Air France-KLM Full Year 2016

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FULL YEAR 2016

  • Results in line with target, main KPIs show improvement
  • Operating income at 1,049 million euros, up 269 million and up 558 million excluding currency effects
  • Net result group share at 792 million euros, up 674 million.
  • Continuous decrease in ex-fuel unit costs at constant currency and pension costs, down 1.0% in line with target and down 1.7% excluding strike impact and profit-sharing expenses
  • Free cash flow after disposals of 693 million euros contributing to a further 652 million euro decrease in net debt
  • Adjusted net debt / EBITDAR ratio of 2.9x, an improvement of 0.5 points compared to 31 December 2015
  • 4 million passengers carried, up 4.0%

 

 

OUTLOOK

  • High level of uncertainty regarding unit revenue and fuel price due to geopolitical, economical and airline industry capacity environment
  • Resilient start to 2017
  • Smart growth in passenger operations, an increase in available seat kilometres of between 3.0% and 3.5% at Group level in 2017
  • Continued focus on unit cost reduction, targeting a minimum of 1.5% in 2017 at constant currency, fuel price and pension expense
  • Based on current forward prices and the hedge portfolio, a fuel bill increase limited to 100 million dollars in 2017
  • Maintaining strict capex discipline, targeting positive free cash flow before disposals in 2017
  • Further net debt reduction, adjusted net debt / EBITDAR ratio below 2.5x mid cycle by end 2020

 


The Board of Directors of Air France-KLM, chaired by Jean-Marc Janaillac, met on 15th February 2017 to approve the accounts for the Full Year 2016.

Jean-Marc Janaillac made the following comments: “Within a contrasting environment, Air France-KLM delivered an improvement in its 2016 results, reflecting the initiatives and efforts of its employees and the loyalty of customers. While the fall in the oil price significantly reduced the Group’s costs, the geopolitical context, competition and industry overcapacity all resulted in lower unit revenues. With Trust Together, our strategic project, we are resolutely committed to regaining the offensive, reinforcing our ability to innovate and improving our competitiveness. In an economic and geopolitical context that remains very uncertain, and faced with aggressive competition, the status quo is not an option.”


Key data

 

  Fourth Quarter Full Year
  2016 2015* Change 2016 2015* Change
Passengers (thousands) 22,608 21,338 +6.0% 93,442 89,836 +4.0%
Capacity (EASK m) 83,575 81,639 +2.4% 341,334 337,994 +1.0%
Revenues (€m) 6,086 6,242 -2.5% 24,844 25,689 -3.3%
EBITDAR (€m) 846 797 +49 3,787 3,414 +373
EBITDA (€m) 571 532 +39 2,714   2,387   +327

Operating result (€m)

94 137 -43 1,049 780 +269
Operating margin (%) 1.5% 2.2% -0.7 pt 4.2% 3.0% +1.2 pt
Lease adjusted operating result ((€m) 186 225 -39  1,407    1,122   +285
Lease adjusted operating margin (%) 3.1% 3.6% -0.5 pt 5.7% 4.4% +1.3 pt
Net result, group share (€m) 362 276 +86 792 118 +674
Free cash flow after disposal (€m) 446 67 +379 693 925 -232
Net debt at end of period (€m)        3,655    4,307   -652

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

 

Air France-KLM carried 93.4 million passengers in 2016, an increase of 4.0% over last year. Revenues amounted to 24.8 billion euros, down 3.3% compared to 2015.

 

The full year 2016 results were in line with targets with the main KPIs showing an improvement. The operating result stood at 1,049 million euros, up 269 million and up 558 million euros excluding currency effects. The operating result was notably impacted by a pilots strike in June and a cabin crew strike in July, which had a negative effect of 130 million euros. Adjusted for the interest portion of operating leases (1/3 of annual operating lease expenses), the operating margin was 5.7% versus 4.4% at 31 December 2015. EBITDA amounted to 2,714 million euros, an increase of 327 million euros

 

The increase in the 2016 operating result was mainly driven by the fuel tailwind and the good cost performance, while there were negative effects coming from the pressure on unit revenues and currencies. The unit cost per EASK was down in line with the target of 1.0%, on a constant currency, fuel price and pension-related expense basis, against a capacity increase measured in EASK of +1.0%. On a strike-adjusted basis and corrected for the increase in profit-sharing expenses, the unit cost per EASK decreased by 1.7%.

