Some highlights

Each day produces new insights and technologies, enabling us to improve our performance. Our policy on the environment and society is constantly evolving. This will enable us to meet our goals for 2020 and to create opportunities for later generations.

Here are just a few of the results KLM booked in 2014:

• We reduced onboard catering products using non-sustainable palm and soybean oil by 80%. In 2014, we introduced fifteen new products, including ASC-certified salmon and fruit juices bearing GLOBALG.A.P. certification.
• KLM operated twenty flights from Amsterdam to Aruba and Bonaire partially fuelled by biofuel, thanks to the companies participating in the KLM Corporate BioFuel Programme.
• We took a significant step towards reducing onboard catering waste by using less packaging. We also adapted the sandwich packaging, which has reduced annual waste by 20 tons.
• 39 tons of used KLM aircraft carpet was recycled last year to produce new carpet fibre and other material using carpet manufacturer Desso’s Take Back™ programme.
• A number of divisions are reducing paper consumption by increasing digitisation. We are providing ground personnel with digital-format manuals, which will lead to 375,000 fewer pages of printed paper.

More details and examples can be found in the 2014 CSR Report at klmtakescare.com. Earlier CSR reports can also be found here under the heading White Papers and Reports.

• 6.2 million passengers, +1.3%
• Continued restructuring of point-to-point (capacity down -15.0%) supporting increase in Short and Medium-Haul load factor
• Unit revenue per available seat kilometer (RASK) ex-currency down compared to December 2013 

Transavia

• 0.5 million passengers, +17.5%
• Ongoing accelerated development of Transavia: increase in both traffic and load factor

Cargo

• Unit revenue per available ton kilometer (RATK) ex-currency down compared to December 2013

Agenda

• 9^th February 2015: January 2015 traffic
• 19^th February 2015: FY2014 results
• 9^th March 2015: February 2015 traffic

Third Quarter 2014 activity was strongly affected by 14 days of strike by Air France pilots, which had an estimated negative impact of 330 million euros on the operating result. Total revenues were reduced by an estimated 416 million euros, partly offset by 86 million euros of net savings on costs. The strike led to the cancellation of an estimated 4,249 million ASKs (18% of September ASKs) and 213 million ATKs (16% of September ATKs) resulting in an equivalent cancellation of 4.75 billion EASKs (Equivalent Available Seat Kilometer).

Total revenues amounted to 6,695 million euros versus 7,175 million euros in 2013, down 6.7%, but up +0.2% on a constant currency basis and adjusted for the Air France pilot strike (“like-for-like”). Currencies had a negative 78 million euro impact on revenues.

Operating costs were 1.3% lower year-on-year and 0.7% lower on a constant currency basis. Ex-fuel, they increased by 0.7% and by 0.8% on a like-for-like basis. Unit cost per EASK¹ was reduced by 1.2%, on a constant currency, fuel price, pension expense and strike adjusted basis, against capacity measured in EASK up by 2.0%, corrected for the strike. The fuel bill amounted to 1,737 million euros, down 6.4%, but slightly up (+0.4%) on a constant currency and strike adjusted basis. Total employee costs including temporary staff were down 1.6% to 1,871 million euros, and by 1.7% on a constant currency basis. On a constant pension expense and adjusted for the strike, they declined by9 million euros.

EBITDA amounted to 682 million euros, a decrease of 397 million euros. On a like-for-like basis, EBITDA decreased by 21 million euros. The operating result stood at 247 million euros versus641 million euros in 2013, a 394 million euro decrease. Like-for-like, the operating result decreased by 18 million euros. Currencies had a 47 million euro net negative impact on the Third Quarter operating result.

The net result, group share stood at 100 million euros against 148 million euros a year ago. It includes the non current result of the Amadeus transaction (187 million euros), mainly offset by the change in value of the fuel hedging portfolio (-172 million euros). On an adjusted basis⁴, the net result, group share stood at 111 million euros against 372 million euros in Q3 2013, a 261 million euro decrease.

