(see also attachment: KLM Sustainability at a glance 2020)

Fly Responsibly: reducing, replacing and compensating 

Compared to 2005, KLM has reduced its total CO₂ emissions by an absolute four per cent and 31 per cent per passenger, per kilometer as of 2019. It must be noted of course that KLM’s production in 2020 deviated significantly from previous years as a result of which this year’s CO₂ emission figures cannot be compared easily with other years and targets. For 2030, the goal is to reduce these levels by 15 and 50 per cent respectively. To this end, KLM continued to invest in more fuel-efficient aircraft with a lower noise footprint. Meanwhile, KLM’s CO2ZERO program enables passengers to compensate their CO₂ emissions and in 2020, some 51,053 ton was offset this way. In 2020, Transavia partnered with KLM on CO2ZERO. KLM, which in 2011 was the world’s first airline to carry out a commercial flight partly fueled by Sustainable Aircraft Fuel (SAF), committed itself to use 14 per cent SAF of the total volume used in the Netherlands by 2030. The customer proposition was broadened by expanding the corporate biofuel program to cargo customers and Air France decided to adopt KLM’s corporate biofuel program in 2021. 

Ground operations and replacing short distance flights by train 

KLM’s ambition is to have zero emissions from ground operations by 2030. Therefore, KLM has invested in the electrification of ground equipment. Some 62 per cent of KLM’s ground equipment is now electric. Tests have been conducted at Schiphol with the use of electric taxi equipment. KLM is in favour of a European network of high-speed trains replacing short distance flights. In early 2020, KLM replaced one of its five daily flights to Brussels with a journey on the Thalys. KLM is actively investigating with the Dutch rail company (NS), Schiphol Airport and the Dutch Government how to replace more short flights by trains. KLM expanded its notion of sustainability to not only encompass environmental goals, but to include the role it has in serving society, enabling economic activity and being one of the largest private employers in the Netherlands. 

First flight of Flying V scale model 

KLM already worked with academic institutions, airline partners and the government on several initiatives to reduce CO₂ emissions. Strategies for achieving this include fleet renewal, the use of SAFs, optimising flight paths and procedures, the aim for emission-free airports and the adoption of the train for short distances. With the help of KLM, the Delft University of Technology made the maiden flight of its revolutionary Flying V model aircraft. KLM contributed to the action program Hybrid Electric Flight, which was submitted to the Dutch parliament. More waste and weight reduction initiatives have been worked on with external partners like the Amsterdam University of Applied Sciences. 

KLM aims at a complete sustainable transformation 

KLM expanded its notion of sustainability to not only encompass environmental goals, but to include the role it has in serving society, enabling economic activity and being one of the largest private employers in the Netherlands. This deepening and broadening of KLM’s sustainability ambitions aligns well with KLM’s restructuring plan ‘Building Back Better’. Within this context, KLM developed a vision of how sustainability applies to the people-side of the business, by means of a ten-year roadmap that will improve staff engagement, diversity and inclusion, community engagement and human rights across the supply chain. Engagement for sustainability has increased in 2020. Sustainability was integrated into KLM’s Compass, which outlines the values, principles and behaviors of staff. A sustainability ecosystem of people involved in the subject was set up across the company, including Transavia, Cargo and E&M. An internal sustainability portal was built to inspire and educate staff throughout the company. 

For more information: https://sustainabilityreport2020.airfranceklm.com/en/

KLM Open Tournament Director Daan Slooter: “The partnership between the Dutch Open and KLM is one of the longest-standing cooperative relationships in the history of Dutch sport and the European Tour. We are extremely pleased with KLM’s commitment to continue to serve as the title sponsor up to and including 2020.”

The 2018 KLM Open is set to be held from 13 through 16 September 2018 and will be played for the third and last time at “The Dutch” golf course in Spijk (Municipality of Lingewaal). KLM and promoter TIG Sports are currently in discussion with various parties about the further details of the forthcoming tournaments in 2019 and 2020, including the choice of golf course.