 

The average number of staff decreased by 1,850 FTEs (1,400 FTEs at Air France, 450 FTEs at KLM), resulting in a productivity increase measured in EASK per FTE of 2.3% at Air France and of 4.2% at KLM. As a result, on a constant pension-related expense and profit-sharing basis, employee costs decreased by 0.5% due to restructuring efforts in both Air France and KLM, taking into account a net increase in the profit-sharing expense of 77 million euros. Total employee costs including temporary staff were stable (up 0.1%) at 7,474 million euros.

 

The fuel bill amounted to 4,597 million euros, a sharp 25.7% fall compared to 2015. The decrease was driven by the drop in the fuel market price which had a positive impact of 927 million euros and the drop in fuel hedging losses which were down 605 million euros compared to 2015.

 

In the full year 2016, currencies had a negative 97 million euro impact on revenues, mainly driven by the weakening of several currencies, notably the GBP, BRL and CNY. The negative effect of currencies on costs amounted to 192 million euros driven by the strengthening of the dollar. The net impact of currencies on the operating result thus amounted to a negative 289 million euros.

 

All businesses contributed to the improvement in operating result. The passenger network operating result amounted to 1,057 million euros, up 215 million euros and up 456 million euros excluding the negative currency effect. Despite the challenging operating environment, the Cargo results remained stable on a reported basis, whereas both Maintenance and Transavia recorded further improvement in their operating results.

 

Both Air France and KLM contributed positively to the results. Full year 2016 operating result stood at 372 million euros at Air France and amounted to 681 million euros at KLM.

 

  Full Year
Operating result per airline (€m) 2016 2015* Change
Air France 372 426 -54
Operating Margin (%) 2.4% 2.6% -0.2 pt
KLM 681 384 +297
Operating Margin (%) 6.9% 3.9% +3.0 pt

* Reclassification of Servair as a discontinued operation. Sum of individual airline results does not add up to Air France-KLM total due to intercompany eliminations at Group level

 

 

Passenger network business

 

  Fourth Quarter Full Year
Passenger network 2016 2015 Change 2016 2015 Change
Passengers (thousands) 19,768 19,156 +3.2% 80,163 79,016 +1.5%
Capacity (ASK m) 68,912 67,634 +1.9% 278,807 276,897 +0.7%
Traffic (RPK m) 58,427 56,719 +3.0% 238,183 235,715 +1.0%
Load factor  84.8% 83.9% +0.9 pt 85.4% 85.1% +0.3 pt
Total passenger revenues (€m) 4,799 4,983 -3.7% 19,682 20,541 -4.2%
Scheduled passenger revenues (€m) 4,599 4,787 -3.9% 18,849 19,707 -4.4%
Unit revenue per ASK (€ cts) 6.67 7.08 -5.7% 6.76 7.12 -5.0%
Unit revenue per RPK (€ cts) 7.87 8.44 -6.7% 7.91 8.36 -5.3%
Unit cost per ASK (€ cts) 6.57 6.85 -4.1% 6.38 6.81 -6.3%
Operating result (€m) 74 156 -82 1,057 842 +215
   Of which long-haul (estimated)       1,320 1,070 +250
   Of which medium-haul hub feeding (est.)       -220 -160 -60
   Of which medium-haul point-to-point (est.)       -50 -70 +20

 

A strong passenger network performance with relatively resilient unit revenues. Strict capacity discipline (available seat kilometer (ASK) up by 0.7%) and active yield management limited the downward pressure on unit revenue, particular on premium traffic, whose long-haul unit revenue declined by 1.4%. Ancillary revenues (paid options) were up by 12% amounting to 515 million euros.

On the long-haul network, capacity measured in ASKs was up 0.6%, while unit revenue was down 4.7% excluding currency impact. In addition to the soft local flows to France as a result of terrorism, the capacity-demand imbalances observed on different parts of the network caused additional downward pressure on unit revenues. Nevertheless, the estimated long-haul operating result was up 250 million euros to 1,320 million euros.

On the medium-haul hub feeding activity, capacity increased by 2.0%, whereas unit revenues decreased by 5.4% excluding currency. The medium-haul network was particularly impacted by the weak local flows to France affecting the operating result which decreased by 60 million euros.

