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

Good morning, and welcome to the Air France-KLM Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ben Smith and Steven Zaat. Please go ahead, sir.

Okay. Thank you. Good morning, everyone, and thank you for joining us for this presentation at the Air France-KLM Group's results for the third quarter of 2022. I'm joined by Steven Zaat, our CFO; Anne Rigail, Air France CEO; and Marjan Rintel, KLM's CEO. As usual, I will start by presenting the highlights of the quarter, then I will give the floor to Steven for a detailed presentation of our results and the outlook for the quarter before concluding the presentation myself and opening the Q&A session. First, I'd like to thank all of my colleagues across our airlines and business units for their hard work and dedication over the last 3 months. They did their very best to accommodate our customers throughout the summer season, which proved particularly busy and challenging this year. Slide 3, before diving into the group's performance, I'd like to start by looking at the airline industry at a macro level. The graph on the slide shows that overall traffic to and from Europe for the industry as a whole has been catching up with capacity, thus closing the load factor gap with 2019. As expected, summer demand has been strong after a gradual easing of health restrictions and customers return in great numbers, putting the entire airline value chain under pressure. For the remainder of the year, the expectation for the industry is that capacity will continue to increase, albeit at a slightly slower pace, in line with the evolution of demand and in spite of a still volatile market and geopolitical conditions. Turning now to Slide 4. Air France KLM has been preparing for months of this crucial summer season, and I'm proud of the way the group has managed to achieve its road map for this period. Despite the operational difficulties across our global network in an industry-wide context of staff shortages, severe disturbances and local strikes affecting some key industry players and airport service providers, we were able to limit the number of late cancellations. This is largely thanks to the outstanding work of our colleagues across our airlines and business units. They worked hard to deliver the best services to our customers, and I would like to thank them again for their commitment and dedication. Overall, our group's airlines were more resilient than our European competitors in maintaining their capacity during the summer. If we take a closer look, operations in France have proven more robust compared to other countries despite isolated disruptions in Paris. KLM, however, was operating in adverse conditions with Amsterdam's Schiphol airport requesting a capacity reduction in July. We worked hard to mitigate these disruptions, for instance, by prioritizing delayed customers over on-time performance or by facilitating rebooking to manage such capacity restrictions. During Q3, we incurred costs for these disruptions to the tune of EUR 60 million, slightly lower than in Q2, essentially in the form of compensation to our customers to limit the negative impact on their travel as much as possible. Additionally, the capacity restrictions imposed at Schiphol and strikes in France resulted in EUR 225 million in missed revenues. Now moving to Slide 5. All in all, Air France KLM delivered strong results in Q3. The group posted an operating result of just slightly over EUR 1 billion, above its 2019 level before the pandemic. This result performance was mostly driven by favorable travel demand, which our airlines were able to anticipate and manage, thanks to the ramp-up of capacity throughout the year. With load factors reaching 88% over the quarter, we carried almost 50% more passengers than in the same period last year, bringing us closer to our 2019 levels. This combination of strong capacity increases and higher load factors translated to a sharp revenue growth of plus 78%, bringing quarterly revenues to EUR 8.1 billion, EUR 400 million more than Q3 2019. Our adjusted operating free cash flow amounted to EUR 290 million, thanks to our strong EBITDA generation of EUR 1.7 billion, which fully funded working capital, CapEx and lease payments. This good operational performance and solid cash flow generation allowed us to post a positive net result of EUR 460 million, which will contribute to further strengthening our balance sheet. Our cash position remains solid with EUR 12.2 billion in cash, and we reduced our net debt by more than EUR 2.3 billion since the beginning of the year. Now moving on to Slide 6. I also wanted to give you an update on the long-haul network, which continues its upward momentum, thanks to a strong summer demand. In terms of load factor for the premium cabins, sample first and business class, I'm very pleased to say that we are now above the levels of 2019, driven by high-yield leisure demand. The evolution of the load factor for economy and premium economy results are positive as it continued to ramp up throughout the quarter and almost reached its 2019 level. Corporate travel revenue and traffic continued to grow gradually throughout the quarter with a positive yield dynamic. Now on to Slide 7. I'd like now to focus for a moment on an important strategic achievement this quarter, the great progress we have made on the optimization of our network by the Paris Orly Airport. The full restructuring of our Orly slot will soon be completed. More than 40% of our slots operated by Air France and HOP! have now been transferred to our lower unit cost airline Transavia, which took over some French domestic service and commenced future medium-haul long-term greater profit potential routes. Overall, this repositioning of our slot portfolio saw the share of short-haul domestic flights decreasing from 61% of the total portfolio during summer 2019 to 38% in summer 2022 to the benefit of medium haul flights. Although we're not yet at full maturity, we expect significant profitability improvement of transferred slots with EUR 30 million of improvement already yielded on our point-to-point domestic service to date. This restructuring effort helped Air France safeguard slot portfolio while adapting its network to new French regulations, which ban domestic flights on routes offering direct trains of less than 2.5 hours. Further optimization of the Orly slot portfolio will continue with domestic profitability remaining a priority. Now on to Slide 8. To conclude this introduction, let's now take a closer look at the performance and achievements of our airline and business units. Starting with our passenger business, I'm very pleased to announce that for the first time since the beginning of the COVID crisis, both Air France and KLM have returned to double-digit operating margins. This solid performance is, of course, linked to the strong rebound in demand. I also see it as a result of the continued efforts made by the 2 airlines to always remain a preferred option for customers. To do this, they are constantly innovating and reinventing themselves to operate a truly differentiated experience to customers. These efforts were reflected again in this quarter with the launch of the new KLM premium comfort class and the award of Best Airline for the West European region to Air France by Skytrax. Transavia is also enjoying strong momentum with capacity well above 2019 levels. The French arm is well on track with its growth plan with a capacity close to 50% higher than in 2019, thanks to the expansion of its fleet. After assigning out the strategic partnership agreement with CMA CGM before the summer, our cargo teams are now actively working on shaping the setup of our future cooperation with CMA CGM. This strategic commercial partnership is expected to generate significant revenue synergies, including the joint design of the full freighter networks and enhanced products and service mix opportunities. To accelerate our efforts in decarbonization, the cargo teams have also launched a new option for their customers, allowing them to adjust the level of sustainable aviation fuel used for each shipment they book through our proprietary banking system. Customers are given a choice for contribution levels, which will allow them to proportionately reduce their contribution to CO2 emissions when booking. And finally, maintenance continues to enjoy a positive momentum with a growing number of shop visits and new MRO contracts with well-known airlines, including Virgin Atlantic, ITA and China Airlines. The official signature of the CFMI branded service agreement for LEAP-1A and LEAP-1B engines will see Air France KLM Engineering and Maintenance, provide the full scope of lead maintenance, repair and overhaul services for operators worldwide. This allows the group to scale up its presence on the biggest engine MRO market. After this overall summary of our Q3 performance, I now give the floor over to Steven, who will go into more detail about our results for the quarter.