In the first Nine Months of 2014, total revenues stood at 18,7 billion euros versus 19,4 billion euros in 2013, down 3.6%, but up +0.4% on a like-for-like basis. Currencies had a negative 365 million euro impact on revenues.

Operating costs were reduced by 2.8% and by 1.4% on a constant currency basis. Ex-fuel, they decreased by 1.6%, and by 1.0% on a like-for-like basis. The fuel bill amounted to 4,926 million euros, down 6.1%, and down 0.8% on a constant currency and strike adjusted basis. Total employee costs including temporary staff were down 3.1% to 5,651 million euros, and by 3.0% on a constant currency basis. On a constant pension expense, scope and strike adjusted basis, they declined by 115 million euros as a result of the Transform 2015 actions.

EBITDA declined by 200 million euros to 1,273 million euros, resulting in an EBITDA margin of 6.8%, a 0.8 point decrease on 2013. On a like-for-like basis, EBITDA improved by 224 million euros. The operating result stood at 40 million euros versus 193 million euros in 2013. On a like-for-like basis, the operating result improved by 267 million euros. Currencies had a 92 million euro net negative impact on the operating result in the first nine months of 2014.

The net result, group share stood at -514 million euros against -651 million euros a year ago. It includes the non-current result of the Amadeus transaction (187 million euros), the change in value of the fuel hedging portfolio (-146 million euros), foreign exchange losses (including the adjustment in the value of the cash held by the Group in Venezuela), and the impairment charges related to the Cargo business. On an adjusted basis[1], the net result, group share stood at -231 million euros against-314 million in the first nine months of 2013, an 83 million euro improvement.

Earnings and diluted earnings per share both stood at -1.74 euros (-2.20 euros in 2013), and at-0.78 euros on an adjusted basis (-1.06 euros in 2013).

[1] See definition in appendix
 

PASSENGER BUSINESS

In the Third Quarter 2014, passenger revenues amounted to 5,232 million euros, down 8.2% and 0.3% like-for-like. The operating result of the passenger business stood at 211 million euros, versus 584 million euros in Q3 2013, a decrease of 40 million euros on a like-for-like basis (-373 million euros on a reported basis).

The Group maintained its strict capacity discipline, increasing total passenger capacity by only 1.6% excluding strike impact. Unit revenue per Available Seat Kilometer (RASK) remained volatile, down by approximately -1.8% on a like-for-like basis after a +1.3% increase in the second quarter.

On the long-haul network, unit revenue was affected by industry overcapacity on certain parts of the network, a disappointing performance on the Latin American network on the back of lower economic growth in several markets, and high comparables in the third quarter last year (long-haul RASK up 2.9% at Q3 2013 compared to Q3 2012, of which +5.6% on Latin America).

As planned within the framework of Transform 2015, point-to-point (not linked to the Paris-CDG and Amsterdam hubs) short and medium-haul capacity was significantly reduced (down 14.2%, excluding strike impact), leading to a significant improvement in unit revenue (estimated at +7.6% like-for-like). Total short and medium-haul RASK improved by 1.6% like-for-like, in line with the second quarter.

For the 2014-15 Winter season (November 2014 to March 2015), the Group will maintain its strict capacity discipline in the passenger business, with stable capacity (planned ASK growth: +0.1%), notably including a reduction of 11.3% in short and medium-haul point-to-point capacity.

As a result of Transform 2015, and in spite of the low capacity growth, the passenger activity delivered a further decrease in unit cost, with Cost per Available Seat Kilometer (CASK) down by 1.2% like-for-like.

In the first Nine Months of 2014, passenger revenues amounted to 14,709 million euros, down 3.7%, but up 0.8% like-for-like. The operating result of the passenger business stood at 88 million euros, versus 233 million euros in the same period last year. Like-for-like, it improved by 226 million euros.

Unit revenue per Available Seat Kilometer (RASK) fell by 2.9% and by 0.3% like-for-like. Unit costs (CASK) were reduced by 1.9%.

