1. Art and Diseño

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Air France-KLM’s
Shareholders’ Newsletter
December 2013
Alexandre de Juniac
Chairman and Chief Executive
Officer of Air France-KLM
Dear Shareholders,
As our nine-month results show,
Transform 2015 is operational and
producing significant effects
despite a very difficult economic
environment. The pursuit of our
transformation is key to regaining
our leadership position. It is this
imperative which has guided all
our decisions since the launch of
the Transform 2015 plan.
This is why, in late September, we
decided to launch additional
measures in the two sectors which
are still experiencing major
difficulties: medum-haul and
cargo. For implementation in
2014, these additional industrial
and headcount measures will
produce their full effect in 2015.
Transform 2015 Plan:
progress report at Air France
All the measures decided in 2012 within the framework of Transform 2015
have been implemented…
For more, see page 2
Third quarter 2013
results
Air France’s 80th anniversary
Operating result increased to
€634 million thanks to cost control
For more, see page 3
Air France-KLM wins an
award for investor relations
Since October 7, Air France has been
celebrating its 80th anniversary, the
occasion to retrace the airline’s development.
For more, see page 5
For more, see page 6
Highlights
Alexandre de Juniac
editorial continued
It is within this framework that
a new voluntary departure plan
has been launched at Air France
concerning 2,800 positions.
While cost reduction and a rapid
return to profitability are currently
our priority objectives, we are also
working on the development of
products and services. Having
begun the deployment of the new
business class seats at KLM last
summer, in 2014 we shall be
launching the new Boeing B777
cabins at Air France with seats
in line with the highest standards
in the market.
In parallel, we are continuing our
development in rapidly-growing
markets. In addition to the daily
KLM flight to Panama City,
Air France has just inaugurated
a service to this destination.
The partnership agreement with
Kenya Airways has been extended
enabling the joint venture to cover
routes beween Europe and East
Africa from January 1, 2014.
On January 28, 2014, for the
International Forum for investments
in the Ivory Coast, Air France will
operate a special flight to Abidjan
by Airbus A380. The aim is
to operate a regular service to
the Ivory Coast capital as of
the Winter 2014 season.
In these circumstances,
our relationship of trust with
shareholders is, for me, a vital
component in the success
of our Transform 2015 plan.
It supports the efforts of staff
across all the Group’s entities
to return Air France-KLM
to the path of profitability.
Thank you for your unwavering
loyalty.
02
Action’AIR december 2013
Transform 2015
on track
All the measures decided in 2012 within the framework
of Transform 2015 have been implemented: modest capacity growth,
lower investments, headcount reduction, the implementation of new
working conditions and improvements in productivity.
The Group has also invested in upgrading the quality of the products and services
for customers. These measures have enabled a steady improvement in the Group’s
operating result since the 2012 second half, including in the businesses most affected
by the economic slowdown (medium-haul and cargo) and a reduction in net debt.
However, within a difficult economic environment, the turnaround of the mediumhaul and cargo businesses is insufficient, leading the Group to implement additional
measures at both industrial and headcount level.
Industrial measures
In medium haul, the industrial measures mainly relate to the Air France Group’s
point-to-point activity:
• Adjustment of the network with a complementary reduction of the fleet by two
aircraft at Orly and seven aircraft in the provincial bases by 2015
• Stations in France: reorganisation of processes and increased use of subcontracting;
• Development of Transavia whose fleet should increase by five aircraft per annum
through to 2016
• Reduction of the fleet at Hop!
In cargo the industrial measures are the continued reduction in the full freighter fleet
at Air France and KLM (-4 aircraft taking the fleet to 10 aircraft in 2015) and the
outsourcing of the Orly cargo hangar.
Headcount measures
The industrial reorganisation of the medium-haul and cargo activities at Air France
will entail a headcount reduction of 2,800. To deal with the surplus headcount
among ground staff, Air France has presented a voluntary departure plan covering
1,826 jobs with the departures expected to be staggered between February and
December 2014. This new voluntary departure plan should generate savings of
some €150 million on an annualized basis. Pilot (350 Full Time Equivalents) and
cabin crew (700 FTEs) over-staffing will be addressed in 2014 through other
measures. Elsewhere, the company is also seeking to better adapt its organization
to the seasonality of the business, which has accentuated in recent years.
These additional measures, to be put in place during 2014, will deliver their full effect
in 2015. However, in 2014, they should enable a significant reduction in medium-haul
and cargo losses. Despite the difficult economic environment, all the measures in the
Transform 2015 plan will ensure the continued recovery in the Group’s profitability and
a reduction in debt.
