Air France-KLM: an ambitious three year plan to restore profitability

At its meeting on 11 January 2012, the Board of Directors of Air France-KLM examined the transformation plan over three years (2012-2014) for the Group, and the implementation of the three priorities set out on 9th November last year: restoring competitiveness through cost-cutting, restructuring the short- and medium-haul operations and rapidly reducing debt.

Downward revision of capacity growth and investments

The Board of Directors first examined the Group’s growth prospects for the next three years. Given the uncertain economic environment and the ongoing imbalance between transport supply and demand, the Board deemed it necessary to opt for quasi stable capacity for the Air France-KLM Group in both passenger and cargo. Consequently, over the next three years (2012-2014), the Group will only increase capacity by a little over 5% on a cumulative basis.

This will lead to a shrinkage of the Group’s fleet with an attendant reduction in the investment program, with the exception of spending targeted at the ongoing improvement in operational safety and client service. The investment program will be reduced from over 6 billion euros over the period 2009-2011 to below 5 billion euros for the coming three years. This decision has led the Group to adjust its medium-term fleet plan combining, amongst others, the deferral of aircraft deliveries and the non-exercise of options.

Two billion euros debt reduction by end December 2014

The Board of Directors also considered as a key priority the reduction of the Group’s net debt by two billion euros to some 4.5 billion euros by end December 2014. Over the period 2012-2014, two billion euros in net cash flow will be generated through a combination of immediate actions and a transformation plan.

Immediate cost reduction measures

New cost cutting measures amounting to some one billion euros will be implemented immediately. They include a freeze on general pay rises in 2012 and 2013 at Air France and a policy of wage moderation at KLM. The hiring freeze introduced in September 2011 will also be pursued. Additional productivity measures, a further reduction in overhead costs and network adaptations will complete the measures.

These measures, the components of which have already been fully identified, will be implemented with immediate effect, in compliance with regulations concerning the information or consultation of the Group’s social partners.

Transformation plan

These improvements on their own, however, are not sufficient to guarantee the durable restoration of the Group’s competitive position and financial strength. The Board of Directors therefore decided to implement a transformation plan, encompassing all its businesses, with a target of generating an additional one billion euros in free cash flow over three years.

Improved productivity

The return to a satisfactory level of profitability will require a significant improvement in productivity in all parts of the Group, which will imply the renegotiation of the employment rules contained in the existing collective agreements. Negotiations with the organisations representing the various categories of employees concerned will begin rapidly.

Although the passenger business will be the primary focus with the restructuring of the short- and medium-haul operations, cargo and maintenance will also have to redefine their conditions for profitability.

Break-even of medium-haul within three years

The short and medium-haul network remains indispensable to the Group’s development, assuring not only its presence throughout Europe, but also feeding the long-haul operations of the two hubs, Paris-CDG and Amsterdam.

Since the financial crisis of 2008-2009, the structural decline in unit revenues has led, despite the NEO plan, to deepening losses in this business, estimated at some 700 million euros in 2011. As the financial results of recent quarters demonstrate, the long-haul operations, also subject to increasing competition, cannot alone offset these losses.

To restore the medium-haul business to breakeven, the Group is working on the following structural measures:

- better utilization rate of aircraft and assets;

- significantly improved productivity in all employee categories;

- redefinition of certain activities, potentially leading to more extensive outsourcing in some areas.

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The Board of Directors considers this progress report has enabled the definition of ambitious but realistic objectives for the three year transformation plan. The implementation of these measures will contribute to reinforcing the Group’s financial position and preserving the current level of liquidity. It will be the subject of regular updates in order to measure its progress.

Air France-KLM, Thursday 12 January 2012

Boeing and Air France-KLM Group have finalized an order for 25 Boeing 787-9 Dreamliners, with options. The order was signed in late December 2011 and was recorded on Boeing's Orders & Deliveries website, attributed to an unidentified customer. A preliminary agreement was first announced on September 16, 2011.

"By making the 787 a key part of its fleet renewal, Air France-KLM strengthens its position as a worldwide leader," said Jim Albaugh, president and CEO of Boeing Commercial Airplanes. "Reaction to the Dreamliner's entry into service has been phenomenal and we look forward to seeing passengers of Air France-KLM fly on this revolutionary airplane."

