Air France-Klm Ads

Good morning, and welcome to the Air France KLM Group's Q2 and half-year 2025 results presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Benjamin Smith, CEO, and Steven Zach, CFO of Air France KLM. Please go ahead, sirs.

Okay. Thank you, operator. Good morning, everyone, and thank you for joining us today. for the presentation of Air France-KLM's results for the second quarter of 2025. Today, I'm joined by Stephen Zad, Group CFO, Anne Legay, Air France CEO, and Marianne Rintel, KLM CEO. As usual, I'll begin by covering the key highlights of the quarter before handing over to Stephen, who will walk you through the financial results in more detail. I'll then close with an overview of our medium-term ambitions and conclude with remarks before opening the floor to questions. Okay, moving to slide three, Alphonse KLM delivered strong results in the second quarter of 2025 with revenue up 6.2%, and we reported an operating income of 736 million euros, which is an increase of 223 million euros year over year. The operating margin stood at 8.7%, reflecting the continued impact of our strategic choices and disciplined execution. We also made further progress in strengthening our financial profile. Adjusted operating free cash flow reached $0.7 billion for the first half of 2025, and our leverage ratio decreased to 1.5 times, now fully within our target range. At the same time, we continue to invest in fleet renewal. New generation aircraft now represent 30% of the group's fleet. These results underscore the strength of our execution, our financial discipline, and the resilience of our business model, even as we continue to navigate a complex environment marked by geopolitical tensions, rising taxes, and airport charges, as well as ongoing tariff uncertainty with the details and impact of the recent EU-U.S. agreement announced last week still to be clarified. Moving now to slide four. which highlights how our premiumization strategy continues to be a key driver in revenue quality and resilience for Air France KLM. Altogether, the share of revenue generated by our La Première business, premium economy, and premium products increased by nearly three percentage points, confirming sustained customer appetite for our top-of-the-range offering. In the first half of 2025, La Première and business class revenues grew by 11%, with particularly strong momentum on the North Atlantic routes. Premium economy cabins at Alphonse and KLM, respectively, saw remarkable growth, with revenues up 27%, the strongest increase across all cabins. And to conclude on commercial trends, I'd like to highlight that corporate travel demand continues to rise steadily, with overall year-on-year growth of 6% since the beginning of the year, observed across all cabin segments. Now moving to slide five. So the trend goes beyond cabin segmentation. It's about redefining the entire travel experience. At Air France KLM, we continue to push the boundaries of aspirational travel with many enhanced products and services at every stage of the journey. This includes the launch of our new La Première Suite, now operating on routes to New York, JFK, and Singapore, setting a new global benchmark for first-class travel. At the same time, premium comfort continues to expand across the KLM network, while Air France is crowing out its latest long-haul business cabin to 23 destinations this summer. This quarter also saw the launch of a new Air France Canal Plus partnership, bringing a curated selection of premium French content to all long-haul flights, further enhancing the in-flight entertainment experience. And in a unique showcase of French air de vivre, Alfrance opened a pop-up rooftop restaurant at the Galerie Lafayette Paris Hausmann department store, allowing guests to enjoy the finest onboard cuisine in an exceptional Parisian setting. Together, these initiatives demonstrate how premiumization is now fully embedded in the way we design, deliver, and differentiate our offer. Moving to slide six, this quarter, Alfrance KLM marked an important milestone, the 20th anniversary of our loyalty program, Flying Blue. With 30 million members across all group airlines, Flying Blue is not only one of the leading programs in Europe, it is also a cornerstone of our commercial strategy and customer engagement model. Its recent recognition as both best loyalty program in Europe and Africa and best loyalty program in the world highlights the strong connection it fosters with our customers and the growing value it generates. As we continue to develop the program and expand our partner ecosystem, Flying Blue remains central to how we foster loyalty and elevate the premium experience we offer, embedding the program into our customers' daily lives and driving engagement that extends well beyond travel. Moving to slide seven, we made tangible progress in advancing group-wide synergies, notably by increasing crew flexibility and resource sharing across Air France, KLM, HAARP, and Transavia, particularly in response to pilot shortages affecting our Dutch subsidiaries. Starting from the winter 2025, Hop will be operating three Embraer E190s on behalf of KLM City Hopper. Since July 16th, a daily Amsterdam-New York JFK flight operated by a KLM Boeing 777 is now crewed by Air France pilots and KLM cabin crew. a clear example of how we are pooling capabilities across airlines to optimize resources. In support of