Air France-KLM SA (AF) Earnings Call Transcript & Summary

Good day and welcome to the Air France-KLM full year 2021 results presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ben Smith, CEO; and Mr. Steven Zaat, CFO. Please go ahead.

Okay, thank you, operator. Good morning, everyone. I'm here today at the Air France-KLM offices near Paris-Charles de Gaulle airport with Steven Zaat, our group CFO; Pieter Elbers, KLM CEO; Air France -- Anne Rigail, Air France CEO. We would like to welcome you to the Air France-KLM 2021 Full Year Results Call. I'd like to start by thanking all our colleagues across all our airlines and business units for the incredible hard work and dedication they continue to display throughout this unprecedented period. In addition, we're also very grateful to the French and Dutch states for their continued support during this challenging period, but most importantly I'd like to thank our customers for their trust and loyalty. Throughout 2021, the uncertainty of the coronavirus crisis and constantly changing local measures remained a challenge. Today, with the growing effects of vaccines and milder Omicron symptoms, we are optimistic when looking at the months ahead. And we expect a steady recovery as travel restrictions to and from our key markets continue to lessen. I will now walk you through the key figures for the year 2021. So moving to Slide 3. We continue to closely monitor global demand for and accessibility of travel and are seizing every opportunity we see. This has helped result in a positive EBITDA of EUR 745 million for the year 2021, a sharp increase compared to last year. For passenger activity, in 2021, Air France-KLM was able to operate up to 72% of our 2019 capacity and at a 71% load factor, with the first half of 2021 more impacted by travel restrictions. Short- and medium-haul, African and Caribbean routes were the best performers. Compared to 2020, the number of flights in 2021 increased by almost 25%, and the number of passengers carried increased by more than 30%. For Transavia, recovery showed a steeper curve, as the capacity was close to precrisis levels with a load factor of nearly 75%. During the second half of the year, we observed a particularly strong recovery of leisure traffic captured by the development of the domestic network for Transavia France, which resulted in a overall increase of more than 50% ASKs compared to 2020 with an increase of passengers carried of approximately 70%. The strong cargo performance realized in 2020 continued throughout 2021, outperforming previous years. The full contribution of cargo in 2021 tripled versus 2019. At engineering and maintenance, 2021 proved to be challenging, as the external revenues in 2021 were down by 18% compared to 2020. This was due to our customers continuing to consume green time on their engines and, to a lesser extent, a reduction in the use of their equipment as part of their mitigation of COVID-19. Despite this, the operating result of our maintenance activity was positive in the fourth quarter and full year 2021. Core margin reached 3.1%, a sharp increase compared to 2020 where it was at minus 19%. Moving to Page 4. We accelerated and continued to execute our transformation plan, positioning us in line with our mid-2020s financial targets. Steve and I will have the chance to give you more details on our transformation efforts later in the presentation. Moving on to fleet. In 2021, we continued to take major steps toward the renewal of our fleet to allow more efficient operations and support our sustainability goals. We closed a landmark deal with Airbus for the firm order of 100 next-generation A320neo family aircraft for our medium-haul fleets at KLM and Transavia, with 60 additional purchase rights. This historic deal will allow us to sustain our medium haul activity throughout the airlines of our group while leveraging the full power of our scale. We also signed a letter of intent for the purchase of 4 Airbus A350 full freighter aircraft for Air France. In addition, further simplification was achieved with the phaseout of our CRJ700s at Air France HOP!, with the phaseout of our CRJ1000 aircraft in the first half of 2022. With that, the Air France HOP! fleet will then consist of only Embraer 190s and 170s, resulting in one single cockpit type. Besides efficiency, fleet renewal is a major lever to achieve true sustainability. In 2021, we committed to reaching net zero CO2 emissions in 2050. And we committed to SBTi and its framework, which will ensure a transparent evaluation of our sustainability achievements in line with the Paris Agreement on global warming. In 2021, our first airline solicited ESG rating emphasized that, through our clear commitment and sustainability strategy, we are adequately prepared to manage risks over the year -- near term and medium term. 2021, we also launched our sustainable aviation fuel corporate program to accompany our customers in their decarbonization effort. So far, 70 accounts have already signed up. Last but not least, in 2021, we have also worked on maintaining a high level of customer service, excellent onboard sanitary measures and a new customer range of products and services. In 2021, our NPS scores at both KLM and at Air France have been consistently high. Air France was named best airline in Europe at the Skytrax World Airline Awards, and KLM recently received the 2022 APEX WORLD CLASS award. Turning now to Page 5 of the presentation, a word on corporate travel. Corporate revenue in 2021 is still low compared to 2019, but it showed a steady, growing trend throughout the year [indiscernible] now on the right side of the slide. At the end of the year, in our long-haul flights, we reached 50% of our 2019 revenues versus a low point in Q1. Moving now to Slide 6, you can see key metrics for the fourth quarter of last year. This quarter marked a turning point for Air France-KLM. For the first time since the beginning of the pandemic, we reached a positive EUR 200 million quarterly result, a better performance than in Q4 2019. This performance is a result of an increased level of agility and flexibility in managing our business, the continued execution of our transformation plan and the benefits of the Dutch NOW and activité partielle unemployment programs. During Q4 2021 and compared to the same period in 2020, Air France-KLM carried 167% more passengers, for a unit revenue increase of 87%. Our load factor averaged 71.5%, an increase of almost 30% (sic) [ almost 30 points ] compared to Q4 2020. This positive momentum on our passenger activity was coupled with a solid performance in our cargo business, which posted another strong quarter with yields continuously on an upward trend sustained by high demand. Cargo revenues reached EUR 1 billion for Q4 with a higher unit revenue than Q4 2020. Continued strong demand is expected in Q1 2022 with global trade booming and sea freight facing bottlenecks. A word on cash and debt. The first set of recapitalization measures initiated last spring have reduced our net debt by 26% compared to the end of 2020. And our cash at hand remains at a sufficient level of EUR 10.2 billion. I would now like to hand it over to our CFO, Steven Zaat, to provide further details on our financials. Thank you.