Results
Results: a satisfactory third quarter
> Operating result increased
to €634 million thanks to cost
reduction
In a continued difficult economic
environment which saw a sharp re-rating
in the Euro relative to all currencies, third
quarter revenues stood at €7.21 billion
(+0.4% and +3.8% excluding currency).
The passenger and maintenance
businesses posted a strong improvement
in their profitability unlike the cargo
business. The operating result amounted
to €634 million (+29%) and the net
result to €144 million after a €216 million
restructuring provision linked to the
additional measures taken in September.
The Group enjoyed a good Summer
season in the passenger business
with traffic growth of 2.5% for a rise
in capacity limited to 1.4%. The load
factor gained almost one point to 86.9%
(+0.9 points). Unit revenue per available
seat kilometre (RASK) rose by 2.7%
on a constant currency basis, but was
down 0.6% on the back of a significant
currency effect.
(Source: Bloomberg, Reuters at November 29, 2013)
11
9
7
Unit costs measured in equivalent available
seat kilometres (EASK) declined by 3.8%
and by 1.5% on a constant currency and
fuel price basis, for production in EASK up
by 1.5%.
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THE PRESS
> Outlook for 2013
Les Échos – November 4, 2013
« Air France-KLM: strong increase
in operating result. »
Based on a fuel bill of US$2.3 billion
and within an economic and currency
environment that remains highly volatile,
the Group maintains its target of an
improvement in second half operating
result in line with that of the first half and
a reduction in net debt relative to
December 31, 2012.
Revenues
in € million (at September 30, 2013)
7,184
Analysts’ Recommandations
Cargo continued to be affected by the
economic slowdown and the situation
of overcapacity. As a result, traffic declined
by 3.8% for capacity down 1.4%.
The load factor stood at 60.4%
(-1.5 points). Unit revenue per available
tonne kilometre (RATK) declined by 9.1%
and by 5.2% on a constant currency basis.
L’agefi – November 4, 2013
« The turnaround at Air France-KLM
will take longer than expected. »
Le Revenu - November 11, 2013
« Air France-KLM, still-limited visibility. »
Le Figaro - November 12, 2013
« Air France-KLM refuses to bail out
Alitalia. »
Revenues by business line
in € million (at September 30, 2013)
Net income/(loss), Group share
in € million (at September 30, 2013)
687
7,212
397
5,735
233
296
144
2012
2013
Passenger
Cargo
Income/(loss) from current operations
in € million (at September 30, 2013)
6.5
634
2013
2013
Net debt
in € billion (at September 30, 2013)
491
2012
2012
Maintenance
Others
6.0
2011
5.4
2013
2012
DeCEMBeR 2013 Action’AIR
03
Highlights
Feedback from discerning customers
Air France and KLM are innovating by
introducing a new “Quality Observers”
program whose members are recruited
from the airlines’ Flying Blue Elite community to replace the “mystery shoppers”.
This new program is designed to measure
the worldwide consistency of our products
and the level of service quality. A mobile
app and website are available exclusively
to the Quality Observers community while
the app contains a questionnaire specifically tailored to the reservation class.
The main touch points to be observed
– both on a product and service level –
are: Check-in, Lounge, Boarding, Inflight,
Transfer and Arrival.
Starting from January 2014, the aim is to
assess all destinations and travel classes
(except for La Première) on a weekly basis
thanks to results delivered promptly, thereby
giving more flexibility for ad-hoc audits when,
for example, introducing new products.
Eleven innovative solutions with the most
relevance in terms of costs, time and
cutting edge technology were presented,
having been developed by the teams
in Paris, Amsterdam and CRMA*.
For example, the project to measure
the level of fan case abrasion on the
GE 90-110B/115B engines which requires
a particularly simple system: a pen, a ruler
and an adhesive tape.
The exercise proved a real success for
AFI KLM E&M enabling the generation
of new ideas and extending its reach into
potential new markets
On November 7, Air France-KLM and
Club Méditerraneé signed a three-year
agreement aimed at developing joint projects
for the benefit of their respective customers.
This agreement, designed to meet future
challenges and enhanced with new services,
extends the previous agreement signed
in 2009.
Air France-KLM and Club Méditerraneé
also continue to collaborate on opportunities
04
Action’AIR december 2013
For the past fifteen years,
the French Customer Relations
Association has recognized
the best companies in terms
of their customer relations
management and showcased
those that are contributing to
the development of this area.
This year, Air France-KLM
won third place (behind EDF
and IDTGV) in the “Best
Customer Relations of the Year”
category. This award confirms
the Group’s efforts in terms of
the proactivity and transparency
of its customer service
HOP! launches
its mobile website
* Air France Group subsidiary and member of the
AFI KLM E&M network (center of excellence for
component and engine module repair and overhaul).
