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Air France KLM SA
PAR:AF
Air France KLM SA
PAR:AF
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Good day, and welcome to the Air France-KLM Q1 2019 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Frédéric Gagey, Chief Financial Officer. Please go ahead, sir.
Thank you. Good morning to everybody and thank you for attending this conference call of 2019 first quarter of the Air France-KLM Group. So I suppose you have the press in front of you. I propose to go to the first slide, which is just giving the global [indiscernible] what are the main returns from this first quarter. I think that as everybody know, and following also some indication shared with the market by some of our colleagues, you know that we're a bit under pressure concerning the unit revenue, which is not a surprise for us as already in the last year presentation for the full year result, we had indicated to you that we're expecting a negative unit revenue for the first quarter due mainly to the relatively large development of capacity by industry. And in fact, it is what happened. If you look to the slide, you see that the passenger unit revenue, which is a unit revenue for both the networks Air France-KLM plus Transavia, we are at minus 1.9. This is negative. We consider it is probably a bit better compared to some of our competitors, and we found that if it is negative, we're also seeing that we are [indiscernible] in the market, indication of worse evolution of unit revenue for some of numbers of the competition. In spite of that, you see that the activity has been growing. In terms of number of passenger, we are at plus 3%... If you add also the fact that the fuel bill increased by roughly EUR 140 million over the quarter. We have the main explanation of the drop in operating result. Last year was minus EUR 100 million. This year, it is minus EUR 300 million, so a reduction of EUR 185 million. If you go like-for-like, in spite of this reduction of the operating result, which is contained I will say, we have been able to continue the deleveraging of the company. The net debt is down EUR 400 million. This is net debt according to the new IFRS 16 standards. And the free cash according to the old standard is also positive. I will come back to that at the end of the presentation. Two other element. One, I suppose that you know that, we successfully launched a convertible bond for EUR 500 million with interest coupon of 0.1%, and we have also discussed with Ben Smith who will be very happy to welcome you in the Capital Markets Day we plan in November 2019.I got Slide #4 where you have the main result for this quarter. Revenue is up, plus 3%, and plus 2% if you correct for the currency effect. The fuel expenses, as I told before, are EUR 140 million more compared to last year, which is explained mainly by the fact that we have last year a very positive result of the hedging. This year, we are still positive result for the hedging but which is far less than in 2018, and this is the main explanation for the increase of the fuel bill. Operating result, minus EUR 300 million. Operating margin, minus 5%, negative, of course, but we are in winter. And the net income group part is minus EUR 300 million. Adjusted free cash flow, positive EUR 241 million, and as a consequence, net debt on EBITDA ratio stands below 1.5 at 1.4 for the first quarter.Slide 5 show you the development business unit. Network, which is both the passenger network activity and the cargo, it is the main explanation behind the reduction in terms of operating result. It explain minus 193 million of the change. This is explained by the fact that we have, as I told before, negative unit revenue minus 1.6% for the passenger network activity. But you also see that in terms of cargo, we are back in a period with negative unit revenue. As you know, the year 2017, 2018, we were relatively dynamic in terms of cargo, and we shared recently with our colleagues of the business unit cargo that they are now facing more difficulty due to a weakening market in terms of international exchange. Transavia, also unit revenue negative, minus 3.5%, not really a concern. As you know, Transavia is still planning to grow a lot during the summer. In order to grow, you have to prepare that a bit in advance. It explain why the capacity is plus 11% also during this first quarter, which is the weakest period, of course, in terms of demand. Also, Easter shift in 2019 is also explaining the unit revenue in Transavia. As you can imagine, the Easter period is very important for a low-cost company, but in terms of the departure out of Schiphol, in total, we have a small reduction of the margin to Transavia, but again, it is not a concern. Good news is coming from the Maintenance last year. We are a bit concerned about the reduction of the margin in the Maintenance business unit. You see, as a contrary, during this quarter, the margin increased by 1.5. Last year, we suffered from some one-off, one of them very important was the loss of the contract with