Thank you, Ben. Good morning, everybody. As you can imagine, I'm pretty happy with the results which we are going to present. When we were in the end of October, we were looking actually at our guidance. And we thought that we're slightly positive EBITDA for the full year, and we end actually with a EUR 745 million for the full year. So it was even better than we expected at the end of October. In November, of course, we saw that Omicron was getting there, so let's say we get quite nervous, but what we see is actually that the performance on the long haul was getting stronger and stronger. So we were increasing capacity. We were increasing our load factor, and that is driving our results. For the first time, we are doing better than we did in 2019. So Q4 this year is better than in 2019 for Air France and for KLM. So pretty strong results, strong in cash. We are still above EUR 10 billion in cash, which is actually we paid back EUR 500 million of the state loan at the Air France side, so that is a very positive news. And we were, for the third time in a row, cash positive. So let me guide you on Page 8 through the development in our network. So as you can see, despite Omicron, which kicked in, let's say, more or less in November, we were able to increase our capacity and increase our load factor. So we reached a level of 72%, which is in the guidance. So despite that we had Omicron, and we guided before Omicron, we were still in the guidance of 70% to 75%. And at the same time, the load factor increased, so that means that we are -- actually the money machine is starting to run. And we have even higher yields than we had in 2019. It -- especially strong on the long haul. On the long haul, we end, at the end of the day, with an capacity of 75% and a load factor of 75%. And we see that the load factor in the business class and in the economic class is actually the same in the fourth quarter. So on the long haul, very strong results. Especially, when the U.S. was opening, we saw actually flights which were fully booked. And I can repeat myself again: If people can fly, people will fly. So despite the fact that there were a -- there was a lot of restrictions in place related to the Omicron, on the long haul, we saw still a big demand. Then on the medium haul: On the medium haul, it was a bit different. There you see actually that there was an impact of the Omicron. You see a slight -- you see a decrease in terms of load factor. We kept in the same kind of capacity of 80%, but here you see that the lockdown measures in Europe significantly hit us. There was very strong lockdowns measures in the Netherlands. And you see that actually the load factor gap is increasing in December, but still you see October and November we were actually hitting closer to the levels which we had in 2019. And then on the France domestic it is a little bit the same picture. We are planning, of course, on a lower capacity than we had. It's part of our transformation at Air France, but the lockdown, especially with all the offices closed, that didn't help us so much on the France domestic. So we had a little bit of pause here during the Omicron. As we see now that actually all the -- let's say, the constraints in traveling are disappearing more and more, we expect that it is picking up quicker, but we see that there's at least a [ 3, 2 ] months delay probably in terms of corporate traffic. If we go to Page 9, then you see that we kept more or less the same capacity in as Q3, which is quite high because usually Q3 is actually our peak season. So we kept, let's say, approximately the same level, but of course, we are still far away from the levels of 2019. So we are 28% lower. We had 75 million ASKs in the Q4 2019. And the same is true for our revenues getting closer to the levels where the crisis started. We started at Q1 with EUR 5 billion. We are now at EUR 4.8 billion, but still if you compare to Q4 2019, it's EUR 6.6 billion. But still it's a doubling of revenues versus 1 year ago, and coming back, we get closer to the pre-pandemic levels. And then the very positive news because, the fact that we have a decrease in revenues, we were able also to decrease the costs at the same level. So currently actually we have an EBITDA which is close to Q4 2019 levels. It's the best quarter of the year despite Omicron, despite lower corporate travels. And the facts that are -- still headquarters are closed didn't impact us in terms of profitability, so we are much better than I guided you at the end of October. It is not that we were very conservative at the moment, but we see that the appetite to travel is bigger than we expected with or without Omicron. If we go to Page 10, the revenues I just explained. There is, of course, the big question on the fuel. So the fuel cost went up with EUR 431 million. This was mainly driven by capacity that has an impact of more than EUR 300 million. And then the higher fuel price kicked in. That is around EUR 500 million, but it was partly compensated by very effective hedges, which was around $150 million. And at the same time, we had -- last year, we had negative hedges in the results. So also for 120 million. So if you take the total hedge year-over-year, it's almost 300 million in terms of results. And we see also that the efficiency of our aircraft are kicking in. So that reduced our fuel with more than 100 million. Then we get to the operating result. So for the first time -- and this is our main KPI where we're focusing on. We are at EUR 178 million, which is EUR 100 million better than in Q4 2019. Now this is a big surprise for me, and I suppose it's a big surprise also for you. So the strong cost measures reduced our costs even more than we expected. And at the same time, even the revenue increased compared to our expectations in the last quarter despite the fact that there was Omicron. And then last, but I will come back on that later, we had for the third time in a row a positive cash flow in this quarter. If we take a look on Page 11 and you see our unit cost, you see that the unit cost actually is down with minus 1.2% and that with a capacity decrease of 26%. If you go -- if you take a deeper dive, especially on the staff costs, you see actually that the costs are getting down with 27%. Then we had still the state aid in. So the state aid has a positive impact of EUR 160 million. So if you look at the staff costs excluding the state aid, you see that we are already at minus 20%, so the fruits of the transformations are really getting in both at Air France and both at KLM. I'll come back later on the results of both airline, but you see a strong increase of results of Air France, getting closer to the margins of KLM. If we go to Page 12. On Page 12, you see the results per network. Now I explained to you already that we have strong results on the passenger side. So that created actually a positive result for our network business, but cargo is very strong and stronger than ever. We have currently EUR 400 million additional revenues than we had in Q4 2019. And despite the fact that we increased our capacity with bellies, you see still that we are able to increase the unit revenue. So we are actually benefiting from the logistics situation around the world, and you see that there is still a big demand for the cargo. Going to Transavia. So Transavia was not profitable, but it is usually -- it is in a very difficult quarter because it's the winter season. On top of it, of course, as I discussed, there were all kinds of Omicron measures in Europe, so that, of course, impacts also the Transavia results. And then we had the closure of the Morocco borders, but despite that, we kept the capacity close to the 2019 levels. We had a load factor of 80%. And if I look at all the other cost -- low-cost competitors in terms of results, I think the loss is pretty low compared to our competitors over there. On the Maintenance side, we have actually 2 pictures. I will say it's still difficult to get the external revenues in mainly coming from the shop visits. So actually everybody is saving on their [ engine shop visits ], and of course, that results in a lower revenue. On the engine side, it's -- by the way, the 80% is variable costs, so if we don't have the revenues, we also don't have the costs. And you see that, despite this drop in revenues, we are still able to make a profit of EUR 69 million and an operating margin already of 9%, so the Maintenance business is getting back on track. And we expect at a certain moment that all these shop visits will fall when, let's say, all airlines are starting to fly again. So all in all, very happy with operating results. I am very happy even if I look at the 3 domains, where we had an excellent performance in this quarter. If we then go to the airlines. So let's start with KLM. So KLM quickly implemented their restructuring. And you see already that the -- by putting this restructuring in place, they have already a decent margin of 6% and despite the fact that we have still much lower revenues than we had in 2019. For Air France, we know that it took time to get all the, let's say, transformation in, but you see now that we get all the transformation actions in into our results and which resulted actually that Air France is currently already EUR 70 million better than they were in 2019, where KLM is more or less at the same level. So the gap, the performance gap, which we saw increasing actually during the crisis is actually closed now. And we are getting closer in terms of results, so very good results, very promising on the costs side. And still, as you know, there is a lot of capacity which we can still put in place where we have the transformation actions in place. If we then go to the full year, yes, and this is actually a very interesting picture, then you see there is a big difference in the first half year versus the second half year. So the first half year, we lost EUR 1.9 billion that we cannot recover in the second half year because we are not yet back on track because we still don't have the full capacity in, but you see that we already have a result of more than EUR 300 million in the 2 quarters. And you see that KLM is already at the margin of 7.5% in this quarter. And if we look at Air France, coming back: They are now at an operating margin of 0, but you saw the results in the Q4, where we -- actually the gap performance between the two are getting closer to each other. So very promising results at both airlines. And I really want to thank, as Ben already did, all the staff -- because we saw all these colleagues leaving, but all the work is still to be done. We worked day and night to receive these results, so thank you very much for bringing these results in. If we go to Page 15 and then you see the cash flow. So as I said, for the third quarter in a row, it's positive. It's not driven by working capital so much. It's more driven by our EBITDA and our operational results. So EUR 600 million coming from our operational results. The change in working capital is not coming from selling more tickets. So actually we -- the selling and the burning of the tickets were almost the same. I think we have the benefit of 60 million of it, but it's more that, if you grow capacity, you have a growth in accounts payable which is beneficial for your