CARGO BUSINESS

Third Quarter 2014 cargo revenues amounted to 623 million euros, down 9.4% and by 3.6% on a like-for-like basis. The Group continued to reduce full-freighter capacity (down 7% in July and August), leading to a decrease in total capacity of -0.5% on a like-for-like basis. Demand remained weak, with unit revenue per Available Ton Kilometer (RATK) decreasing by 2.1% on a like-for-like basis, and by 3.5% on a reported basis.

The operating result amounted to -102 million euros, down 2 million euros on a like-for-like basis.

In the first Nine Months of 2014, cargo revenues amounted to 1,967 million euros, down 6.0% and by 2.3% on a like-for-like basis. Unit revenue per Available Ton Kilometer (RATK) decreased by 2.9% and by 0.7% on a like-for-like basis.

On a like-for-like basis, cargo unit cost was down 1.7% in the first nine months. The operating result improved by 3 million euros and by 24 million euros like-for-like.

At its Perform 2020 investor day in September, the Group announced the finalisation of its cargo repositioning plan: it is implementing a significant further reduction in its full-freighter fleet, from 14 aircraft in operation in 2013 to 5 aircraft by the end of 2016. This reduction should enable the full-freighter business to return to operating breakeven in 2017 (versus a loss of €110 million in 2013 and a €200 million loss including bellies).

MAINTENANCE

Third Quarter 2014 third party maintenance revenues amounted to 319 million euros, up 4.2% and by 5.3% on a constant currency basis, driven by the consolidation of Barfield, a US component support business. The operating result stood at 61 million euros, up 7 million euros year-on-year. The Air France pilot strike had a 22 million euro impact on operating result due to lower internal revenues from the maintenance of the Air France fleet. Excluding strike impact and at constant currency, the operating result was up 27 million euros.

In the first Nine Months of 2014, third party maintenance revenues amounted to 895 million euros, down 3.5% and by 0.5% on a constant currency basis. The operating result increased by 2 million euros to 113 million euros. Like-for-like, the operating result improved by 31 million euros, representing a 1.2 point increase in operating margin.

Over the period, the Group recorded a 20% increase in its order book to 5.3 billion euros, including a major contract with Air China covering the maintenance of GE90 engines.

OTHER BUSINESS:
TRANSAVIA

In the Third Quarter of 2014, Transavia capacity was up 8.3%, reflecting the accelerated development in France (up 21.4%) and the ongoing repositioning in the Netherlands (with scheduled capacity up 15.3% and charter capacity down 3.7%). Traffic rose 6.0%, and load factor remained high (91.8%, down 1.9 point). Unit revenue was down 0.6%, but up 0.5% in France despite the rapid increase in capacity. Transavia’s total revenue stood at 427 million euros, up 7.6%. The operating result was 62 million euros, down 4 million euros year-on-year.

In the first Nine Months of 2014, Transavia traffic increased by 6.5% for capacity up 6.9%, leading to a 0.4 point decrease in load factor to 90.3%. Unit revenue was down 0.8%. Total revenue stood at 861 million euros, up 5.9%, while the unit cost per ASK decreased by 0.7%, but increased by 0.3% on a constant currency basis. The operating result decreased by 14 million euros to -2 million euros, mainly due to the rapid ramp up in France.

For the 2014-15 Winter season, Transavia will continue its rapid growth in France, with a planned 56% capacity increase (+13.3% including activity in the Netherlands).

In October 2014, Air France and its pilots’ unions finalized a draft agreement relating to the development of Transavia in France. If this agreement is validated, it will ensure the entirety of the Transavia development plan in France over the next five years:

• Continued strong growth in Summer 2015: 21 aircraft in operation versus 16 in Summer 2014, Transavia to become the largest low cost carrier at Paris-Orly by Summer 2015.
• 37 Boeing 737s in operation by 2019, operating flights potentially on departure from all French airports excluding the Paris-CDG hub, notably on destinations already served by Air France.
• Transavia to maintain its own operating and remuneration conditions, which are key to achieving its unit cost and operating flexibility objectives.