The Boeing 787-9 Dreamliner is a slightly larger version of the 787-8 and will carry 250-290 passengers on routes of 8,000 to 8,500 nautical miles (14,800 to 15,750 kilometers). The 787 provides airlines with incredible fuel efficiency, resulting in exceptional environmental performance. The airplane uses 20 percent less fuel than today's similarly sized airplanes. It also travels at a speed of Mach 0.85, which is similar to the speed of today's fastest wide-body airplanes.

The order increases the number of 787-9s on order to 305 airplanes. The 787 Dreamliner family, including the 787-8 and 787-9, has accumulated a total of 860 orders from 59 customers located all over the world.

Eight French companies partner with Boeing on the 787 Dreamliner. They include Dassault Systemes (software solutions), Labinal (wiring), Latecoere (passenger doors), Messier-Bugatti-Dowty (main and nose landing gear, electric brakes), Michelin (aftermarket tyres), Radiall (connectors), Thales (electric power conversion system, flight display, in-flight entertainment system), and Zodiac Aerospace (primary power management system, emergency slides, water and waste systems, cabin interiors, galley inserts and seats, and other equipments).

The Air France-KLM Group is a long-time and valued customer with a large Boeing fleet of 188 airplanes in operation, including 74 for Air France and 114 for KLM. Air France-KLM is one of the world's largest 777 operators.

News Release Issued: PARIS, Jan. 10, 2012 /PRNewswire/

The Air France offensive in the French provinces continues on departure from Nice and Toulouse

Successfully launched in Marseille in October 2011, the Air France offensive in the French provinces will be extended to Toulouse and Nice in spring 2012, followed by Bordeaux later in 2012.

By summer 2012, Air France will be operating more than 1,200 weekly flights on departure from Marseille, Toulouse and Nice, with a redesigned system to strengthen its competitiveness.

On departure from Toulouse, 16 new destinations

Starting on 1 April, on departure from Toulouse, Air France will be flying to 16 new destinations in Europe and the Mediterranean, in addition to the 12 existing destinations. Among the new routes, customers will be able to discover Istanbul, Prague and Tunis.

There will be a total of over 430 weekly flights to 28 destinations to and from Toulouse.

6 new destinations on departure from Nice

As from 3 April, on departure from Nice, Air France will be flying to 6 new destinations, including Barcelona, Istanbul and Tel Aviv.

Over 330 weekly flights will be on offer to 22 destinations on departure from Nice.

On departure from these two cities, Air France will be offering very attractive one-way fares starting at €50 including tax. On board, passengers will be able to enjoy the same services to which they are accustomed on Air France flights: a free drink and snack, a selection of French and foreign newspapers available free of charge at the boarding gate, one piece of checked baggage in the hold and one piece of cabin baggage free of charge, online check-in and choice of seat, as well as attentive staff throughout their trip.

"Air France’s challenges on its medium-haul network are considerable: the airline needs to strengthen its competitiveness and continue to develop its operations. Air France has strong potential for success with this project: skilled and motivated staff, a young fleet and a constantly developing network" declared Alexandre de Juniac, Chairman and CEO of Air France.

With more sustained activity on departure from Marseille, Toulouse, Nice and Bordeaux, Air France intends to benefit from productivity gains that will help to reduce its production costs. Productivity gains will be achieved with a rationalized and optimized use of aircraft, with cabin crew based in the provinces who will carry out more flight hours and with greater operational efficiency on the ground thanks to this additional activity.

Air France, Monday 5 December 2011

Los Angeles and Dubai: 2 new destinations for Air France’s A380

Air France continues to connect the world with its Airbus A380 with two new destinations: Dubai, with winter service beginning December 5, 2011, and Los Angeles, with flights starting May 28, 2012.

Daily flight to Dubai, beginning December 5, 2011

Starting December 5, 2011 and continuing throughout the winter season, Air France will serve Dubai with a flight departing daily from Paris-Charles de Gaulle.

The new A380 destination is made possible by the aircraft’s redeployment to Dubai from Tokyo for the winter season as a result of lower seasonal demand in Tokyo. For the 2011-12 winter season, Air France will operate six Airbus A380 aircraft from Paris-Charles de Gaulle, serving five destinations: New York-JFK, Johannesburg, Montreal, Washington and Dubai.