working capital. And still you see a very low CapEx go in. We had delays of fleet at the KLM side on the 787-10, but still you see we keep the CapEx levels close to the 2020 levels despite the fact that we are renewing our fleet. So all in all, very happy that we showed for the third quarter in a row a positive cash flow in the quarter. If we then go to Page 16. There we have the full year actually for the net debt. So of course, due to the very tough Q1 especially where we lost actually cash -- you see that we are regaining cash in the -- 3 quarters after, but all in all, we lost EUR 600 million in terms of cash. If you look at the net debt: We start to reduce it, especially coming from the capital-strengthening measures which we had in April. And we ended the year at a level of EUR 0.2 billion (sic) [ EUR 8.2 billion ] in terms of net debt, so we reduced it by almost EUR 3 billion in this year. And then we come, of course -- and we all know it. We need to strengthen our balance sheet; and we are working on that, again, day and night. So as you know, we did the first transaction in April, and actually we strengthened there already the balance sheet and reduced actually our equity [ gap ]. We are preparing for all kinds of instruments. So we are looking when we are going to announce preemptive rights for the shareholders to see exactly what is the -- we have to look at the market conditions to find the right spot. We have all our quasi equity instruments, let's say, prepared. So it can be a convertible perpetual bond or it can be in hybrid convertible bonds. And we're also looking and we are looking [ at these ] to refinance assets in a way to create equity, and that is for an amount of around EUR 500 million. So in total, we have, let's say, all kind of tools in place which can reach up to EUR 4 billion in terms of equity, but we are still looking for the right moment. Our reference shareholders are supportive of these equity-strengthening measures. And we have big discussions if they participate or not, so I cannot -- as -- the capital increase is not fully announced. I cannot say who is going to participate [ and not ], but we are very positive and they all support currently actually our actions. So we will come back to you when we are ready. And of course, again I want to stress it again. It is our intention to pay the states back as soon as possible. So -- and we know that it is an strategic constraint on our company, so we will -- let's say we have all the scenarios ready to get quick in repaying the state aids to the states. If we have done all these equity measures which we have in mind, we reach a net debt-EBITDA level of 2x to 2.5x. It depends a bit of how much state aids we are going to pay back. So if you pay back state aid, that has a negative impact on the net debt, but of course, it is a [ trading ] balance for us, to what level we go and to get, let's say, actually rid of the measures which we have from the European framework. So all in all, we are prepared. We are sitting ready, but we have to find the right moments to do something. If we then go for the outlook. So we keep on ramping up our capacity, so we are expecting a level of 73% to 78% in the first quarter this year despite the fact that we know that there's limited corporate travel due to the fact that all the headquarters are not open yet. They start to reopen at the moment. And we see that, especially on the long haul -- we are getting close to 80% of our capacity in long haul, doing very strong, supported, of course, by the cargo. And as I already said, there is a long -- a lot of demand where people -- if they can fly, they are flying. And you see that -- already that in January we are current -- that we have a load factor of 77%, so close to the 80%, despite the fact that again there are all kinds of measures still in. But these measures are going to be lifted and lifted actually, what we see now every day. And that -- we see that also in our bookings. So the bookings are very strong since actually last week. And that gives us actually, let's say, the comfort that we can keep these capacity levels in. And up to now, we never disappointed you with, let's say, the production [ to have in ]. Then on the medium haul, you see still that it is closer to, let's say, the levels of 80%. And there we adjust continuously, looking at the flights, contribution of the flights to keep the capacity in or not, but again as bookings are starting to grow also on the medium haul segment, we are having a comfortable feeling by these capacity levels. And then the French domestic: That is very much also that Q1 is especially a -- let's say, a market which is dependent on corporate travel because, at the end of the day, in Q1, there are -- not a lot of people are going on holidays. So you see that we are adjusting there the capacities to this 50% level. That's also the aim. It's never the aim to get back there on these levels. And the French domestic is a market that -- which has a very late booking curve. So they book late just for the travel, so it's very difficult to say where we will end, let's say for instance, in March. Then on Page 20, you see we still have a cash level of 10 -- more than EUR 10 billion despite the fact that we paid back EUR 500 million in terms of the [indiscernible] French side. So a strong cash position still at the beginning of the year, which is, of course, comfortable. If you look at the first quarter, actually you'll see that we will be around breakeven in the current international context. Of course, if there is going to be a war in Russia and Ukraine, the situation will different -- be different, but with the current international context, we are comfortable with an EBITDA around breakeven. We keep, let's say, the lower CapEx levels in compared to 2019. So it's EUR 2.5 billion, of -- 80% related to fleet. So strong cash position. And still we expect, let's say, from an operational cash flow perspective that Q1 will be not a big cash-burn quarter. Then on the Page 21, and there you get to the [ $1 billion ] question. So where do we go end with our fuel? So I think there are 2 scenarios, and I think everybody knows it. If there will be a war, that will be a tremendous pressure on the fuel price. If, let's say, the situation is appeased in the Ukraine, then you will see immediately big drop. We have quite significant hedges already in for Q1 and Q2, 72% for Q1 and 63% for Q2; and we are ramping that up. For Q2, we will go to levels of 70% at the end of this quarter. We go to 55% at the third quarter; and at 40% at the fourth quarter, at the end of this quarter. We have already a positive hedge result in our portfolio of $470 million. And in Q4, you see we had a big contribution also from this hedge around $150 million, which was already mentioned. So I think the hedge positions are quite safe. And we also put in some "out of the money" put options, if the oil price will drop significantly, to benefit from that part. If we go to Page 22. And here I think we started the -- this crisis and we started to announce big transformation plans. Actually you see, the further we go, the further we see that all these cost savings are getting in because Q4 was also very positive due to the fact that we had lower costs than we expected. So KLM, as already stated, doing it quickly. And they're still at EUR 800 million, compared to 2019, with a reduction of 17%. On the Air France side, we are now at EUR 1 billion. We will ramp that up till -- to EUR 1.4 billion at the end of 2022. And they are currently already at minus 16% in FTE. So we see that we are getting balanced in terms of FTE reduction. And on Air France side, there is still more to come. Then if you look at the state support. So we had 2 months in Q4 2021 for the NOW, and for the entire Q1, we have the NOW in place. And on Air France, as you know, there are nothing changing. The long-term partielle -- activité partielle, as they call it here, is in place until the end of this year. So even if there's, let's say, a more severe situation, we can make use of this activité partielle and this NOW system. Then coming back on the unit costs. And as already stated, very happy on the cost development in Q4, but you see that we have actually now measures in place which also keep there. At the moment, we will grow capacity. So we expect a unit cost reduction of minus 4% to minus 6%. We should not forget there is lot of price inflation, so that is calculating in; that we have a lot of transformation projects, which actually continues to bear fruit, plus the fuel efficiency coming from the fleet. Later, we will give you the guidance on our transformation program, but as we say, all the measures we took, and I was there as CFO of Air France, they are there to stay. So for instance, if you look at the headquarter reductions we did here at Air France. Of course, if we ramp up activity, we will not increase these staff. So we have a reduction of 12% in FTEs, excluding the Transavia France growth which is very substantial for the years to come. And if you look at the 4% to 6%, Air France is more at the upper side of it. So it's even above the minus 6%. And KLM, as they had already competitive unit costs in place, the unit cost level is more -- closer below the minus 4%. Then on the CapEx, if you look at the CapEx. We will not come back to the levels of 2019, as already guided. We have EUR 2.5 billion in 2022. We are aiming at a level of around EUR 3 billion, which is approximately the level of our depreciation and amortizations. We reduced it significantly compared to the EUR 4 billion we guided during the Investor Day. And you see that we are continuing to renewing our fleet [ with a ] 50% of operating leases for the coming years. And we are still reducing with this 50% our operational lease cash-out. So an reduced capital expenditures program for the years to come to support our free cash flow. So coming back then on the guidance for the midterm. So we still expect that the capacity will be back to 2019 levels in 2024. That's maybe on the pessimistic side. Maybe it will be 2023. Who knows? If you see the appetite, you could expect a scenario where we are earlier back on the capacities of 2019. We have a program in place which is actually all secured, and all kinds of actions, which brings us down to -- unit cost levels to -- 4% to 6% at a constant fuel price. And when the capacity is back at the 2019 levels, we keep the operating margin in our plans between 7% to 8% in 2024. So we repeat that. And on the cash side, we will have an adjusted operating free cash flow expected to be positive in 2023, excluding exceptionals. We still have to pay the cargo claim. If you pay the cargo claim, of course, that has an impact on our free cash flow in 2023, but we don't know what year we are going to pay that. And the same is for, let's say, repaying back, let's say, the deferrals of the social charges to the states. We keep on the guidance on the net debt. So it is circa 3x if you just look at our operational performance, but after the recapitalization, we get back to 2x to 2.5x levels, depending of the size of the second step of the recapitalization and depending also how fast we will pay back [ the -- both states ]. I hand over now for the strategic highlights to our CEO, Ben Smith.