Good morning, everybody. Thanks for taking the time to listen to us. I repeat again, we live in remarkable times. It's good to see that the financial recovery is continuing in our industry despite all the operational problems and a very high jet fuel price. In this context, we were able to outperform the results of 2019, but we still have 11% less capacity and knowing that we cannot fly the new market demand. So I'm very happy to see this financial recovery going faster than our own expectations despite the turmoil and that we continue to deliver on the transformation despite the pressure on costs by inflation. So let's go to Page 10. And let's look first at the top line. If we look at the top line, and I will later explain the change versus 2021, we see that we are already EUR 500 million higher than before COVID in the Q3 results. So EUR 500 million, EUR 200 million is coming from passenger business revenues, fairly strongly supported by a high yield. If you compare that to 2019, we talked about yields of 22% and the last even of 28%. So very strong yield in which we actually are capable to pay off, let's say, the higher fuel price. Then the second positive element is the cargo, EUR 300 million more than where we were in 2019. And on top, we have a EUR 200 million higher from last year, revenues also driven by very strong yields at these 3 business segments. So only where we still are behind 2019 is in our maintenance business where we still need to recover our order book, let's say, we lost some customers due to bankruptcies. There are phased -- the fleet is phased out, and we need to recover that turnover. I will come back on that later when we discuss the business segments. If we then go to the fuel bill, up by EUR 1.5 billion, it is amazing, mainly driven by a very high jet fuel prices, EUR 1.2 billion coming from the jet fuel. Luckily, we have hedges in place for EUR 200 million actually, covering part of that fuel price increase and of course, the negative development on the dollar, which also added another EUR 100 million to our fuel bill. So out of this EUR 1.5 billion, there's only EUR 300 million related to capacity growth compared to 2001. Then on the salary cost, the salary costs are going up compared to 2021, mainly driven for 50% actually that we don't have the NOW anymore, so all the furlough schemes in the Netherlands, and we have a very limited [ active share with the funds ] only EUR 12 million. So in total, we lost around EUR 250 million of furlough. So that is actually explaining 50%. And then, of course, we need to attract new FTEs to, let's say, support us in our operations or even FTE increase of our labor staff increase of 2,000, mainly at KLM and Transavia France. And then we have the CLA restorage on KLM which added on the labor cost of EUR 30 million. And we have an increase on activity, which brings more than EUR 150 million, which is actually related to the fact that we have to pay the pilots and the cabin crew because we fly more. And we have less, let's say, in activity. That's good news actually that we pay for this higher activity, our staff. Then on the other operating expenses, I will come back on it on the unit cost. We have a lot of pressure coming in from the airport, also from the outstations, et cetera, but I'll come back on that later when we will take a deeper dive on the unit cost. But it ends that we have an EBITDA already above the 2019 level, and if you look at the operating result, we are having a result above EUR 1 billion, which we didn't reach in 2019 and bringing us to a margin of 12.6% versus 11.9% in 2019. And of course, and that is very important for us. We see now finally a strong positive net income close to EUR 500 million, in which even it's a EUR 300 million impact of the dollar. So there is, let's say, a negative impact of the dollar on the balance sheet, which is not a cash out, but which hampers actually our net income. So if you would exclude that, we would even be closer to EUR 800 million in net results. Let's go then to the business by business line. Let's first start at the passenger business. So a capacity growth of 29% and a unit revenue growth of 55%, and that's even excluding the impact of the stronger dollar. If you would take that, then it would be close to 60%, so very strong unit revenue performance, which is actually coming from 2 parts. One is the load factor. We had a load factor of 65% last year, and we are now having a load effect of 88%, which as Ben already explained, is, let's say, very close to the 2019 levels. So that brings in this unit revenue, 24% out of the 55%. And then on top, we have a yield, which is up 18%, which explains, let's say, the other part of our unit revenue. So it's good to see that we can grow capacity. We're filling up further our planes. And on top of it, we have a stronger price, especially to cover all the higher costs coming, especially from the fuel. Then going to the cargo business. On the cargo business, we already expected, of course, that our unit revenue will go down. We have now more passenger business planes in. And these passenger business planes brings additional cargo capacity, but we know that we fly them with a lower load factor than what we do, for instance, on the freighter. And especially in the summer, we are looking for, let's say, more passenger business-friendly destinations than cargo designation. So an increase of capacity of 16% related to the increase of the bellies. And then we have, let's say, a drop of 19% in unit revenue. First, the load factor goes from 62% last year to 46%, which is most in line what we usually have. If you see all the belly, the belly is, let's say, between 40% and 50% in load factor. And then -- and that is, I think, the very good news. You see that also the yield is holding strong, and it's even compared to 2021. So the yields, the price per ATK is up at 14% compared to 2019, which was a bit, to be honest, a surprise, because we expect it usually by the mix of cargo that would actually deliver a lower yield because the freighters brings a higher yield than our value capacity. So if you take that altogether, we have an operating result of our network of EUR 851 million. It is an increase of EUR 864 million. It's amazing with a margin of 12%. So very strong results at both carriers, which I will explain later. Then we go to our low-cost segment, Transavia. Capacity up 28%, unit revenue up with 32%, the same kind of dynamics as we see on the network. So the load factor is up from 78% to 89%. So we get closer to, let's say, the normal levels in our Transavia business, which is slightly above the 90% in this season. And at the same time, the yield increased with 16%. So also yield and load factor contributing by stronger revenues on top of the capacity increase. So EUR 123 million, bringing an operating margin of 14% in this -- but the Q3 is always our best quarter also for Transavia also for the network, but especially on the low-cost segment. And then on the Maintenance side, as I already explained, we need to recover from the crisis. So it's good to see that we increased our revenues with 39%, driven by the current contract. So we have more flight hours from our customers, and our engine shops are completely full. So that is good news. And on top of it, you see that we signed also new contracts. We signed 5 big engine contracts in this quarter and 6 big component contracts. So that is also to restore our revenue trajectory in the coming years. So the 13% operating margin better than where we were in 2019 is very promising also for the period to come. Then let's take a dive