Corsica, where we currently have in place a subsidy by the French state to maintain links. And that goes through to 2028. And we will look to see whether that makes sense to go forward after that time. So Paris-Orly going as planned. The point here, the goal, obviously, is to make this airport into a profitable asset and key strategic asset for the group with our low-cost operator, Transavia. And that, if you look at the slot portfolio within Orly, the bulk of the other airlines are all low-cost. So to compete against those low-cost carriers with a full-service cost structure without France was obviously not the right strategy and was not sustainable.

Yes, and then on the cost level, so yes, let's say that we are going to 2% is coming fully from the capacity. We see costs are coming down, actually. We see that the unit cost in the second quarter was below our guidance. As I already stated, we are cutting significantly in our discretionary cost. That is a total level of 600 million for a full year. We are reducing that by 20% for the half year to come, which brings at the end a 10% reduction in those costs. And the hiring fees, as I think already explained last quarter, that will take time, but there are people leaving. They are not replaced, so that will reduce our overhead at the end of the day, but it takes time that it really pays off. But we also see there already that we are getting lower in our FTEs month over month.

Okay. Yeah. Thanks, Steven. Thanks, Ben.

The next question comes from a line of James Hollins from BNP. Please go ahead.

Thanks very much. Just to clarify, Stephen, I think you said Q3 RAS, the network airlines, would be positive without the Olympics, but actually will be down 2%. Maybe just let me know where I'm getting that wrong or right. And then probably, Ben, I'd just like to dig a bit more into the Olympics. I mean, I suppose what I'm saying is how much of this really is a huge surprise um and and perhaps also i mean easyjet have said it's net neutral transavia is trading well although i think you flag transavia will suffer during the olympics um and maybe i suppose if only just let me know how much is sort of long haul v short haul within that 200 million and maybe on long haul if if really we're just seeing transatlantic a bit soft because there's too much capacity. So I know that's a pretty open question, but we'd love to hear more of your thoughts. Thank you.

Hi James.

Let's start for the yield. So I don't completely guide before we get any new trends in the market. But what I will say is we know that the impact of the Olympics is 2% on the RASC, on the passenger network of Air France KLM. If we would not have that 2%, we should be slightly positive. But we have to see what is coming in, of course, in the coming years. The biggest impact of the Olympics is especially in July. So there we see the big impact, both at Transavia and at Air France. But if you would take it out, we should be able to reach more or less the same unit revenue increase as we have seen in Q1. So very modest. But let's see, because we are still in the quarter, although we already sold 75% on the long haul and 65% on the short and medium haul. On the Olympics, we don't have the exact split between long haul and short and medium haul. We see that both, if you look at the booking load factor gaps between KLM and Air France, it is at both sides. It is in Europe and it is in, let's say, the intercontinental. So you could say it is more or less spread over Air France at both networks. But of course, the revenue size of our intercontinental is much higher than our European size. And we gave you the split, I think, between Transavia and Air France. So out of the 200 million, 160 million is related for Air France network and 40 million is for Transavia. I hope that gives some quality.

Yeah, not useful. Thank you.

Before proceeding to the next question, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. The next question comes from one of Harry Gowers from JP Morgan. Please go ahead.

Yeah, good morning, everyone. Just one question, if I can. It's quite a broad one, to be honest. The Olympics impact has obviously been well flagged by now, but I guess given some of the commentary from some of the other airlines, European or US, I mean, do you think there is an incremental softening in terms of underlying demand for air travel out there right now, whether that's short haul or long haul? Or maybe it's just looking at the slides with your economy yields in Q2. Is economy maybe the back of the cabin, the place where you're seeing a bit of pressure? Thanks a lot.

Hi, Harry. If you go to page 40, you see actually that for the fourth quarter, we don't see any softening on the long haul and the short meme haul, if you compare it to the booking load factor of last year, despite the fact that we have more capacity. So we don't see those trends. We see a little bit the same trends as we have seen let's say in the second quarter. So we see that South America is more difficult due to the fact that there's more capacity coming in from South American carriers. We know that we are growing significantly to Asia, which has an impact on our yields. But the long haul, the short and medium haul is more or less in the same direction. It's true that the yield impact is especially in the back of the cabin and not on the premium side. But we don't see any incremental softening compared to what we see in Q2. Except that we haven't paid as impact, which is significant.