Alitalia, which had a significant impact during this first quarter. Now for the first quarter 2019, we have a clean sheet in terms of accounting, and we saw a good margin of 4%, which will be even a bit higher over the 12 months 2019. So all in all, this reduction of 185 million for the operating result and this is negative margin of minus 5%, but again, we are in winter. And again, also, we are expecting this evolution due to the increased fuel bill will expand during our presentation of the full year 2019 and also because we were expecting negative unit revenue during the first quarter.Next slide, #6. Per geographical area, you see that the medium-haul point-to-point and the medium-haul connecting hubs are resisting, and not too bad. If I refer to some evolution of unit revenue in some of our competitors, it is minus 2.7% in the medium-haul point-to-point, minus 2.1% for the medium-haul connecting to hubs. So in total, medium-haul as unit revenue, minus 2.4%, with capacity developing at 1.4%. Concerning the long-haul, it is slightly negative, minus 0.9%, with some weakest part in the global network. Of course, one clearly is Latin America where we increased capacity a lot, mainly to the Andean countries. But due to the crisis in Brazil, Argentina and Venezuela, you see the unit revenue at minus 7%, which is really a very weak result. North America, minus 2.5%. And for the rest, we are all stable, all increasing. Increasing in Caribbean and India Ocean at plus 4.3%. Asia also is still continuing to develop correctly at plus 1.7%. And Africa is stable after a period where it was, to be honest, a bit weaker due to the low fuel price and the impact on the [ all ] countries. So in total, long-haul resisting relatively well, with only a reduction of unit revenue of minus 0.9%. Of course, all this development are impacted by the gilets jaunes events in France. We have considered after some, as best as we can, calculations that the impact is around EUR 10 million during the first quarter 2019. Two other elements. First, premium is resulting better than economy. The RASK ex currency for premium is at minus 0.6%, when for economy, it is minus 2.2%. And second element, ancillary revenues continued to grow very dynamically. You are at -- for the quarter, at EUR 161 million, and the growth is over about 17%. Next slide, Page 7. If you go to the unit cost where the unit cost, which is continuing to give us comfort about full year guidance, so we still maintain the guidance that unit cost will be between minus 1% and 0%, and it is what we have today in the reforecast we made in March. For the quarter, it is at minus 0.4%. There is a labor productivity improvement we estimate at plus 1.7%. However, the staff costs are increasing under the -- as the consequences for the 2 wage agreements signed in 2018 in Air France and in KLM. And I will say that the impact of these agreements are a bit increased due to some timing effect. Remember, for example, that in Air France, the merger concerning the 2018 agreement has been distributed to employees by the end of the year, which means that for the like-for-like comparison, there is a bias because the 2% of the wage increase to Air France has been paid by the end of the year. So now, when you consider Q1 2019 to Q1 2018, there is a pure timing effect increasing the evolution of the staff costs, which means that over the full year 2019, we expect staff costs happily below plus 6.5% in terms of increase.If I go next slide, we have, I think, a very clear explanation of the waterfall between 2018 Q1 and 2019 Q1 when you look out to explain evolution of the operating result. There is a big impact of the unit revenue, minus EUR 115 million. Also an impact of the fuel price ex currency, it is minus EUR 44 million. So it's a net currency impact, which is a combination of the currency impact on both the revenue and the cost. And of course, it is negative due to the impact of the dollar on the fuel cost, and mainly on the lease and also currency impact on the revenue side. And these 3 elements that are partly, but very partly I would say, compensated by the contribution of the reduction in unit cost of minus 4%, which has an impact of EUR 23 million over the quarter like-for-like, which means that we have clearly a very simple explanation why we move from minus 100 last year to minus 300 in 2019. If you look to the operational performance, as you know, for Ben Smith and Anne Rigail mainly in Air France, a lot of focus has been given to the improvement of the operational performance, and we see during this first quarter a relatively significant evolution concerning the time performance -- on-time performance and concerning the Net Promoter Score given by all clients. Concerning the on-time performance, Air France was very, very low in the ranking of flights. That's in the middle of 2018, we got 31st in July, 22nd in August. And you see that since the beginning of January 2019, you see an improvement for February and March 2019, the company Air France only because KLM has better on-time performance, which