The Group renews its strategic partnership with Club Med
Club Méditerraneé systematically consults
Air France-KLM for its transportation needs
and the Group is committed to consistently
providing the best possible offers on
departure from France and the main countries
in which it operates. The two companies also
agreed on the deployment of joint initiatives
in the fields of marketing and e-services.
Air France-KLM
recognized
for its customer
relations
Air France and KLM are currently the first
airlines in the world to adopt this concept.
Innovation at the heart of client contact
On October 17, AFI KLM E&M
organised the Innovation Day forum
at the Montreal premises of its client
Air Canada, the aim being to present
the latest maintenance innovations
as proposed by Air Canada to its largest
MRO suppliers.
FOCUS
for charter flights with the Air France
Group and its Transavia France and Hop!
subsidiaries.
Air France-KLM currently remains
Club Méditerraneé’s leading airline partner
for scheduled flights. Similarly,
Club Méditerraneé remains Air France’s
leading partner in Tourism and Group sales.
Hop! has just launched its hob.
fr mobile website enabling
customers to access
the airline’s services around
the clock by connecting from
their Smartphones or tablets.
Customers can purchase tickets
for all destinations in the Hop!
network via totally secure bank
card payment in just a few
clicks using this simple, rapid
and intuitive tool. They can also
manage all the details of their
flight, change their reservation
with or without incurring an
additional charge depending
on the conditions of their ticket
and access the history of their
previous reservations.
On-line check-in from Smartphones
will also be available before the
end of the year.
Highlights
Air France-KLM wins an award
for its investor relations
2013-14 Winter schedule
> “Best investor relations by a CEO” award
Long-haul capacity is up by 3.2% while medium-haul capacity
is stable (-0.1%) relative to Winter 2012-13. This acceleration in growth
is seasonal.
Air France-KLM is maintaining its strict capacity control with an
unchanged overall growth plan: +1.5% for 2013 followed by +1.5%
in 2014.
On December 2, 2013, at the 6th edition of the “Investor
Relations & Financial Communication” Forum, Alexandre
de Juniac, Chairman and CEO of Air France-KLM. was
awarded the “Best Investor Relations by a CEO” Award.
This is the first time that the Group has won this award.
The jury emphasized the direct, simple tone and
coherence of Alexandre de Juniac’s messages along
with his transparent form of management. The “Investor
Relations & Financial Communication” Forum is the
annual French event which each year brings together
representatives from 120 companies listed on Euronext
Paris, including two thirds of the CAC40.
>T
he “Shareholder Relations” prize
On November 12, 2013, Air France-KLM had already been
recognized for its quality relations with shareholders. The
“Shareholder Relations” Prize organized by Les Echos
and Investir-Le Journal des Finances in partnership with
the auditing group Mazars had awarded the main prize to
Air France-KLM in the “mid cap” category.
This prize rewards companies on their ability to efficiently
communicate with all shareholder categories, whether
they are employees, institutional or individual shareholders.
« The content of the Air France-KLM annual report,
notably concerning the Company’s global strategy and its
integration in the economic environment, the regularity of
its communication and the presence of a shareholders’
club and consultative committee received unanimous
support », the jury had indicated.
For the Winter 2013-14 season (from October 27, 2013 to
March 29, 2014), the Air France-KLM Group’s capacity is up
by 2.5% relative to Winter 2012-13.
Air France
In a difficult economic context marked by weak European growth,
Air France is pursuing the roll-out of the measures linked to
the Transform 2015 plan and, notably, the adaptation of the schedule
of the Marseilles, Nice and Toulouse provincial bases to the seasonality
of demand and optimized use of the infrastructure at the Paris-Charles
de Gaulle hub.
KLM
KLM is focusing its intercontinental expansion on South America.
After several years of interruption, the airline will again serve Santiago
de Chile in February 2014. This winter KLM is also adding Florence
to its European network, with two daily frequences to this Italian city
which is celebrated for its history and artistic and architectural heritage.
Air France and KLM medium and long-haul destinations
123 medium-haul destinations
133 long-haul destinations
In addition to these new destinations, KLM will make seasonal
adjustments in its capacity to adapt to market demand, and look to
reinforce and extend its cooperation with partners.
In total, KLM is increasing its capacity by 2.8% this Winter season
relative to Winter 2012-13.
KLM is also pursuing its ongoing fleet and product development.