Thank you, Steven. As you can tell by Steven's positive tone, I think we're all very pleased to tell you how gratifying it is to finally start to see a smile coming from our group CFO. So turning to Page 27. Our focus on our key strategic pillars that we put in place in 2019 has been maintained throughout the crisis. These have formed the foundation of our plans as we move forward. I'd like to take a few minutes to discuss 2 of these pillars. So first, sustainability. Climate change is undoubtedly the greatest challenge our industry faces today. Sustainability is a key component in all our strategies, our ultimate commitment being net 0 by 2050. To meet these objectives, we have several key tangible targets, including a commitment to reduce our CO2 emissions by 50% network-wide by 2030; and by 50% in the French domestic market, the most -- which is the most strict condition in Europe. Currently our main decarbonization levers are fleet renewal and the use of sustainable aviation fuel. We are continuing our fleet renewal trajectory, and our fleet will include almost 50% next-generation aircraft by 2025. These next-generation aircraft all provide at least 15% and up to 30% reduction of CO2 emissions compared to current-generation aircraft. In addition, the next-generation airplanes will provide a significant improvement in noise emissions. Furthermore, we'll increase our SAF blending to reach 2% in 2025, leveraging the success of our corporate offers and [ B2B ] offers, with systematic SAF contribution in ticket pricing as a baseline. Our SAF blending will continue to grow in the following years. In the meantime, we are pursuing all other levers at our disposal such as ground equipment electrification, eco piloting and carbon offset mechanisms. Moving now to Page 29. Our transformation delivered EUR 1.8 billion of savings end of 2021, compared to 2019; and we will be delivering stronger results in the years to come. The acceleration and expansion of our transformation programs will allow us to achieve more than EUR 4 billion of structural savings by the end of 2026. We move now to Page 30 and give you a few details on the content. So major items include the [ restructuration ] of our French domestic network, the streamlining of our organization with a reduction of 12% of total FTEs in a context of social stability and fleet renewal and simplification. Our transformation is well underway, and we are confident in our ability to achieve the guided 7% to 8% operating margin by 2024. Slide 31. So in conclusion, we achieved significant milestones in 2021. We've ramped up capacity, and load factors are on a sharp increase across the network. Our cargo activity continued to outperform. And MRO activity is back to positive operating result. We continued our restructuring efforts, resulting in substantial structural benefits. Our airlines are recognized as airlines of choice. As we look forward, we will continue to follow our strategic plan, our compass, at a steady pace while constantly adapting to our customers. We will continue to execute a historic transformation across our group to ensure future competitiveness leadership. We will continue to strengthen our sustainable commitments and execute environmental impact improvement. So now let's take it -- to pass it back over to the moderator, and we can take your questions.