is a big company, is ranked the sixth and seventh, which is really the first signal of the effort driven by Anne Rigail on the evolution of the operational performance as a company. Concerning the Net Promoter Score, also, we see an improvement during the last year. We had a very large gap between the KLM performance and the Air France one. But you see that on the beginning of 2019, the NPS has increased from 12, which was the level of 2018, to 24, which is a relatively sharp increase. And you see that when you look at the first 2 weeks of April, it is at 26, so clearly a good evolution in order to restore 2 big issues into Air France, which have been observed in 2017 and 2018. I move to the next slide, Slide 10, where you see, as usual, the comparison in terms of economic performance between Air France and KLM. At this time, I will say, KLM margin is going down, minus 4.5 points, which is more than the performance of Air France, which is going down only by 1.9. But of course, the main explanation is that you have to take into account the fact that in 2018, of course, the first quarter has been impacted by the strike at Air France, and we have estimated the impact at negative EUR 75 million. When you correct for that, you see that, I will say, evolution of performance or the evolution of margin into 2 company is of the same order of magnitude. Important also to see that the 2 company continued to reduce their net debt from minus EUR 76 million into Air France, minus EUR 255 million for KLM, and that net debt on EBITDA, I will show, are not significant, especially if you correct for Air France the strike effect of the last year. Next slide, Page 11, evolution of the leverage. So you know the way we have introduced from presenting these elements since adoption of IFRS 16. So you have the cash before working capital, same level of working capital compared to last year, EUR 806 million versus EUR 807 million. Not a big deal. Concerning the investment, investment in 2019 Q1, a bit lower or significantly lower by EUR 200 million if you compare that to the first quarter 2019, and it explained partly the operating free cash flow, which corrected for payment of the debt, gives you a positive adjusted operating free cash flow, which is, I remind you, the free cash flow as it was before the adoption of IFRS 16. Now if you move to the net debt, you have at the right of the slide the evolution of this net debt from 6.1 to 5.7, so this is a reduction of the net debt pushed by the free cash and the end balance between the repayment of this debt and the new lease, which are added to the global debt of the group. So again, the net debt on EBITDA ratio is end of March 2019 at 1.4. I go now Page 13 to first try to describe a bit what is the situation. So clearly, winter has been characterized at the very high level of development of capacity also compared to last year and mainly on the medium-haul. What is happening for the summer 2019? First, on the left of the slide, you can see that the group has relatively cautious development in terms of capacity. It will be 4% for Air France and 3.2% for KLM, but the 4% in Air France is not corrected for the strike, so which means that we continue to maintain our guidance that over the year, the growth of the group in terms of ASK will be between 2% and 3%. Second, you see that the development of the capacity operated by the industry is a bit uneven, significantly slower than last year. Last year, in terms of number of seats long-haul in the industry, from and to Europe, developed a growth of 7.6% in 2019. We have a growth of 5.2%, which is, I will say, significantly less than in summer 2018. Where are the most growing destination? It's still in Latin America with number of seats increasing by 12%, and Asia, where you have the number of seats increasing by 7%. But also, this growth are less than last year, mainly in Asia. Last year, it was 9%. India, it is 7%. Same in North America. Last year, the growth in terms of number of seats was 7%. Now, it is 3.6%. And Middle East, it was 11% last year, 85% in 2019. Second, the demand, the compartment of the players are a bit changing. If I try to summarize that, I will say that the legacy carrier are slowing down the rate of growth compared to last year. The growth carrier also are increasing far less than what they did years ago. And also, the long-haul low cost are clearly also growing less actively than in 2018. So all in all, we have a picture which seems to be a bit more favorable compared to last year. Then I go Page 14, what does that -- how does it translate in terms of -- in terms of long-haul forward-booking load factor for Air France-KLM. So as usual, we show you this long-haul forward-booking load factor for the next 5 months. What do you see? You see that for May and June, we are above last year in spite of the increase of capacity. So there is a load factor, not the number of bookings. And for the time being, from July, August, September, we are more stable compared to last summer 2018, which if you remember well, was a relatively good