The airline will begin the replacement of its Fokker 70 fleet with
six new Embraer 90 aircraft and complete the reconfiguration of
its new World Business Class on board its Boeing 747 fleet before
launching a comprehensive reconfiguration of its Boeing 777s.
Air France-KLM confirms its commitment to remaining a partner of Alitalia
During its 2009 acquisition by private shareholders, Alitalia entered into a strategic partnership with Air France-KLM sealed by the latter acquiring
a 25% stake in the Italian company. Since that date, Alitalia has had to contend with an extremely difficult market impacted, in particular, by the
economic crisis in Southern Europe. Despite a strong improvement in its operational performance, service quality and tight cost control, the company
has not returned to profitability and has seen a significant increase in debt.
Within this context, in November, Alitalia organized a capital increase in which Air France-KLM chose not to participate.
As a confirmation of its support to Alitalia, once the capital increase has been completed, Air France-KLM nonetheless intends to convert the
convertible bonds to which the Group subscribed in early 2013 into equity, thereby improving Alitalia’s shareholders’ funds.
DeCEMBeR 2013 Action’AIR
05
Focus
Air France’s 80th anniversary
On October 7, Air France kicked off its
80th anniversary celebrations, the occasion to retrace
the airline’s development. The company’s history,
which is rich in innovation, testifies that creativity
and change are Air France’s strengths as it looks to
the future. This anniversary will be the subject
of a series of special events throughout the year.
1909-1932 / Origins
France becomes passionate about the birth of aviation
with airlines proliferating during the “Roaring Twenties.”
Pilots and passengers share the great adventure.
1933-1945 / Take-off
In 1933, Air France regroups the five leading French air carriers.
In just a few years, the company establishes itself on the world
stage as a major airline.
1946-1958 / Rapid growth
Buoyed by the expansion of air transportation, the company
enjoys spectacular growth. With a renewed fleet, it extends
and densifies its network to Africa, Asia and the Americas.
1959-1969 / Jet era
Caravelles, Boeing 707s….Jets revolutionize air travel.
These more powerful aircraft can carry more passengers
over greater distances and at increased speed.
At Air France, traffic doubles in ten years.
1970-1989 / Maturity
Air France enters the era of mass transportation, riding out
any turbulence resulting from competition and oil shocks.
And launches one of the most beautiful birds in history –
Concorde.
1990-1999 / Renewal
The environment deteriorates. Thanks to a recovery plan,
Air France undertakes an in-depth modernization aimed at
“Making the sky the most beautiful place on earth.”
Since 2000 / A global leader
Air France unites with KLM to create a leader in global
air transportation – passenger, cargo and maintenance.
Key figures
The Air France network is:
• 390 aircraft
• 190 destinations
• 1,500 daily flights
• 1,616 ,438 kilometers flown every day, i.e. four times
the distance from the Earth to the Moon
• 870 minutes, i.e. 14h30 for the longest non-stop flight
linking Paris and Santiago
The Air France uniforms are:
• 13 designers having worked with Air France
including Georgette Renal, Christian Dior,
Cristobal Balenciaga, Jean Patou, Nina Ricci,
Carven, Féraud and Christian Lacroix.
• 37,766 Air France staff in uniforms
In-flight gastronomy is:
• 1 million bottles of champagne a year
• 14 million meal trays a year
• Leading chefs having created the in-flight meals
since 1973; from Guy Martin to Thibaut Ruggeri,
Joël Robuchon, Michel Roth, Alain Ducasse
and Jacques Le Divellec.
On board is:
• 1,960 square meters of fabric used for the seats
in an Airbus A380, i.e. more than six tennis courts
• 600 square meters of carpet, i.e. more than
two tennis courts
And also:
• 2.7 million children carried by Air France
• 8 Arcs de Triomphe can enter the A380 hangar
measuring 400,000 cubic meters
• 12,250 horses transported in 2012
• 60 helicopters transported each year by Air France
Cargo
06
Action’AIR december 2013
Committee Life
The Committee met…
At its autumn meeting on September 18, 2013, the Individual
Shareholders Committee (ISC) had the pleasure of meeting
Jean Sanlaville and Peter Coenen. Jean Sanlaville,
Head of Management Control for the Air France-KLM Group
was previously at Air France and Peter Coenen, a member of his
team, comes from KLM. This effectively reflects the commitment
to setting up mixed teams at holding company level, a factor of
mutual benefit and financial performance optimization via the
sharing of different but highly complementary areas of expertise
Jean Sanlaville stressed this point
by emphasising that it should enable
their full support for all the Group’s
operational executives in the decisionmaking process.
This management control function
which is key to the organization is deployed at all decision-making levels of
the company. Around 600 people belong to this function within the Group.