As planned, medium-haul point-to-point capacity was further reduced by 3.9%, leading to an improvement in unit revenues of 1.0%, contributing to the 20 million euros improvement in the point-to-point operating result.

Cargo business

 

  Fourth Quarter Full Year
Cargo 2016 2015 Change 2016 2015 Change
Tons (thousands) 293 309 -5.0% 1,130 1,206 -6.2%
Capacity (ATK m) 3,491 3,635 -4.0% 14,228 14,912 -4.6%
Traffic (RTK m) 2,207 2,296 -3.9% 8,441 9,007 -6.3%
Load factor  63.2% 63.2% +0.0 pt 59.3% 60.4% -1.1 pt
Total Cargo revenues (€m) 546 612 -10.8% 2,069 2,425 -14.7%
Scheduled cargo revenues (€m) 500 567 -11.8% 1,904 2,263 -15.9%
Unit revenue per ATK (€ cts) 14.3 15.6 -8.1% 13.4 15.2 -11.8%
Unit revenue per RTK (€ cts) 22.7 24.7 -8.0% 22.6 25.1 -10.2%
Unit cost per ATK (€ cts) 15.2 16.2 -6.6% 15.1 16.8 -10.2%
Operating result (€m) -28 -23 -5 -244 -245 +1

 

The Group continued to restructure its Cargo activity resulting in its gradual turnaround, in order to address the weak global trade and structural industry overcapacity, and to maximize its contribution to the Group.  During full year 2016, full-freighter capacity was reduced by 24% with a reduction of the number of full-freighters in operation to six, leading to a 4.6% decrease in total Cargo capacity measured in ATK. The ex-fuel unit cost was down 2.6% like-for-like as a result of the restructuring efforts, mainly driven by the 6.7% headcount reduction over the course of the year, while productivity measured in ATK per FTE increased by 2.3%. The losses on the full-freighters were further reduced by 14 million euros resulting in an operating loss of 28 million euros.

 

It has been decided to change the Cargo reporting as per fiscal year 2017 based on contribution margin and to include it in the passenger network results. This change will be effective as from the Q1 2017 results presentation.

 

Maintenance business

 

  Fourth Quarter Full Year
Maintenance 2016 2015 Change 2016 2015 Change
Total revenues (€m) 1,130 1,075 +5.1% 4,182 3,987 +4.9%
Third party revenues (€m) 486 429 +13.3% 1,834 1,577 +16.3%
Operating result  (€m) 66 47 +19 238 214 +24
Operating margin (%) 5.8% 4.4% +1.4 pt 5.7% 5.4% +0.3 pt

 

In full year 2016, both third party revenues and the operating result further increased, strengthening the growth of the Maintenance business and securing its position as world leader in the airline MRO business. Third-party revenues amounted to 1,834 million euros, up by 16% driven by the contracts gained over the past few years. Over the period, the maintenance order book recorded a 6.0% increase to reach a year-end record of 8.9 billion dollars, including several new A350 and B787 support contracts, and securing future growth and its ambition of value creation. The operating margin was up by 0.3 points to 5.7% (operating result / total revenues) driven by the growth in the Engine and Component segments and the increase in contribution margin from the Airframe business.

 

 

 

 

Transavia

 

  Fourth Quarter Full Year
Transavia 2016 2015 Change 2016 2015 Change
Passengers (thousands) 2,840 2,182 +30.2% 13,279 10,820 +22.7%
Capacity (ASK m) 5,646 4,592 +20.2% 25,762 22,432 +14.8%
Traffic (RPK m) 4,959 4,007 +18.8% 22,983 20,169 +14.0%
Load factor  87.9% 87.2% +0.6 pt 89.2% 89.9% -0.7 pt
Total passenger revenues (€m) 245 207 +18.4% 1,218 1,099 +10.8%
Scheduled passenger revenues (€m) 241 205 +17.6% 1,206 1,086 +11.0%
Unit revenue per ASK (€ cts) 4.27 4.41 -3.1% 4.68 4.84 -3.3%
Unit revenue per RPK (€ cts) 4.86 5.05 -3.8% 5.24 5.38 -2.5%
Unit cost per ASK (€ cts) 4.57 5.21 -12.2% 4.68 5.00 -6.3%
Operating result (€m) -17 -37 +20 0 -35 +35

 

 

The accelerated ramp-up of Transavia is on track, resulting in a break-even operating result for the full year 2016. Transavia currently serves more than 100 destinations and carrying 13.3 million passengers. Capacity in France was up by 23%, whereas capacity in the Netherlands was up by 11%. Transavia is now the number one low cost carrier in the Netherlands and at Paris Orly, capturing the growth in the European leisure market.