OTHER BUSINESS:
CATERING

Third Quarter 2014 third party catering revenues amounted to 82 million euros, up 5.1%. At constant scope (excluding the impact of the sale of Air Chef that occurred in Q2 2013), third party revenues increased by 6.5%. The operating result increased by 2 million euros like-for-like, corrected for the impact of the Air France pilot strike on internal revenues.

In the first Nine Months of 2014, third party catering revenues amounted to 234 million euros, up 8.8% at constant scope. Like-for-like, the operating result increased by 5 million euros.

FINANCIAL SITUATION

In the first Nine Months of 2014, the fall of 200 million euros in EBITDA, primarily due to the Air France pilot strike, translated into a 183 million euro reduction in cash flow before change in WCR and cash out related to Voluntary Departure Plans. The Group disbursed 162 million euros for Voluntary Departure Plans representing nearly all of the cash out expected in the Financial Year.

Change in WCR was also affected by the strike, with delayed sales partly offset by not yet processed reimbursements. Net investments before sale & lease-back transactions stood at 1,106 million euros.

As a result, operating free cash flow amounted to minus 75 million euros, versus a positive 496 million euros a year earlier. Operating free cash flow does not incorporate free cash flow from financial investments, including the cash-in of 339 million euros from the sale of Amadeus shares in September.

Net debt amounted to 5.27 billion euros at 30^th September 2014, versus 5.35 billion euros at 31^st December 2013. The 12 months trailing net debt / EBITDA ratio stood at 3.2x at 30 September 2014 compared to 3.1x at 31^st December 2013. Corrected for the strike impact, it was down to 2.7x.

OUTLOOK

Delivery on the Transform 2015 plan is fully on track, and several key initiatives of Perform 2020, the new strategic plan covering the period 2015-2020, have been launched.

In July, the tough operating environment led the Group to revise its 2014 EBITDA target to between 2.2 and 2.3 billion euros.

Long-haul industry capacity growth remains high, though lower in comparison to the summer season, and economic activity is recovering slowly in Europe. In addition to the 330 million euro direct impact of the Air France pilot strike on the third quarter operating result, the Group noted the build-up of a delay in fourth quarter booking trends, without being able precisely to apportion responsibility for this delay between the strike and the unfavorable demand trend seen since the early summer and subsequently confirmed. The Group estimates that part of this delay could be progressively reduced over the coming weeks, without being able to quantify this adjustment exactly given the exceptional nature of the event.

As announced on 8 October 2014, all of the above elements could have an impact of around 500 million euros on EBITDA for the 2014 financial year.

Moreover, while continuing to implement the Perform 2020 plan, the Group has the firm intention to limit the financial consequences of the pilot strike and of the weaker unit revenue trend that developed over the past summer. This will be achieved thanks to the further adaptation of its investment plan, the acceleration of unit cost reduction measures, and through dynamic management of its asset portfolio.

                                                                    ******

The Third Quarter 2014 accounts are not audited by the Statutory Auditors.

The Air France pilots’ strike will not affect the KLM operation. A rebooking policy is in effect. Customers who are affected by the strike will be rebooked free of charge.

Passenger business
In August 2012, traffic rose by 0.6% for capacity up by 0.6%. The load factor therefore remained stable at 85.7% (-0.1 point). The number of passengers amounted to 6.94 million (+1.4%). Unit revenue per available seat kilometer (RASK) ex-currency increased relative to August 2011.

• Traffic on the Americas network was stable (-0.0%), with a slight rise in capacity (+0.8%); the load factor declined by 0.7 points to 88.8%. 
• The Asia network recorded a 2.9% rise in traffic for capacity up by 3.5%. The load factor declined by 0.5 points to 88.9%.
• The Africa and Middle East network saw declines in both traffic and capacity of 2.0% and 3.6% respectively.  The load factor of 84.8% represented a rise of 1.4 points.
• On the Caribbean and Indian Ocean network traffic declined by 5.1% for capacity down by 5.0%. The load factor remained stable at 84.3%.
• Traffic on the European network rose by 4.2% for capacity up by 3.4% under the effect of the provincial bases. The load factor gained 0.6 points to 78.7%.  