into the performance of both airlines. First, indeed, as Ben already said, I want to give a big compliment to all the staff for these good results. It was a very challenging summer, especially for KLM at Schiphol. It was quite a challenge to, let's say, achieve and to make sure that we fly the capacity we want to fly and even we were limited, as you know, by the restrictions at Schiphol. Both airlines are above the 10%. So that is very good to see that both carriers are performing above the 10% and you see more or less the same kind of dynamic. If you go to Air France, you see the capacity is going with 42%. And at the same time, you see also that the unit revenue is increasing. So the 17% additional load factor, we come from 71% last year to 88% and there's a yield increase of 16%. So bringing operating result of EUR 570 million, which is already above the 2019 levels and bringing in a margin of 11%. Then if we go to KLM, then you see that the capacity is up less, KLM was ahead actually in putting capacity in place compared to Air France. So the capacity is only 14%. Of course, also impacted by the fact that we have restrictions at Schiphol, and we did that with a load factor increase of 26%. So there was more load factor available for KLM to fill the planes. And on top of it, there was a yield of 15%. So both carriers on the revenue side were following very well. And we see that Air France, you see, especially it's kicking in now the structural cost savings in Air France, reducing further the gap between the 2 carriers. So the gap is now 3%. Of course, we know that KLM was hampered severely by the impact of the Schiphol restrictions. So both carriers given the current circumstances has a very good operating performance. Then on the capacity on Page 13, we show the capacity and the load factor development. But we are getting now, let's say, to levels in the network of 85%. But the best news is that especially the load factor is keeping up. So in the total network, we end now in September with 87% load factor where we were in 2019 at 88%; long-haul doing very strong, close to 90% in terms of load factor. And on the short and medium haul, excluding Transavia we are currently -- we were in Q3 at 84%. So it's a small gap still compared to 2019 where we were at 87%. And then Transavia, we boost up, of course, the capacity over there. And then you see that we are still able to have a load factor close to the 90%. So I think we put in place what we could. We were more restricted by the airport. If we could have flown further, we would further increase also the capacity in the third quarter, and we were sure we would have filled these planes because there's a very strong demand in the market in this quarter, but also actually what we see for the period ahead. Let's take a look then on the results per region. And let's start at the most beautiful part, at least in profitability, which is our North America segment. So the North America segment, we are already above the 2019 levels in terms of capacity. We have a load factor of 91%, and we have a very strong yield. It's 25% up coming off a very high willingness to travel to Europe from the U.S. and of course, also helped by the dollar. So the very strong pricing in the U.S. brings this very high yield another exemplary that our JV with Delta and Virgin is working over there. Also good to mention -- to give a little bit of color that you see that the premium segment is doing very well. So the first class, we got a 70% load factor, which is 24% up compared to where we were in 2019 and with a yield 24% up than in 2019. And also in the business class, we were 4 points above the 2019 levels in load factor. Then on South America, you see that there is a balance between supply and demand. So we see that a lot of South American carriers have restructured their companies. They do that through Chapter 11, and that reduced the number of players, but also the number of staff. So it's difficult for them to bring back that capacity in, on which we profited. So we had a yield of 38% compared to 2019 and a load factor of 92%. And the only reason that we don't have all the [ case ] that we have certain destinations which we still don't want to fly because they are not profitable enough. So we fly where we can make the profits, and we do that with a very high yield of 38% compared to 2019. On the Caribbean, you see that we are benefiting for the strong demand from the Dutch and the French home market for the Caribbean and Indian Ocean. So we grew our capacity with 22%, still with the load factor close to 90% and a yield increase of 8%. So we are benefiting there from the big demand we see for these islands. And then on Africa, always, let's say, a strong core of our performance. We are still 4% down, but we have very [ limited ] capacity compared to 2019 with a very strong demand for East and West Africa. South Africa is still, let's say, a little bit weaker, but with load factors of 87% and yields of 21%. We can be very proud of this result, and it was actually stable actually also during COVID, much more stable than the other regions. And then, let's say, my least favorite part at this moment, which is still Asia where we are still having the restrictions in China, in Japan in Q3. So we are at a level 54% lower in ASKs, load factor is doing well, 86% and also the yield is exploding over there to 47%. But I prefer that we have no restrictions that we can fly the planes even if it will cost something on the yield side. So let's see how that will develop, especially, let's say, in 2023, when these markets will open up. Probably we don't know, of course, the exact timing, but let's say, at least we expect somewhere in 2023 when these markets will open up. So coming back, segment per segment, long-haul, very strong performance, still 85% case due to the restrictions in Asia, a load factor close to 90% and a yield 28%. And if you then take into account that we also have a very strong cargo, you can imagine the profitability on that segment. Then on the short and medium haul, still only -- despite that, actually, we have no restrictions, we are still at 86% of the capacity load factor getting back to the 2019 levels of around 85% and yield with 18%. So in total, a yield of 24%, still 85% capacity and a load factor close to the 19%. Then on the unit cost, I would like to stress that despite the circumstances, we are still having a very strong unit cost performance. The unit cost is up close to 3% while capacity is 11% below 2019. And a big complement I would make to all the teams that we are able to still keep this unit cost at this level despite the fact that there is inflation pressure in the market, and we don't have to forget that we paid a lot on customer compensation for all the disruptions that just explain the EUR 60 million. So if you look what are driving that actually, the unit cost, there was an increase of labor cost of KLM, which we already explained. On the airport side, we saw the tariff at Schiphol going 9%, and we see a charge increase of the air traffic controls actually in Europe. And on top, we have very high inflation cost on the outstations. They are up with 17%, which is partly coming from a higher dollar, but we see that it is already kicking in, in this result. And then coming back on the customer compensation, where there is 1% up compared to 2019, if you look in the unit cost, so the total unit cost represent 1% of our unit cost development. On the right side, you see that the staff costs, we are still below the 2019 levels. We had a 16% decrease in staff in Air France if you exclude