[Operator Instructions] We will take the first question from Alex Irving from Bernstein.

I -- My first question is on RASK into the recovery. You've given some details on CASK. Do you have a view on where this is likely to go, please, [ and the leads ] that you have to support this? Specifically anything facilitated by, say, NDC [ and the view of the ] different benefits from areas enabled by this. Second question is on sustainable aviation fuels. We saw the news recently that you're imposing a surcharge for this. Can you please talk a little bit about your expectations for the pricing logic? Are customers actually paying more? Or are you having to take down base fares to get the booking curve the way you want that to be? And then third and finally, if I may, can you please talk about the willingness of business passengers to travel, what evidence you're currently seeing and how they're behaving, relative to leisure passengers, on short, medium and long haul?

Okay. Let's -- coming back. So that's -- let's say, on the CASK, I gave you all the guidance. On the RASK, yes, we see bigger ancillary revenues, so -- and we see that actually that the RASK actually is overperforming than what we expected. Of course, we are still -- we are looking at RASK always compared to 2019. So we still have, let's say, a negative impact in terms of load factor on our RASK, but if you look at the yield, we see that the yield is actually up in Q4 for the total network. So the yield is up by 7.4%, also driven partly by ancillary revenues. You see a lot of baggage coming in. And indeed the NDC doesn't impact -- I don't know how you want to see that, positive or negative, but it's not a significant impact on that one. Then we put in place a surcharge for the sustainable aviation fuel. And we put that in place and we see that it's actually sticking, so actually we can keep increasing -- actually we could increase our fares due to the fact that we have higher fuel costs. So that is in. And it's not meant to be reduced for the coming period; also not, of course, if you look at the trend in terms of the fuel costs. And then on business traffic, I think I already said it. In Q4, on the long haul, we had in the business class actually in -- the same load factor as we had on the economy. Of course, there is yet less corporate traffic. So we know that, but we see that it's filled up actually by leisure passengers who will take a business seat at the moment they can fly.

Yes, I have 1 or 2 words there. Just to Steven's last point, on the business class and La Première load factors, we are seeing a significant increase in the number of high-end leisure tickets sold in the premium cabins. This started just prior to the summer. When Europe opened up to American visitors, yes, we were very pleased to see the uptake. And that has continued right through to today. Many of the premium-heavy airplanes that we had on Asia have now been switched. We're now operating those on routes to the United States. And forward bookings are showing that, that phenomenon is continuing. On the CASK side, I can't underestimate the benefits of shifting operations from our regional operator HOP! to Transavia. We're almost finished with that transformation. As you're aware, HOP! was, still is one of the highest-CASK operations in Europe today. And transferring the bulk of that activity out of Paris Orly to Transavia has a significant improvement in our CASK, and then moving those aircraft to other European routes has been a big help. So that's driving an improvement in CASK. And then throughout 2020 and just continuing a little bit into 2021, we still have the impact of the removal of the 747s at KLM; A380s, A340s at Air France. And there continues to be a densification in many of the fleets that we have.

We will now take the next question from James Hollins from BNP Paribas.

A couple for me. The first one is on the bookings pricing outlook, as you'd expect, but starting with transatlantic and the obsession in the market I'll stick with. Are we looking at Air France capacity up quite significantly against 2019 in Q2 and in Q3 on transatlantic? That's what my data is showing. I just wonder [ if I could ] check that. And then the U.S. airlines in the results season [ are largely ] talking about bookings and pricing on transatlantic looking better than 2019 at this early stage. Just wondering if you could comment on -- I know it's early stage but Easter and obviously summer bookings. The second question, if it is the second one. I'm just wondering if you could run through kind of the impact and trajectory of moving both KLM and Transavia from Boeing to Airbus operators. Is it kind of bad to begin with and then -- as you have mixed fleets, and then sort of good much longer term? Maybe just sort of your thoughts would be very welcome.