Yeah, thanks a lot. The next question comes from a line of Stephen Furlong from David. Please go ahead.

Hi guys. Just stepping back and just thinking about your business plan to 2028. Maybe I'm thinking of slide 18. I guess would you say maybe Ben you're 20% through that? or a lot of the heavy lifting has been done, but there doesn't seem to be material aircraft delivery delays. And then it just seems to me as well, just the overall supply chain being challenged is probably supportive overall of the aviation revenue environment. Just want to get your thought process on that. Thank you.

I think you're about right there in terms of how far along we are in our mid-term to long-term strategy in setting up the group on the right foundation. So if you go back to 2018, when I arrived, we had a very well-running best-in-class, best-in-legacy class performance by KLM, and we had quite a few challenges at Air France that... needed figuring out what the best way forward was. So a lot of work went into trying to address and figure out the best assets that could be leveraged at Air France and how to address the poor performing parts of the business in one way, shape or another. So as you can imagine, when you go through a major transformation of that magnitude here in France, not easy. And then, of course, we had COVID So we made some very difficult decisions on the fleet side. As you know, we were the first airline to decide to early remove our Airbus A380s. We made some network adjustments. We've made some very big investments in products. We've changed the mix in the premium side of the cabins on board the airplanes. And we have been working on changing the mix in traffic flows for local and O&D. So all of this is still ongoing, and then we had to make major, major agreements with several unions to ensure that Transavia could grow and that it could fly in the domestic market and it could do what we wanted it to do. Transavia was already set up within Air France, so that was a good positive. At KLM, coming out of COVID, we've taken a big hit on the cost side. However, the general base model is good. It is solid. We will get back to where we were before. We're having, like many other airlines, operational challenges, in some part because of lack of staff and many other reasons, but we're still confident on the KLM model. And on Air France, things are moving along. If we can continue on this pace, The base model, we're very happy with the strategy. No plans to change other than manage unexpected hiccups, but we're pleased with the strategy. So as the new airplanes come in, as we align the cabins inside for the right mix to get the right revenue base and we keep costs in line, confident we can reach the 7% or 8% that we've been aiming for in the midterm. Great. Thank you.

As a final reminder, if you would like to ask a question, please press star one. The next question comes from the line of Andrew Lobenberg from Barclays. Please go ahead.

Oh, hi there. Can I ask on your expected 500 million advantage in 2025 on 2024? First of all, on the 300 million impact of staff shortages and supply chain problems, how can you have the confidence that you will get close to recovering that in 2025, given that labor shortages are complicated and supply chain problems are also complicated? So just questioning whether you can expect to get that 300 million in 2025 or whether it's not going to be a multiple year process. And then on the Olympics, Actually asking the other way around, you guys are citing a 200 million impact from the Olympics. But if I look at Delta, I think they were identifying a 100 million US hit from the Olympics just on their operation. And surely Air France has more than double the revenue commitment to Paris. Therefore, I'm slightly asking why, given Delta's 100 million impact, are you not looking for a larger impact on the Olympics? And then just as a third question, I'd ask, what's the latest on the GTS-powered aircraft? The A220 is operating more stably now. The E2 is working for KLM. Thank you so much.

Hi, Andrew.

We are distributing the question. So let's start with the operation on the 300 million. I think if you saw the first quarter of the operations of KLM, we are far away from that. So I agree with you that the spare part situation is not solved, but I suppose it will be solved in 2028. At the end of the day, we just have to come back to where we were in 2019. We don't need any artificial intelligence or anything else. You just have to have that rigor back in place. So a big chunk of the, let's say, the operational performance, there will still be slightly an impact. But therefore, I say it's also more than the 300 million. If we talk internally, we talk really about a much bigger number. So we allocate that for the 2025 performance. If you look at the delta number, I cannot comment on that one, let's say. I don't know how they get to the 100 million. Our 200 million has been very detailed designed, and we looked really at the round level and comparing also what KLM is doing versus what Air France is doing. But I don't know. It was not our number we gave to Delta, so you should ask the IR team of Delta. And the third question I give to Ben.