the growth in Transavia France and 11% at KLM. So the continuation and the success on transformation program on Air France we are able to reduce significantly, let's say, our staff. And at the same time, at KLM, you see that we are in line with the capacity decrease for this quarter. Then let's talk about cash because that is part -- that's a big part of my job. So if you see the cash development, you see that we had a very strong Q3, again, Ben already explained, EUR 300 million up in terms of cash despite the fact that in this quarter, we burned as we call, EUR 800 million of tickets. So we flew more tickets than we sold tickets. So despite this working capital development, we were able to have a EUR 300 million cash which brings us for the year-to-date figure at a cash level of EUR 2.5 billion. Of course, the change in working capital is amazing. So we're restoring our outstanding ticket. And you see that the working capital development is EUR 2.2 billion year-to-date. For main part driven by the increase of the Air France ticket sales for EUR 1.5 billion. And of course, when you start growing your capacity, you get more trade payables. So you would still have to pay some bills. So that's EUR 800 million in that number. And that brings us that actually, our net debt is now from EUR 8.2 billion to EUR 6 billion, which is, let's say, at least is, let's say, if you compare where we were before COVID, we are getting close, but we don't -- we have to forget we have still some items in the working capital to pay that is related, first of all, to the wage tax in the Netherlands. I think I already explained it. It's still EUR 1.5 billion to pay. And we still have also the Air France to pay on the franchise that we didn't pay during the crisis for EUR 1 billion on the Air France side. But still very positive development on cash, and we have a cash at hand at this moment of EUR 12.3 billion, which also gives us room now to pay earlier back the state guarantee loan on the French side, but I come back on that in the next slide. If you look at our trajectory, and I go a little bit back where we started. So we -- of course, we had, let's say, big support during the crisis from the states and with the state guaranteed loans. We started actually to pay back these loans in December 2021. So we started with EUR 500 million on the Air France side. We had EUR 4 billion of French State guaranteed loans. So we reduced that from EUR 4 billion to EUR 3.5 billion last year. Then KLM paid this just before December. They're EUR 900 million. So KLM has totally paid back the full RCF and the Dutch state loan, which are in. So that's another EUR 900 million. And now we are aiming to pay another EUR 1 billion of the state guarantee loan on Air France. First, we have a very strong cash, and we see also that interest rates are creeping up. If you look at our total gross debt, 40% of our debt is floating. And out of that 40%, 30% is related to the state guarantee loan. So we want to reduce that exposure. If we pay EUR 1 billion back to the banks, then we are at 30% for the planes. Actually, most of our plane financing is done on a fixed rate. So we fix this rate when the rates were very low, which is very favorable for the period to come. Then we are still aiming for a possible hybrid bonds. We are eyeing on the market for the exact right moment to repay further on the hybrid, which we have with the French state. So there's still EUR 900 million to go on the French State hybrid, and we are aiming to put EUR 1.2 billion in hybrid into the market. It can be hybrid convertible or state hybrid. So we are ongoing in our restoration of our group negative equity to, let's say, to cap as soon as possible to a positive net equity. We do that by net profit generation and further asset monetization through quasi-equity projects where we are working on at this moment. Now we go to the outlook. So let's first go to Q4. We reduced our capacity outlook for Q4. We were -- we had a higher outlook last quarter. This is actually due to the imposed capacity then on departing passengers at Schiphol, but I guess we keep the, let's say, the capacity as we planned. And we are then at 85% if you compare that to 2019. For Transavia, we are -- we were already above 100%, and we will be at 140%, especially due to the Transavia France growth in the fourth quarter, and we still see very healthy yields for the winter season. If you go to the right of the page, you see that for Q4, we already sold 3/4 of our tickets. So -- and it's very close to what we are used to in 2019. So we were then at 77% on the long haul, we already sold 75% of all the capacity, which we plan. And for the first quarter, we are aiming actually at a level of 90% capacity. So we are restoring further closer to 2019. And if you look at the long haul, you see we are even at 91%, and we have already sold 1/3 of these tickets. For the short and medium haul, it's different, it's a later booking market, so we sold 60%, which is more or less, let's say, in line with what we see in new behavior that people are a little bit later booking than what they did before. So compared to 2019, was 65%. So we see still a very strong booking climate. And for Q1, yes, that's always difficult to say because there's not -- people are not booking very much ahead for this market, but still, we sold 14% already from this capacity. And then on Transavia, we are going to capacity levels of over 140% in Q4 and Q1 2023. We sold already 2/3 for Q4 and 21% for Q1. So still, despite the fact that we increased significantly the capacity, we are able to, let's say, quite fill this capacity. Of course, not at the same level of 2019, but we are 40% higher in capacity. So we need to fill this capacity in the period to come. On fuel hedge, yes, it is every day another day. So it goes up, it goes down. It goes up. It goes down. We are -- today the oil is above $95 per barrel. What you see is that the jet fuel is coming a little bit at lower levels than what we have seen in Q2 and Q3 in the market. So you see that there is a little bit of release pressure on the fuel price. We were hedged above the 70% up to now, and we have hedged already 70% for Q4. And if you go for 2023, it's not on the slide, but we hedged already 32%. And for the first quarter, 55% is hedged and for the second quarter, more than 40% is already hedged. And it brings that in total, we have a benefit this year of $1 billion due to our hedge policy. So if we then go to the outlook. So on the capacity, I think I already guided you then on the operating results, we expect an operating result above EUR 900 million based on the fuel forward curve of last Friday. We always use the Fridays to calculate, let's say, weekly our fuel bill. It's a weekly process we have. So the last loan calculation including hedges are included in that number. And of course, it is under the currently foreseen circumstances. So we think we will be above EUR 900 million for the full year, which is quite an achievement after, let's say, the difficult period we have in 2020 and 2021 that we see that we are recovering now to results which we were used to, of course, it's still not above the EUR 1 billion. It's not yet at the 7% to 8% margin, but we are going faster actually in our trajectory than what we have in our trajectory before. And on the capital expenditure side, we had a guidance of EUR 2.5 billion. We reduced it to EUR 2.3 billion related to the investment delay for the 787-10 at KLM, which will move to 2023 and also by a reduced ground GAAP expense. That is from my side Ben, I'll give the floor back to you.