Okay. So James, on the transatlantic, if you do -- if you take a snapshot of all transatlantic capacity that's currently being sold in the marketplace for the summer period, you can see it's still below what was in place in 2019, summer 2019. Obviously airlines such as American Airlines have removed a big portion of their wide-body fleet permanently, so difficult to reinstate. I think they pulled out all their 767s and their A330s. We know British Airways has removed their entire fleet of 747s. There is -- obviously Norwegian has pulled out of the transatlantic. We're not quite sure if this new airline will be up and running. We see a decrease in activity coming out of Italy, so we are -- we have put out, for sale, levels of 2019 on many of the routes transatlantic and in some cases actually an increase. We're quite confident and optimistic that, if we -- if the rules that have currently -- where we're currently sitting today where there's very few restrictions for Europeans to enter the United States and vice versa, that we should see the benefits of pent-up demand. We saw this in Europe last summer, particularly in the countries on the Mediterranean basin. And as I said, we're quite optimistic that we should see something similar in the summer of this year. So I'll pass it over to Pieter for the transition impact on -- moving from 737, that platform, to the 320neo; and what we're expecting at KLM.

Thank you, Ben. Yes, on the question of the transition, I think it's, first, fair to say that the decision on the fleet has been a very important one for the group and for the airlines in the group. The first aircraft are expected to come in by the end of '23, early '24, so that means that we still have some time for the preparation. And the overall time frame for the introduction is going to be a couple of years. We are not the first airline going through a transition like this, so we get the support and we have some learnings from other airlines. So this will take place in the time frame roughly '24 up to 2030. And I think we do have the opportunity, by having both Transavia Netherlands and KLM operating out of Schiphol Airport, to optimize these influx of new aircraft and to make sure that we do it in an optimal way going forward. So we are not concerned about that on the short term and we do have plans in addressing these transition, again we are not the first airline doing that, in the time frame '24 to 2030.

We will now take the next question from Jarrod Castle from UBS.

Yes, 3 questions. Firstly, just in terms of the potential balance sheet fix, you say you can scale it up to about EUR 4 billion. At the moment in the group level, you've got negative shareholders' equity of EUR 3.8 billion. Can you just give an update where actually the Air France negative equity is; and just how you kind of got to the up to EUR 4 billion, please? If there's anything you can say on that. Just secondly, I understand you can't say anything in terms of -- given the uncertainties, in terms of what the capacity will be this year per se, but assuming China and Japan don't come back, could you give an idea of where capacity could land for this year or indeed where capacity could land for summertime, please? And then just lastly, on cargo and passenger. I mean, can you give a rough idea in terms of the split of profitability between the 2 businesses? And do you think cargo, over the medium term, now is structurally a better business?

So let's first start on the balance sheet. So indeed, as you say, the equity, yes, is negative EUR 3.8 billion, of which EUR 3.8 billion is at the Air France side. And I cannot give you the split of the EUR 4 billion because we have all the tools ready. So I cannot give you any details on that side at the moment. Then on the profitability of cargo, there we have, let's say, a system where we -- in the past, we reported separately on cargo profitability, but then we had a difficulty on the transfer price of the belly. But as stated, we have much more revenues in now. And actually we look at the contribution we get from this cargo activity. It's EUR 400 million -- than in Q4 2019. Your question if it's there to stay: Of course, there will be an impact if all the belly capacity gets back into the market, but we see a stickiness in terms of demand also because the shipping is not yet there. And it's not expected to be totally solved in the coming year and maybe not even in the coming 2 years. So we expect an increase of the revenues per ATK, yes, and -- or not an increase versus today but versus the 2019 levels. As you see, if -- in all the reports you will read from consultant and analysts, everybody expect that the cargo market will be stronger than it was in 2019, which is positive news for us because, I have to repeat again, the backbone of our results is in the long haul and on which we have a big cargo capacity. On the capacity side, you...

Okay, on the capacity, we've got -- as you may have noticed over the last 2 years, we've been demonstrating an enormous amount of agility and flexibility in the -- in how we deploy our airplanes, moving them from areas that are closed off to areas where there's opportunity. So we're expecting to be doing the same thing for the remainder of this year. What I can tell you is, Q3, we are ramping up to ensure all of our aircraft are operational. We're actually hiring pilots. We're training pilots to ensure we have the resources necessary if demand is there. And we have the necessary support jobs also being filled, such as maintenance, so what I can tell you is, if I look at 2019, sort of 2021 or 2022, so Q3 2022 versus 2019, we are in a position to fly the majority of that capacity should the demand be there. So with Asia, we're expecting that Asia to be relatively close, no big change where we sit today. That's our assumption, but we do have very strong opportunities in the United States, as we forecast today; the French overseas markets which are very, very big. Out of France, Africa has been very resilient for us. South America is coming back quite quickly. So there are regions in the world -- the bulk of our regions in the world still are showing strength for the Q3 and then, hopefully, going in through rest of the year. Thanks.

We will now take the next question from Jaime Rowbotham from Deutsche Bank.

Just one from me, more a strategic question. The press would have us believe that you want to accelerate repaying your pandemic state aids packages because some of the limitations around those loans are preventing you from strategic moves. And obviously the one that's caught the attention is the situation with ITA in Italy. Ben, I don't know if you could talk a bit about that. How important is it to the group to be able to participate in those types of situations? And assuming it takes a while still to pay back the state loans, is there anything you can do to sort of defend your position in those situations, perhaps involving some of your alliance partners?

We know Italy has -- is -- in terms of consolidation or taking a risk on having a greater position is not new to the airlines in our group. And we've had 2 attempts taking an equity position in the former Alitalia. Both have not been successful, so to do it a third time when and if we have the flexibility to do so, we'll be under much more risk-comfortable zone. So when we look at the Italian market, one of the most important or lucrative assets that we have limitations in accessing is the [ Milan ] Linate Airport. And we've managed to secure additional slots, at no cost, over the last year. And we're hopeful that in the near future additional slots will become available at Milan Linate through either remedies or through the reduction in activity by the new -- or the evolved Alitalia. So that's really key for us. That helps. And then when you look at the rest of what interests us in Italy, it's something that continues to be strategically important, but I wouldn't say it's #1 on our list. And I wouldn't say that it is something that we lose sleep over if we can't participate. Of course, we look at it very closely with our partners. We have other means of participating in the consolidation, which may not involve a direct investment on our part. As I say, we do have many, many partners that can help us, not only airline partners but also other strategic partners, if we feel that it could marginalize our operations. So as I said, we're looking at it very closely, but the #1 advantage for us that we always saw in Italy is the Milan Linate Airport.