 

Financial situation

 

  Full Year
In € million 2016 2015* Change
Cash flow before change in WCR and Voluntary Departure Plans, continuing operations 2,364 1,956 +408
Cash out related to Voluntary Departure Plans -225 -172 -53
Change in Working Capital Requirement (WCR) +67 +83 -16
Operating cash flow 2,206 1,867 +339
Net investments before sale & lease-back -1,859 -1,278 -581
Cash received through sale & lease-back transactions 0 0 0
Net investments after sale & lease-back -1,859 -1,278 -581
Operating free cash flow 347 589 -242

* Reclassification of Servair as a discontinued operation

 

Due to the disciplined growth in investments, the free cash flow before disposals was positive at 347 million euros. Investment in the fleet continued to improve its competitiveness resulting in fuel efficiencies, lower maintenance costs and move up-market in terms of products and services.

 

Net debt was further reduced thanks to free cash flow generation. As a result, net debt amounted to 3,655 million euros at 31 December 2016, versus 4,307 million euros at 31 December 2015, an improvement of 652 million euros despite currencies having a significant negative impact of 73 million euros. The Group sold a total of 4.95 millions of Amadeus shares representing 1.13% of the share capital and finalized the transaction to sell 49.99% of the Servair share capital and transfer its operational control to gategroup.

2016 is the fifth year of improvement in the adjusted net debt / EBITDAR ratio, which decreased to 2.9x at 31 December 2016 from 3.4x at 31 December 2015.

 

During the course of the year the liquidity situation was further strengthened and finance costs further reduced. The Group continues to enjoy a good level of liquidity, with net cash of 4.3 billion euros at 31 December 2016, and undrawn credit lines of 1.8 billion euros. In 2016, the Group successfully placed a six-year bond for 400 million euros and an issue of ten-year senior notes for 145 million US dollars.

 


 

Outlook

 

The global context remains highly uncertain regarding the geopolitical and economic environment in which we operate, fuel prices and the ongoing overcapacity on several markets, resulting in pressure on unit revenues.

 

However the January traffic statistics and forward bookings indicates a resilient start to the new year. In January 2017 the unit revenue was down by only 0.7% at constant currency for the passenger network and down only 0.6% at constant currency for Transavia.

 

The Group is targeting a growth for the passenger group (Air France, KLM and Transavia) of between 3.0% and 3.5% measured in ASKs for 2017 in order to regain the offensive in long-haul and to improve the performance in medium-haul.

 

To improve its competitiveness, the Group plans to act on all levels by pursuing and amplifying the initiatives already under way in terms of unit cost reduction. The unit cost reduction target for 2017 is in excess of 1.5% at constant currency, fuel price and pension related expenses.

 

Based on the forward curve of 27 January 2017, the Full Year 2017 fuel bill is expected to increase by 100 million dollars compared to 2016 and to reach 4.9 billion euros[1], and the Full Year 2018 fuel bill is expected to increase to 5.0 billion euros[2].

 

Regarding the balance sheet, the Group is maintaining strict capex discipline, targeting positive free cash flow before disposals. The 2017 investment plan stands at between 1.7 billion euros and 2.2 billion euros.

 

The Group is pursuing a further reduction in net debt, targeting an adjusted net debt to EBITDAR below 2.5x mid cycle by the end of 2020.


[1] 2017 average Brent price of USD 56, average jet fuel market price of USD 535 per ton, average exchange rate of USD 1.07 per euro

[2] 2018 average Brent price of USD 56, average jet fuel market price of USD 555 per ton, average exchange rate of USD 1.07 per euro


The audit procedures for the consolidated accounts have taken place. The certification report will be published following the completion of the procedures necessary for the filing of the Registration Document.

 

The results presentation is available at www.airfranceklm.com on 16 February 2017 from 7:15 am CET.

 

 

The press conference will be live broadcast on www.airfranceklm.com at 10:30 am (password AFKL).

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