Thanks, Steven. So moving now on to Page 23. I'd like to share with you another initiative that we took on our environmental road map. We just announced the signing of 2 multiyear SAF purchase agreements with Neste and DG Fuels. These contracts will lead to a supply of a total volume of 1.6 million tons of SAF by 2030 and constitute a further step for the group to achieve its 10% SAF incorporation targets by this date were 3% already secured. Both agreements lead to an average reduction of 80% in CO2 emissions and are fully compliant with a strict sourcing policy that the group has put in place. They do not compete with human food or animal feed supply and are not derived from palm oil. By increasing use in demand, our France KLM aims to play its part in advancing the commercial scale of SAF production for broad adoption by 2030. These contracts are an important step in the right direction. Now moving to Page 24. We have delivered strong revenues, more than EUR 500 million above 2019 levels with capacity gradually increasing and load factors close to pre-COVID levels. This ongoing recovery has led to a significant improvement of our profitability and of our operating margin now at 12.6%, which is again higher than 2019, which stood at 12%. We've also continued to deliver on our financial road map with a solid cash position and a lower net debt down to EUR 2.3 billion compared to last December. Moving forward, we intend to continue our deleveraging efforts with the partial and early redemption of the state-backed PGE loans for Air France amounting to EUR 1.5 billion out of the EUR 3.5 billion outstanding. And as I've described, we have executed on our decarbonization road map with a concrete and major step forward on SAF long-term purchase agreements. Now looking ahead, the world that the industry's environment remains challenging with geopolitical tensions, macroeconomic uncertainties and volatile markets. In such conditions and leveraging on what we have achieved, we need to continue transforming and adapting our business. It's essential that we continue optimizing our operating model for better efficiency and resilience. We will achieve this through genuine and transparent dialogue with our employees, while all have shown considerable amounts of dedication and commitment and are an integral part to delivering on our financial performance goals and on our sustainability road map. So thank you. And we are now available to open up our Q&A session.