We will now take the next question from Ruxandra Haradau-Doser from Kepler Cheuvreux.

Yes. Congratulations on the strong Q4 performance. 3 questions, please. First, could you please give some indication on what you expect from the main nonfuel cost lines you see here, personnel costs, airport and navigation charges, MRO costs? And what is the requirement for CO2 certificate this year? Second, looking at your EBIT margin target for 2024, what general cost inflation trend have you considered in your planning? And this is what you are currently seeing in the market in line with your planning. And third, according to Fit for 55 as it is on the table today, environmental costs will start to peak, in particular the end of 2025, so how shall we think about your 2024 EBIT margin target once you start to account for additional environmental costs?

So thank you for the question. I think on Page 30 we explained quite well in which areas you'll see our cost reductions. So it is -- a big chunk is related to the labor costs. We will continue also on the external spend, and we have still the fleet fuel efficiency. And so it's pretty clear on Page 24, where we explain it exactly. There is, of course, an increase of, let's say, all the environmental costs. We have the benefit that, if you look at the ETS [ side ], we are actually covered for the full year this year, which we already, let's say, had them -- have them in place. And we even, for almost 75%, are hedged for the next year. So there is coming in, these costs, but of course, these costs will also drive, at the end of the day, that revenues are going up because it -- there should be a level playing field. So we should have all the same kind of these costs. And as we are renewing the fleet, we are reducing at the end also these costs. And then on the navigation charges, yes, and the airport charges where you're referring to, that's all included in these numbers. So we expect already that it is going up, but we have so much transformation plans in place that we actually offset those with other cost measures.

And on just a quick note on Fit for 55. There's a full support at Air France-KLM. However, level playing field when it comes to rules, regulations or taxes and charges that are attached to Fit for 55 are extremely important for us; and thus we're waiting for clarification around that.

We will now take the next question from Sathish Sivakumar from Citigroup.

I've got 3. Firstly, on cargo, what is your current visibility on demand -- sorry. I'm just getting an echo here. How does it actually compare with 2019 levels? Because you gave a nice slide on passenger network, Slide 19. If you can actually give similar color on cargo, that will be helpful. And the second one related to the staff costs. When do you expect actually the full state support to unwind in '22? And then the third one, in terms of the pricing, if you could actually give some color on how the premium segment has actually performed versus the economy/leisure segment in Q4. Because [ in Q4 ], you've seen a sequential improvement in pricing compared to Q3, again benchmarking versus 2019 levels. So any color on that will be helpful.

Just -- our apologies. The line coming out from you is extremely poor, so we're just going to try to decode what it is that you said here. Just give us 30 seconds.

All right, should I go again? Or...

So let's first start on the cargo capacity. Of course, the cargo capacity on the belly side is fully linked to our long haul. So 80% of our cargo capacity is coming from the belly. So you can actually see where we guide you through for the first quarter. The same will be for the cargo side on our -- let's say if you take a multiple of 80% of that one. And then of course, it depends a lot also what will happen in the opening of China and opening of Japan because those are very strong cargo markets. So of course, if they -- if those are also coming in, we have additional capacity also there in the market. And for the full freighter, we fly them wherever we can at the moment. And we even sometime takes advantage with, let's say, passenger aircraft to fly cargo. So we are fully capable to fly the capacity for the cargo as we can, but of course, as we increase capacity on the passenger side, there is less available of -- in that side for the cargo. But we get the belly capacity back. So you could take the reference, especially on the long haul, for that one.

And what has been the booking window? Or what is the visibility now?

The booking window for cargo is always very short. So there is -- I've never -- you have never bookings in already today for the summer. So it is 2 weeks, 2 to 3 weeks, so very short booking periods, but that's just normal. That is not specifically today. That is always the cargo market.

Got it.

We will now take the next...

Can you repeat -- I'm sorry. Is it clearer?

It's clear actually. I have got 2 more...

Okay, yes. Can you repeat those 2 question? Because we had a very bad line here.

Yes, sure, okay, yes. Staff costs, when do you expect the full state support to unwind?

The partial activity, it is actually on our slides. On the Air France side, it will be there till the end of 2022. And for KLM, it's still -- it's in place for Q1 2022, but it can always be extended later. So for the moment, we have it in. And we'll have -- let's say we have it in place at least till Q1 2022.

Okay. And then the third one, just around the [indiscernible] pricing versus, say, on the premium segment. So obviously, if you look at Q4, you have seen a sequential improvement in Q3, [ when you compare it to just ] 2019 pricing levels. I am just curious to understand here. How does the premium segment perform versus the economy segment?

So I can -- I have that for you. So if you look at the economy pricing, it was -- if you compare it in Q4 versus 2019, it was up with 12%, so fairly strong. And even in the business class, we only have a drop of minus 1.9% in yield. So there is a gap, but it's not very big. And we are very close, even for the business, to the 2019 level.

We will now [ take our ] next question from Andrew Lobbenberg from HSBC.

I hope I'm not too echoey. I wanted to ask about the state aid review process and the EU competition authority reviews. I don't know what you're going to be able to say, but I mean I thought that previously there was a debate going on as to what slot remedies might be required of KLM in return for restructuring of the Dutch state loans. Can you say, has that process gone away? Is that settled and is ready to be announced when you announce the transaction? Yes, just what's going on with that, please? And then in terms of the unit costs, you're showing us a drop of 4% to 6% in unit costs when you've got the capacity full up and running, targeting '24 at the moment. I think that's a bit less than what you had originally at the Investor Day, which I think was restated post the pandemic. Is this just a reflection of the greater inflation that we're facing? Or have I got my wires crossed? It wouldn't be the first time.

So maybe we can just start by saying, could everybody who's not talking, please, put your lines on mute. Because we have a really bad echo that's coming here.