Daily flights to Los Angeles, beginning May 28, 2012

Air France will begin daily Airbus A380 service to the global entertainment capital on May 28, 2012, making Los Angeles the third U.S. destination served with the wide-body aircraft by Air France, following New York and Washington.

Air France will serve Los Angeles from Paris-Charles de Gaulle with two daily flights. The route is part of the transatlantic joint venture operated by Air France KLM, Alitalia and Delta.

In the summer of 2012, Air France will operate eight Airbus A380 aircraft from Paris-Charles de Gaulle, serving Los Angeles, New York-JFK, Johannesburg, Tokyo, Montreal and Washington.

On board the A380, absolute comfort with the Air France touch

Air France’s A380 can accommodate up to 516 passengers in four classes, including nine in Premiere on the main deck, 80 in Business on the upper deck, 38 in Premium Voyageur on the upper deck and 389 in Voyageur between the two decks.

On board, the aircraft offers six bars located throughout the two decks as well as adjustable lighting adapted to the different stages of the journey. The tones, colors and "gallery" discovery space, all provided with Air France’s special touch, recalls the relaxing atmosphere of the great ocean liners. The A380 also integrates the most advanced noise reduction technology, providing the cabin with a serene, quiet ambience.

"We look forward to serving our passengers aboard one of our jewels to our two new destinations, providing even more comfort and relaxation, all with the differentiating 'Air France touch,' " said Bruno Matheu, Commercial Director for Air France.

Operated by Air France since November 2009, the A380 has a capacity equivalent to a Boeing 777-200ER and an Airbus A340 combined, but with 20% lower operating costs and CO2 emissions. The aircraft’s size and performance is particularly well suited to the Air France network, allowing the company to save between 12 and 15 million euros per aircraft per year while also improving on environmental sustainability.

Flight times (all times local):

Dubai - December 5, 2011 to March 24

- AF3830: Paris-Charles de Gaulle 2E 1:30 p.m. – Dubai 11:00 p.m.

- AF3831 Dubai 1:45 a.m. – Paris-Charles de Gaulle 2E 6:10 a.m.



Los Angeles - beginning May 28, 2012

- AF 066: Paris-Charles de Gaulle terminal 2E 10:30 a.m. - Los Angeles 1:05 p.m.

- AF 065: Los Angeles Tom Bradley 15:50 p.m. - Paris-Charles de Gaulle 2E 11:20 a.m. (+1)

Air France press release, Tuesday 8 November 2011

• Initial operational results very satisfactory
  
• Three new destinations and increased frequencies starting March 25, 2012

Air France’s new service to Marseille, introduced October 2, 2011, is already proving to be a success in the early days of operation, with an excellent 95% on-time performance record for the first month.

Traffic from Marseille Provence airport is in line with objectives and has been growing steadily throughout the month, providing evidence of its economic potential. These good results reflect intensive efforts and involvement of all ground-based and in-flight teams to ensure the initiative’s success.

Based on this early success, Air France will open three new routes from Marseille, beginning March 25, 2012. In addition to the 30 destinations already served directly from Marseille Provence, Air France will offer:

5 weekly flights to Venice
4 weekly flights to Hamburg
2 weekly flights to Barcelona

In addition to these three new routes, Air France will once again be operating two daily flights between Marseille and Rome.

Tickets for these flights will be on sale as of November 8, 2011.

In addition, the company is increasing the frequency of service to several destinations over the winter of 2011:

• Algiers will be served with 5 weekly flights (two additional winter flights)
  
• Biarritz with 3 weekly flights (1 additional flight)
  
• Copenhagen with 3 weekly flights (1 additional flight)
  
• Nantes with 24 weekly flights (2 additional flights)
  
• Prague with 3 weekly flights (1 additional flight).

In total, nearly 500 weekly flights to 33 destinations will be operated directly from Marseille to destinations in France, Europe and the Mediterranean in the summer of 2012.

Since the fall of 2011, Air France has been carrying out an offensive strategy with departures from the regions in order to regain market share in the short and medium haul market. In a highly competitive environment, the company has reorganized its network to increase use of aircraft and improve productivity. The strategy being implemented from major regional cities can initiate a virtuous cycle by boosting the network while offering attractive rates to customers – beginning at € 50 one-way. Deployment of the initiative will be expanded to Toulouse, Bordeaux and Nice in the spring of 2012.

Air France press release, Monday 7 November 2011