Perform 2020 is the successor to Transform 2015, which represented the first phase in the Group’s turnaround. While maintaining the imperatives of competitiveness and the ongoing strengthening of the Group’s financial position, this growth plan will focus on the following three strategic areas:

• Selective development to increase exposure to growth markets
• A product and services upgrade targeting the highest international level
• An ongoing improvement in competitiveness and efficiency within the framework of strict financial discipline

Business review

In an environment which remains challenging but with profitable growth opportunities across all the Group’s markets, Air France-KLM plans to reinforce its key strengths, namely its network, its products and services, and its brands, while adjusting its portfolio of activities.

At the operational level, Perform 2020 reflects:

• The development of the passenger hub business based on an upgraded product offer, an increased customer focus and a stronger positioning of brands. Benefiting from the broadest long-haul network on departure from Europe, the Group will be able to continue to capture growth opportunites particularly via the reinforcement of strategic partnerships.The Group will maintain strict capacity discipline with growth in passenger capacity expected to be around 1% to 1.5% for the 2015-2017 period.
• The Group will continue to restructure its point-to-point operations, aiming at a return to operating breakeven by 2017. In addition to the full impact of the measures launched in 2013, this objective will be reached thanks to new initiatives to restructure the network and reduce costs, together with the creation of a single business unit combining HOP! and the Air France point-to-point operations.
• The accelerated development of Air France-KLM in the European leisure market, under the Transavia brand, based on the two existing companies - Transavia France and Transavia Netherlands – and new bases to be created in other European countries. In a growth market, the Group plans to build on the results achieved within the framework of Transform 2015 to move to a more pan-European scale. By 2017, Transavia will rank amongst the leading low cost carriers in Europe, operating a fleet of 100 aircraft and carrying more than 20 million passengers. This business should contribute an additional €100 million of EBITDAR in 2017. With profitability being impacted by ongoing ramp-up costs, the Group is targeting operating profits by 2018.  
• The finalisation of cargo repositioning: a significant reduction in the full-freighter fleet, from 14 aircraft in operation in 2013 to 5 aircraft at the end of 2016, should enable this business to return to operating breakeven in 2017 (versus a loss of €110 million in 2013 and a €200 million loss including bellies). The group will maintain a small full-freighter fleet as an important commercial lever to support its revenue premium on bellies. The Group will remain a major player in the European cargo sector thanks to its extensive belly network, but with only very limited remaining exposure (15% of capacity) to full-freighter volatility.
• The recent development of the maintenance business has proven successful, with increased profitability and rapid growth in the order book. The Group will pursue its growth in this segment, particularly in engines and components, including via targeted acquisitions. This business should generate an additional €50 million to €80 million of EBITDAR in 2017, depending on acquisitions.

From a financial perspective, Air France-KLM plans to pursue the reduction in its unit costs and selective capex management while adopting a disciplined approach to growth opportunities.

The Group will leverage the structured approach implemented within the framework of Transform 2015 to maintain unit cost[1] reduction at an annual rate of 1% to 1.5%. To achieve this target, the group will go beyond traditional efforts directed at reducing unit costs (e.g. reduction in external expenses, purchasing policy and renewal of the long-haul fleet). This will involve the ongoing restructuring of uncompetitive activities and implementing a systematic review of processes using benchmarking based on profit centers. It will also entail negotiating with staff on the achievement of productivity gains paving the way to growth.

A progressive increase in fleet capex will be undertaken within the framework of strict capex control. Investment will remain below its pre-2012 level. Dedicated sources of funding will be allocated to significant development opportunities to ensure control over credit ratios. For example, the first phase in Transavia expansion will be financed by the €339 million proceeds generated from the partial disposal of Amadeus shares on 9 September.

Medium-term financial targets to 2017

As a result of all these initiatives, Air France-KLM has set itself the following Group financial targets:

• EBITDAR[2] up by 8% to 10%[3] per year between 2013 and 2017
• An adjusted net debt⁴/EBITDAR⁴ ratio of below 2.5 in 2017
• Base businesses to consistently generate annual positive free cash flow

These targets are consistent with a ROCE⁴ of 9% to 11% in 2017.

[1] Unit cost per EASK, at constant currency, fuel price and pension expense
[2] See definition in appendix
[3] At constant currency, fuel price and pension cost