So let's start on the state aid. So we are in current discussions still with the state. I cannot say anything at this moment. We have discussion with the Dutch state with KLM and Air France-KLM altogether. And we are still in the discussions going on in the coming period. So that is for that part. So I cannot say anything on slots or anything on any other part. Then on the unit costs, I think, if you talk about the unit cost, we -- actually if you look at our own models, we were actually at the same levels, even better than the guided before, but in the guidance, at a certain moment, we included also the fuel costs. And there was not an adjustment for the -- let's say, the fuel price. So in the guidance we gave, there was an part which was related to the fuel price. I don't know the percentage anymore, but I think it was close to 3% to 4%, all right? So actually you see that we are more or less in the same range, even a bit better than we had before, Andrew.

Okay, so what you're saying is...

[indiscernible] really clarifying your first question there. There is nothing new to report on from the Dutch state when it comes to any change in loans or anything that we have from a financial perspective in there. So we are still -- as Steven said, we're in discussions both on the KLM level and the Air France-KLM level with the Dutch state. So just to be super clear, all right? There's nothing new to report today.

Can I just stay on that Dutch thing, ask another question. You may be able to answer it or may not. I think Steven said that you were ready to go with the balance sheet restructuring and awaiting market conditions. That's what I thought I understood. Does that mean that you are -- would be able to launch the balance sheet restructuring even before the Dutch state talks have concluded? Maybe you can't answer. I don't know.

[indiscernible] answer that at the moment.

[Operator Instructions] We will now take the next question from Neil Glynn from Crédit Suisse.

Again, hopefully, limited echo. So good -- so far, so good. 2 questions, please, if I can. So first of all, just on competition from the various hubs around Europe as you look forward to the summer. I'm interested in whether you can see at this point or whether you have any expectations on competition for transfer traffic, yes, on which all of the network carriers' long haul businesses are obviously somewhat dependent? Do you expect more competition if the transatlantic is really the only place to go on long haul this summer, for example? Then the second question, on Transavia. I appreciate fourth quarter '21 isn't really to be extrapolated into the third quarter 2022, but the performance was actually quite close to fourth quarter '19. I'm very interested to think. How feasible might it be to recover third quarter '19 margins this summer and particularly given that Transavia is clearly growing as a proportion of the business? Or is that just far too early to think about?

Let me, in coordination, answer that one on the transferred traffic. What we have seen, and you've seen it back in the results, that in fact, being a network carrier, we had the opportunity to get a lot of connecting traffic which had no alternative in traveling. And if you see both the passenger numbers as well as the operational results, we can really see that having such a network and having such a transfer opportunity for travelers has really been an asset throughout the pandemic crisis. We can even see that some of the, if I may call it, thinner long-haul routes are very well supported by strong hubs. Well, if you add then the fact that the combination of the hub at Air France, at CDG and the hub of KLM and Amsterdam, it's a great combination. We have really demonstrated, and again I think the fourth quarter results are a testament to that, that the model whereby the 2 hubs are supplementing each other, we do have the transfer traffic going over these 2 hubs. And we do have the strength of the respective networks. I think it's very strong. That's precisely why, and let me allude here on the KL side, we have reinstated basically our network. Whereas we were on only roughly 70% of the capacity, we're back to basically 100% of the destinations which we had prior to COVID. So the power and the strength of that network, the power and the strength of the hubs and the combination of the 2 hubs, I think, is really putting us at a very strong foot and position vis-à-vis some of our competitors.

Yes. Maybe to complete, on Air France side, what we've seen throughout this crisis is that we were able to fly more capacities than our competitors when we compare to Lufthansa or IAG. And each flight, of course, is profitable compared to the variable costs. This is due to the fact that, as Ben said, Africa is very resilient. The Caribbean and [indiscernible] network is very resilient. We see South America coming back also. And in November and December, as of the reopening of the U.S., we saw a tremendous growth in the booking for North Atlantic. On Transavia, what we can say -- and you know that we are growing Transavia France. We came from a fleet of 40 aircraft and we're aiming to fly 61 aircraft this summer. And the demand for the European network is very strong, but you must keep in mind that 12% of the capacity of Transavia is now on the domestic market, that it is replacing a very loss-making operations in Air France. So it really strengthens the global result of Air France and Air France-KLM on the whole.

We will now take our next question from Sumit Mehrotra from Societe Generale.

A difficult question was already asked by Andrew. I'll switch to an easy one, adjusted free cash flow. I notice you still keep the expectations of breakeven or positive for '23, but it is going to be -- Q1 is going to be the third consecutive quarter where you will expect a positive adjusted free cash flow. And hearing what we are from your transatlantic capacities and yields and of strong summer ahead, I'm wondering why you are still not very -- or going for a positive or even a break-even kind of operating free cash flow target for '22. And well, I'll push my luck: Air France negative equity is EUR 3.8 billion, which is basically the entire equity of the group. In that context, can you share your insights about whether the Dutch government would like to come back to parity in terms of voting rights for the group? Anything you could comment would be great.

So the first question. Yes, if you talk about cash, it's -- let's say we don't give guidance yet on EBITDA because, I think, the context is still uncertain. We don't know when China is coming back, when Japan is coming back, so it's very difficult also to guide you at this moment. We don't have a guidance on EBITDA to guide you on the cash [ side ], you could say indeed, three times in a row, so you should be fully convinced now, but let's say we are -- still have this uncertainty above us. And you see also not a lot of our competitors actually guiding on those kind of things because the climate is still too uncertain. Then on the Dutch -- let's say, discussion with the Dutch state, as we said, we are in discussions. And that's, at this moment, all we can say.

As there are no further questions, I would like to hand the call back over to your hosts for any additional or closing remarks.

Yes. I would -- this is Steven Zaat speaking. I would like to make an additional remark. Olivier Gall, our Head of Investor Relations, will leave our beautiful group, yes. I want to thank especially Olivier because -- his professionalism. And if you see the quality of the report -- and I know that you analysts always are very supportive in all the work he is doing, yes. So I would like to thank now Olivier Gall -- for leaving us. I cannot say anything more at the moment about it, but what I can tell you is that we have a successor in place. He will start on the 1st of April, at the same moment that Olivier will leave, which is Frédéric Kahane, who is our -- currently leading our Flying Blue. So he's the Director of our Flying Blue program, and I'm very happy that we have such a professional back in our team. Thank you very much.

Thank you. That will conclude this conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.