Cargo business
The group has adjusted its full-freighter flight schedule, leading to a 5.2% reduction in capacity. Traffic was down 7.8%, leading to a 1.7 point decline in the load factor to 60.6%. Unit revenue per available ton kilometer (RATK) ex-currency was lower than in August 2011.

Recent developments

• KLM announced the opening of a route to Harare (Zimbabwe) as of 29th October 2012, with three weekly flights operated by Airbus A330. This new route further reinforces the group’s presence in Africa, where three other routes have been opened in 2012: Amsterdam-Luanda (Angola), Paris-Abuja (Nigeria) and Amsterdam-Lusaka (Zambia).
• Aerolineas Argentinas joined the SkyTeam Alliance on 29th August 2012. This first Latin American member of the alliance adds 40 new destinations to the SkyTeam network. Following the entry in 2011 and 2012 of China Eastern, China Airlines, Saudia, Middle-East Airlines and Aerolineas Argentinas, the majority of SkyTeam’s 18 members are now based in high growth markets.

• On the Americas network traffic rose by 9.6%, in line with the increase in capacity (+9.3%). The load factor gained 0.3 points to 90.3%.
• Traffic on the Asia network was up 8.1% for capacity up 6.6%. The load factor stood at 91.4% (+1.3 points). With a load factor of 86%, Japan routes are improving, with traffic 14% lower than last year.
• The Africa and Middle East network continued to be affected by the various crises. Traffic declined by 4.1% for capacity down 3.9%. The load factor was stable at 85.0% (-0.2 points).
• The Caribbean and Indian Ocean network saw a rise of 9.4% in traffic for capacity up by 7.2%. The load factor gained 1.6 points to 83.4%.
• The European network remained dynamic with traffic up by 7.2% for capacity up by 3.8%. The load factor reached 82.0%, a rise of 2.7 points.

Cargo business
The context was comparable to previous months, with unrest in Africa and the Middle East and a situation of overcapacity on Asia departures. Despite strict capacity control (+0.6%), traffic declined by 2.7%, leading to a 2.1 point reduction in load factor to 64.0%. The unit revenue per available ton kilometer (RATK) ex currency declined relative to the previous year.

Recent developments

• On 7th July 2011, the Annual General Meeting approved the change in the financial year end, now fixed at 31st December.
• On 11th July 2011, Air France presented its new offer from Marseille in the context of its ‘provincial bases project’. As of 2nd October 2011, Air France will offer 13 new direct flights. This strategy will be extended in spring 2012 to Toulouse, Nice and Bordeaux.

• On the Americas network, traffic and capacity rose by 1.3% and 1.7% respectively. The load factor declines slightly to 83.4% (-0.3 points).
• The Asia network remained dynamic with traffic up 7.4% for capacity up by 6.4%. The load factor gained 0.7 points to 85.4%.
• The Africa and Middle East network saw traffic up 2.8%, in line with capacity (+2.7%). The load factor remained stable at 76.4%.
• The Caribbean and Indian Ocean network enjoyed a robust level of activity with traffic up 5.4% for stable capacity (+0.2%). The load factor progressed strongly to reach the high level of 84.8% (+4.2 points).
• On the European network, traffic rose 9.3% and capacity by 4.5%. In consequence, the load factor improved 2.8 points to 64.4%.

Cargo business
In January 2011, cargo traffic rose in line with capacity (by 3.4% and 3.3% respectively). The load factor was stable at 64.3%. Unit revenue was compared with January 2010 which already benefited from a more favourable operating environment.

Recent developments
On February 1st, Transavia operated 8 additional flights to Egypt to repatriate 1,500 Dutch tourists.

Middle East Airlines and Saudi Arabia Airlines will shortly join SkyTeam.
SkyTeam will launch an iPhone application available for all passengers travelling on alliance flights.
Air France launched an exclusive news programme on long-haul flights produced by Euronews.