KLM's introduction of the Airbus A350, Air France will be training the core team of KLM instructor pilots, demonstrating in practice how we can share expertise across the group. Finally, during the winter 2025 season, Transavia France will provide three Boeing 737-800s, along with full crews to Transavia Netherlands, further strengthening our operational flexibility. These initiatives show what we can achieve when we act as one integrated group with agility and coordination to respond swiftly to operational and market needs. Turning to slide eight, let me now turn to a strategic development that would further strengthen our footprint in Europe. As you know, in August 2024, Afran's KLM acquired a 19.9% non-controlling stake in SAS, We have recently announced an intent to increase the stake to 60.5% by acquiring the shares currently held by Capital Lake and Lind Investments. This transaction, subject to regulatory approvals, would give us a majority stake in SAS, securing control of the airline by the second half of 2026. SAS is a strong and trusted brand in the high-yield Nordic market, with a loyal customer base and a well-established commercial presence across Europe. This is a strategic move for Alphonse KLM. It will reinforce our position in Northern Europe and strengthen our role in key connecting markets across the continent. I'm moving to slide nine. Alongside our M&A activity, Alphonse KLM continues to build targeted partnerships that support our global reach. To further strengthen our MRO capabilities and reinforce the strategic positioning of this business segment, I'm proud to announce several key developments. We have extended our GE90 engine maintenance cooperation with Saudia Group, deepening an already strong partnership. We are currently in exclusive negotiations with AirCap to establish a joint venture dedicated to LEAP engine maintenance, a move that would significantly enhance our position in the next generation engine market. And following yesterday's evening announcement, we have just launched a strategic alliance with Riyadh Air for the full maintenance and support of APS-5000 auxiliary power units, which power the airline's Boeing 787 fleet. Also with Riyadh Air, but on the commercial side, we have signed a partnership aiming to enhance global connectivity between Riyadh, Paris, Amsterdam, and beyond. Moving on to Asia Pacific, we've deepened our partnership with Qantas Airways, moving connectivity, improving connectivity, and enhancing the travel experience between Europe and Australia. And we've also expanded our commercial partnership with IndiGo through a new four-way agreement with Delta and Virgin Atlantic, enhancing connectivity between India, Europe, and North America. Meanwhile, I'm particularly proud to say that we're also deepening our collaboration with Group ADP, the operator of the Paris airports, through Connect France, an unprecedented initiative to strengthen the competitiveness and efficiency of our Paris Charles de Gaulle hub, while accelerating progress on decarbonization and service quality. Together, these strategic moves reflect our selective, disciplined approach to global growth and reinforce Alphonse KLM's leadership in international aviation. With that, I'll now hand it over to Steven, who will walk you through the detailed financial results. Over to you, Steven.

Thank you, Ben. And good morning, everybody, on this beautiful summer day in Paris. I think we showed a robust result, given all the headwinds we had in the second quarter, like the Terrace War, the NATO Summit in the Netherlands, a full impact of the TSBA in France, and the crazy increase of the Terrace at Schiphol. And last but not least, a very unstable geopolitical situation. For sure, we had one big tailwind, which is the fuel price, but all in all, we are quite satisfied with this robust result. If we go to the revenues, you see that the revenues are up with 6.2%. This is driven by capacity increase, but also by a strong unit revenue increase of 2.4%. And actually, it's all set on the right side. You see that the fuel price is bringing a tailwind of almost 200 million, and the unit revenue and unit cost are almost in sync with each other, where the unit cost is exactly the what we guided you already to, let's say at the higher range of the low single digit. But they are completely in line with our expectations. If we go on page 12, you see our network results. So let's start on our passenger network and unit revenue increase of 2.8, mainly driven by our long haul and especially our premium revenue. I will come back on that later. And we saw also a strong unit revenue increase at the cargo of 2.6%. So all in all, it drove up our operating margin close to 10%, a 3% change on our network business. Transavia had a little bit harder quarter. We had a strike in France, which cost us 25 million. We had uncertainty around the Middle East and Tel Aviv, so that is also not very beneficial for our activity, both in France and and the Netherlands. And we saw more competition to Spain, which is especially hampering Transavia, the Netherlands. And last but not least, the Schiphol tariffs are moving away our passengers to Germany and Brussels. So quite some headwinds for our Transavia business segment. If we then go to maintenance, we see an increase of almost 20%. We're two-thirds driven by our very strong engine business. I think it is at this moment very easy