[Operator Instructions] We will take our first question from Ruxandra Haradau-Doser.

Congratulations on the strong performance. 3 questions, please. First, Schiphol was the most or one of the most disrupted airports in Europe this year. What was the overall financial impact on KLM from this disruption in the 9 months this year? And do you expect an improvement of operations at Schiphol Airport in 2023? Second, what is your expectation for the cargo business in Q4? And third, could you please provide an update on the discussions related to IATA? There are several other airlines in restructuring for sale in Europe. What is your view on consolidation in the European airline sector? And do you expect 2023 to be a decisive year in this respect?

Sorry, we had to distribute a bit the questions amongst ourselves, so sorry for a small delay. If you go to Schiphol, first, as you can see on Page 4, you see that we had EUR 60 million in customer compensation, of which EUR 30 million for the Air France Group and EUR 30 million was for the KLM Group. So EUR 30 million is from that part or KLM or for Schiphol. And if you look at the missed revenues, the EUR 225 million, there is EUR 145 million for KLM and EUR 55 million for Transavia Netherlands. So it's EUR 200 million out of this EUR 225 million. The improvement I will give it later to Marjan, I will come back on the cargo. The cargo we still see that actually, we expect already that, of course, the market will go down. We still see that the yield is still holding. Of course, we bring in more capacity with our belly plans. So actually, we see same kind of environment of Q3. But you know the cargo was very difficult to predict. Most of the cargo will be shipped, especially in November also when it's just before the Christmas season. So we still have to see it. That's not a long-term booking market as we have in passenger business. But so far, so good, I would say. Marjan?