Yeah, on the GTF challenges that we've got, both on the Airbus A220s, and on the Embraer 195E2. Obviously, we've got the same issues that all carriers that operate with this engine. We're lucky that we've got at Air France, we have owned A320s and own A319s and 318s that were scheduled to leave and be replaced by the A220s. And at KLM, we have 737s, 700s, and a few Embraer regional airplanes. Same thing there. So from a capacity perspective, we're able to manage. Obviously, from a cost perspective, this is costing more than what we had in the budget. I don't know why there are so many airplanes on the ground by some of our other competitors. We've got approximately five to six airplanes grounded at Air France, five to six A220s, and we're about four at KLM. easily managed. A bit of a challenge on making sure that we have pilots trained for the aircraft that we're using to replace those. But we'll have to manage that going forward. And based on the number of spares that are available, we'll see how many aircraft we'll have to keep grounded. But that's where we stand today and what we see for similar numbers through the rest of the year.

And when do you think these 220s and E2s get sorted, Ben?

Well, what we're hearing, I think there's not only the core issue that's a challenge, which I think is going to take out to, from what we know, 2027. Some of the other smaller items, fuel leaks and things like that, what we're hearing and what we're getting from Pratt & Whitney is they should all be resolved by next year. So it's really the prime issue with the residue, the corrosion, and the time off wing. That we think it's going to be 2027, and we're planning accordingly for that and just hope that it's sooner.

Okay. Thanks so much.

The next question comes from a line of Johannes Brown from Stiffon. Please go ahead.

Yes, hi, good morning. Thanks for taking my questions. First one, I was wondering if you could give us the yield development during Q2 per month. I think April was plus 2%, more or less. But could you give us also May and June? I was trying to get a better feeling of how the Olympic impact came in during the quarter. And then how does July look in terms of yields right now? I think you said two percentage point impact from Olympics, but What is the yield overall in July? And then secondly, cargo, good to see that unit revenues have been up in June, year over year. Is this trend continuing also in Q3?

Yes, Johannes, I can answer all your questions. That is at least good news. So let's first go to the yield at the second quarter. Give me one second to get to the numbers. I have written down the unit revenue. So if you look at passenger, at the group, sorry, if you look at the group, at April, it was up plus 2.8%, in May it was plus 1%, and in June it was minus 3.1%. So definitely you see here the big impact coming from the Olympics. If you look at July, and we know that the big impact in July is actually in the first three weeks because we missed the international traffic. I know you don't live in Paris, but if you walk around in Paris in these weeks, it was really, really quiet. You see now the international tourists are coming, but if you look at the first two weeks, Let's say KLM had a RASC of plus 1%. That's NTR, so we always have the ancillaries, et cetera, coming in. And this is at passenger network with a load factor up 0.4% and a yield up 0.5%. And Air France at a RASC of minus 10% with a load factor of minus 2.4% and a yield of minus 8%. So this definitely shows actually the impact of the olympics and again it is especially in this period where we see this big impact kicking in on the cargo yeah that's you know it's always difficult to tell what the cargo will do because we have uh it takes two weeks before you get your bookings in but of course it's a good sign that we see that we have a positive unit revenue uh year over year so we expect that we are trending more or less in the kind of same range but it's difficult to tell because we are just at the beginning of the quarter, and it's always a little bit quiet quarter. For us, it's important to see how Q4 will be. For sure, we expect there a positive impact on the cargo side. Q3 is weak always because it's summer. Everybody is at the beach.

Yes, thanks, Steven. There are no further questions, so I hand back to you, host. Gentlemen, the floor is now yours for conclusion.

Okay, well, thanks to all that joined the call this morning and for your questions, and we look forward to talking with you at the end of our next quarter. Have a great day.

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