to contract any engine business because there is a shortage of slots of the show visits. And we also increased further our order book. We increased our order book by almost $300 million, up to $8.9 billion for our MRO business. And if you look at the operating margin, you see it's going up with 2%. So we are now at the 5% margin and we are still hampered by the supply chain, but I think we had a quite decent result on our MRO business. If we then look at the split between Air France and KLM and Flying Blue on page 13, you see that Air France had a very strong margin improvement, especially coming from the strong unit revenue development, and of course we had a negative Olympic Games effect last year of around 40 million in June. So strong unit revenue, 3.4. Air France is actually in all business segments improving their unit revenues, in passenger, in cargo, in Transavia. So a very dynamic unit revenue climate in the second quarter. And on top of that, a strong fuel price decrease, which helped the result. Then on KLM, I think we had a lot of tailwinds. They are written here. We had the NATO summit. We had a last year positive tailwind. maintenance-related one-off. We got a compensation from a supplier. We had a Schiphol terrace, which is going up at 41%. We had the problems with the 787s in May. And last year, the CLA increase kicked in in July. So that is already, let's say, for a year-over-year comparison, not so good. So that is one of the reasons that KLM is down year-over-year. And on top, we see also more impact on the unit revenue, especially as we see more pressure on the low-yielding segments, which is especially impacting KLM. Plus, we have more growth on Europe, where the unit revenue development was weaker and the growth on it was stronger. So all in all, I think on KLM, we had quite a tough quarter this year, but it was in line actually with our expectations, which we had except, of course, for, let's say, the 787 grounding, for example. If we then go to page 14, where we will explain the unit revenue development, so a 4% increase of capacity overall with a 2.5% yield increase ex-currency. On the premium, very strong, almost 5% yield increase, so very good, and also an increase further of our premium segment. And then on the economy, you see that we are still gaining in terms of yield, but it is especially driven by successful implementation of the premium economy further. So we grew our capacity with 15%, bringing a unit revenue in of 9%. And if you look at KLM, they increased their capacity by 42% with a unit revenue increase of 11%. So I think the premiumization in our long haul is working very well. If we then go to North America, I think everybody was worried this quarter after the tariff war that North America would be hit severely. We see an increase of 5% of capacity and almost 6% in yields. Latin America also still holds strong with a load factor of 91%, even further increase. We could not imagine that it was even possible with this capacity increase, and still the yields are going up with 6%. And then if we go to the east, you see on the east that we increase our yields with 6%. It's especially driven that we reduced capacity to the Middle East, but all in all, at the rest of Asia, we see quite a strong yield development. The only weak spot, I would say, is in the Caribbean, both in the Netherlands and in France, where we see that the competition is lowering prices and also we see less demand. We see a lower load factor than what we had last year. If you then go to the top, you see that the Europe, it's quite difficult. We grew our capacity with 4.5% and you see that we have a flattest unit revenue in this quarter. And then on Transavia, you see an 11% increase and a 3.3% increase in unit revenue, especially driven by Transavia France. If we then go to page 15, then on the left, you see our unit cost development, which we can completely control. So an increase of salaries, which impacted us for 1.4% on the total unit cost, it is around 3% increase of salaries to our staff. That is partly being absorbed by an increase of productivity. That's 1% over the total unit cost. If you take it only, you take the ASK per FTE, you talk about 3%. And then on the operations, we already saw it coming. There was one, there was the higher maintenance costs at KLM. But on top, we also had more customer compensations related to the Transavia France strike and the crownings of the 787s of KLM in May. Then another 1.1% comes on top of it, mainly driven by ATC, but also the airport charges. And I come back on it again. A 41% tariff increase just in one quarter is amazing what they do at Schiphol. So this 1.1% plus that 1.5% brings us close to the 2.7%. There is a small impact of the premiumization of 0.7%. And due to the mix impact, because we grew some segments harder with lower unit revenues and also lower unit costs, the total impact is 0.3%. If you then deduct the fuel price impact, you see that we have a unit cost, including fuel, which is flattish, and at the same time, the unit revenue is up 2.4%. So that is the moment that you start improving your results. Given all the context at KLM, we are hardworking or working on KLM Back on Track, especially the KLM team. I think they are busy with it night and day. And I give the floor to Marjan to elucidate slide 16, where we show the details what we reached in the first half year on Back on Track. Marjan.