Yes, disruptions at Schiphol Airport will hold at least until December, hopefully, ending March. Schiphol authorities announced they need 800 extra employees at security to solve these problems. So there will be another waiting moment in December to see if we can increase our capacity. There's a new CEO in [indiscernible] and we're looking forward to join him and execute all the plans in place very fast.

And regarding IATA and consolidation in Europe. So there is an exclusivity in place for the [ tariffs-led ] bid, which we are a part of, and that is until the end of October, so just coming up. Largely, the Italian market has always been difficult. So the discussions and negotiations continue. We are, of course, studying other consolidation potential opportunities in Europe and elsewhere. So that does continue, nothing to announce today. But what you have seen in the presentation that we've shown is that there are some unique opportunities for Air France-KLM to organically grow, which is not always the case with many of our other competitors. You can see on the long haul, what we call the coy markets. So this is to the French and Dutch territories around the world in the Caribbean and in the Indian Ocean. We have some very attractive growth opportunities. And now with Transavia, France, we were able to reenter many markets that we had vacated in the past due to profit issues. So if you look at the opportunities for Transavia, first, obviously, our #1 priority is to optimize our plot portfolio at Orly. And once that's done, we can look at other opportunities out of the main French domestic markets, which we've mentioned over the last year or 2 with you. So from all the secondary cities, the Air France Group, part of the Air France-KLM group, we do not have any year-round European service out of these 7 or 8 secondary cities. So from a consolidation perspective, it's an organic opportunity for us. It's too difficult to find a target consolidation that we could integrate in a reasonable way. So I think we're in a unique position when it comes to consolidation.

We will take our next question from Sathish Sivakumar.

I've got 3 questions here. In terms of your capacity growth in Q1, how much further you have like headroom to grow to Q2 and Q3 as the demand rebounds? So could you go back to 2019 levels without any constraints both on, say, labor as well as in terms of the fleet? And then the second one is around the FX, mainly on CapEx. How much of your fleet CapEx is actually hedged for USD exposure? Any color on that would be helpful. And the third one is around the point of sales. Given that you're seeing a strong build out of North America, any color how does bookings have changed versus 2019? How much of your revenue is now actually always net of U.S. versus 2019?

Okay. First of all, the connection is very poor. So it was difficult for us to understand. Clearly, your question, I think the second and third questions came out relatively clear. So I'll have Steven answer those and then after perhaps if you could repeat the first question, then we'll come back to that one.