It is an organization by functional link
with a high degree of integration required within the Group’s different departments, enabling the circulation of
information and advice. Management
control helps the departments to align
themselves with the organisational
processes of coordination and homogeneity that now prevail within the
Air France-KLM Group.
Jean Sanlaville also stressed that, in
the Group’s current situation, the role
of management control is to ensure
the precise and analytical monitoring
of the action plans deployed within the
framework of Transform 2015. This
involves a vital phase of information
and analysis to explain any shortfalls
on the objectives, and inform the general management and executives with
the required explanations. It is a key
process when it comes to identifying
any new actions required to meet the
objectives and encouraging rapid responses to offset the negative factors
which are always emerging. Manage-
ment control must maintain pressure
on the improvement plans and the
factors of success with priority given
to the cash generation targets. This
pressure must, of course, always be
compatible with the strategic orientations pre-defined by the general
management such as the decisions to
invest in winning back customers. It is
important that management control
combines the productivity gain and
cost reduction objectives with those
aimed at upgrading products and the
level of quality for customers while
contributing to reducing the Group’s
debt.
Lastly, Group management control is
a cornerstone in the steering of the
major financial control functions and,
in particular, the three-year plan. This
is a process mobilizing all the Group’s
business lines which projects their assumptions on growth, revenues and
the changes in costs and investments
over three years. The role of Group
management control is then to analyze these assumptions, discuss them
with the various executives, evaluate their relevance in the light of the
Group’s strategic orientations and
principal financial targets, and consolidate them to present the plan to the
general management and the Board
of Directors. This plan identifies the
operational targets for executives and
may change depending on the various
internal and external constraints.
Jean Sanlaville
Peter Coenen
Peter Coenen added that Group management control is at the heart of the
processes and thus can contribute to
taking the right decisions at the right
time.
Following a question on his career
at KLM, Peter Coenen spoke passionately about his experiences in
Latin America and Germany, adding
that this now gives him a better understanding of the different situations
facing managers and thus enables
him to contribute to the companywide appropriation of the Group’s
strategy.
DeCEMBeR 2013 Action’AIR
07
My notebook
My shares
Share price trend
Consultative
Committee
Air France-KLM
CAC 40 (relative)
Air transport index (relative)
at January 1, 2013 – base 100
(ata to December 6, 2013)
150
140
Selection notice
Individual Shareholders’
Committee
130
120
110
Comprising 12 Air France-KLM
shareholders, the ISC
is regularly consulted on
improvements to the quality
of information and services
for shareholders.
It meets four times annually
and is involved throughout
the year in matters that
particularly concern
shareholders such as
planning the Annual General
Shareholders’ Meeting.
The six-year mandates
are renewed every three years
and come into force during
the June following
the Shareholders’ Meeting.
A selection committee meets
to draw up the short-list of
candidates, the final decision
falling to the Group’s Chairman
and Chief Executive Officer.
In June 2014, four positions
will be renewed for which
any shareholder owning
at least fifty Air France-KLM
shares may apply before
the April 10, 2014 deadline.
The application file and
the Committee’s Charter
are available on the website
www.airfranceklm-finance.com
or on request by email to
[email protected]
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90
80
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01
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13
06
10
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Stock information
Dual listing
Euronext Paris and Amsterdam
Code ISIN action FR0000031122
OTC Market AFLYY
Reuters codeAIRF.PA
Bloomberg codeAFLYY
Eligible for deferred settlement
and for PEAs (equity savings plan)
Included
in the following indices
French/Dutch: CAC Mid 60
SBF 120
AEX-index
Share capital at September 30, 2013
Number of shares outstanding: 300,219,278
Global: Euronext 100,
DJ Eurostoxx 600
Sector indices: DJ Eurostoxx 600 Travel
& Leisure
Breakdown of
Air France-KLM
shareholders
Euronext FAS IAS Index for stocks
with a significant proportion of employee
shareholders
Securities services and dividend
payments:
20%
Individual
shareholders
Breakdown of resident/
non-resident shareholders
60.3% Resident
56.7%
Institutions
Société Générale
32, rue du Champ de Tir
BP 81236
44312 Nantes Cedex 3
15.9%
7.4%
Employees
French
State
39.7% Non-resident
Contact information
Website www.airfranceklm-finance.com
By mail:
Air France-KLM
Bâtiment Altai – AFKL.FI
10-14, rue de Rome
93290 Tremblay-en-France
By email :
[email protected]
Head of publications: Dominique Barbarin - Chief Editor: Christine Machard - Printing: Air France Publications – DBAC – Investor Relations - Photo credits:
Air France and KLM photograph librairies