Yes. Let's first -- the dollar hedge. So for Q4, we have hedged of our operational expenses, 61%. And for 2023, we already hedged 54%. And even for 2024, we already have hedges in place, so that's 32%. Then on top, don't forget that we also have hedges in place for our investments. So we continue to build up hedges. So that -- at the moment it needs to be delivered. We have these hedges in place. If I understood your first question is, could we have been at 100% capacity if there were no restrictions? I think that would be a big step in terms of capacity on the ground. Of course, we are already limited by the capacity of the airport. So it needs a big step from -- the summer period is always a very busy period. So I think we would not be able to have reached 100%, but 100% is very, very far, of course, for what we have delivered in the Q3. And then on North America, I heard what you're saying, but I didn't completely get your action because I gave a lot of color on it. So I gave you already the higher yield to the higher capacity and higher load factor. So of course, we are far ahead of the revenues of 2019, so I don't exactly understand your questions. If you look at the total revenues compared to 2019, we are up 30%. Is that your question?

Yes.

And perhaps regarding -- may be you can repeat your first question?

Yes. Sorry for the bad line, actually. Yes, Steven did answer my first question on the capacity headroom, how much further you could actually ramp up into 2023 as we go into the summer.

We will take our next question from Jarrod Castle.

Ben and Steven, just firstly, can you just clarify what's in that other operating income of minus EUR 335 million versus about EUR 300 million delta versus a year ago? Because net income a bit light as we move down the P&L. Secondly, are you able to give any kind of color on the scale of the synergies that the CMA agreement will bring? It seems like things on track. But any color on that? And then where are you standing today looking towards your medium-term targets. Do you feel more or less confident when you look at the challenges ahead and where costs are coming out?

Can you repeat the first question? Because it was not totally clear.

Just the other operating income, which was a deficit of EUR 335 million in your P&L versus $114 million negative a year ago. What that is actually?

Do you mean below current operating income? Okay. No, no, it is related. The main impact is coming from the impact of the U.S. dollar. So we have to, let's say, we value our balance sheet position, especially on the maintenance side, and that brought EUR 283 million negative impact on our results. Is that where you're referring to the difference between operating margin and net income?

Yes, that's right.

I mean, yes, of course, it's very normal. There's of course interest cost. Then the other questions, let me start. I think on the CMA, we are currently finalizing actually the contract. We don't give the exact numbers on the synergies. But you know that it brings a lot to our belly. We have an additional channel where we can sell. So we are very hopeful that we will get these results in the next year. It's good to see that we're having a good discussion. We completely understand each other’s business model. And together, I think we are much stronger in this business and especially because it will support our belly capacity where we always have, let's say, capacity available to sell. Then on the median target, I'm more confident because we are going faster than expected, especially if you take into account the war, the fuel price, et cetera. But even then, we are going faster than actually what we had in our trajectory in our road up to the 7% to 8% margins.

And then on the costs that you mentioned, so like most other countries that we operate to, we have inflation to deal with them, I think to date, it's the management team at our various business units have been doing a good job of balancing out in an accrual fashion. We have -- we still have work to do on the transformation side, both at KLM and at Air France. The domestic market, as I mentioned, still has work to do, but we have already exited over 7,000 employees at Air France, 3,000 at KLM. There are some that are coming back as the business comes back, but not nearly at the numbers that exited. So we are going to have a structural reduction in the number of staff at the group. As you may know, we have reduced the highest unit cost, money losing operations at Air France, which is the regional operation hub. We've cut that capacity by 50%. So there are some transition costs going on there. The Orly operation is still not profitable. But as we ramp up Transavia, that is going to take a little bit longer. You will see the improvement coming on. So I would say we're quite optimistic with the continued containment on cost. Of course, things do come up. We have challenges with our airports, in particular Schiphol airport, absolutely not acceptable. But overall, we're quite pleased with the way our plans are moving along and are on track.

We will take our next question from Muneeba Kayani.

How are you thinking about industry supply next year? Do you think these challenges around ATC airports will continue and impact available capacity? Or do you expect to ramp up next year? And then on yields, I didn't catch kind of what you're seeing in terms of your current bookings in the fourth quarter and the first quarter. Is it that kind of over 20% that you've seen in the third quarter? And then just following up on the previous question around cost. So I know it's early days, but can you give an indication of how you're thinking about how ex-fuel your net cost would be for next year?