summer. So stable for the summer up to now, and a booking load factor a bit higher for the month of May and the month of June. On top of that, you have to also keep in mind that last year, concerning the point-to-point unit revenue developed relatively quickly, plus 2.9% as the point-to-point network was helped/supported by the strike in the French [airways] company, which means that taking into account all this element, what we think is that for the second quarter, the unit revenue corrected for the currency is expected slightly improved compared to last year, with clearly something positive of the long-haul and which will be largely offset by the negative point-to-point unit revenue. So this is where, today, we are looking at the unit revenue for this second quarter 2019. I move Page 15, should be not surprised. We give you the fuel bill estimate for the year based on the forward curve at the 26 April 2019, which is last week, since as you know, the fuel is -- or the Brent wasn't going down, which means that there is no risk for the time being due to the fuel cost development, and we are confident with -- today, that the fuel bill will increase by EUR 650 million compared to 2018, with the fuel aging over the year, which is expected at $200 million to be compared to the $800 million of the hedge result in 2018, which means that all in all, for the time being, apart of the slight evolution of our estimate for the fuel bill, we continue to keep the same guidance we shared with you at the beginning of the year. Capacity for the passenger business Q2 to Q3 at Transavia, plus 9 to plus 11, the fuel bill I just told, plus 650 million. Currency seems to be neutral for the time being, but there is some, to be honest, variability when you look, for example, to the dollar, but this is an estimate we have today. Unit cost, as I told before, are still expected between minus 1 to 0, so in that trend, CapEx exchange and net debt on EBITDA exchange also. So thank you. Now I give the floor for your question, and I am happy to answer with, close to me, Erik Swelheim, who is the CFO of KLM; Marie-Agnès that you know, of course; and [indiscernible] that you know, of course; and I am also with our Chief Accounting [indiscernible]; and our Chief Controller for the group [Stephen zat]. So I give the floor to your questions.
[Operator Instructions] We will take our first question from Savi Syth from Raymond James.
Could you please elaborate -- just a couple of questions from me. The first one is if you could elaborate what you're generally expecting kind of from the various regions that's driving that passenger unit revenue as up slightly in 2Q. Just somewhat similar to what you -- some have given that perspective, what you're seeing. I know you kind of highlighted a lot on the capacity side. And then, just on the second one, with premium down year-over-year in 1Q, just wondering what you are-- what's driving that if it's across the region or if there's kind of any specific area that's driving that and what you might expect as you kind of go through 2019?
If I look -- on your first question, which is how to split the Q2 assumption in terms of unit revenue per region, I will say, normally, we don't share such precise data, but I will say that for the second quarter for the time being, in long-haul, everything is positive except North America, which means that we have positive unit revenue for Indian Ocean, Caribbean, Middle East, Africa, Asia and North America, but there is still significant drop for the South America. The second question is the premium per region and that, sorry, we are not going at this level of granularity, and we just give elements on the unit revenue for the global traffic per region.
Okay. I wonder if maybe I can ask it a different way. From a business and corporate demand standpoint, are you seeing kind of a trend change or what's -- is there kind of any softening in the kind of the business demand side of things?
For the time being, as you know, or you don't know, we have every months what we call revenue-making, and the elements we have in mind following the last meeting, so we show that, normally, there is no big change concerning the demand or big change in behavior concerning the demand for the premium segment. The demand level seems to remain relatively solid. And as you see when we split the unit revenue between premium and between economy, you saw that, this is in the slide, that the reduction of the unit revenue in premium is far less than in economy, so it was a good resilience for the business on the premium traffic.
We will now take our next question from Jarrod Castle from UBS.
Three, if I may. One, just from the full year results, the load factors have weakened a little bit for May and June. I think you were plus 2 rather than the plus 1, so is there any comment around that? Secondly, just Page 15, just the quarterly progression of the fuel bill. But the quarters don't seem to add up to the total, or it's a different kind of metric for constant currency, et cetera. But they just don't seem to add up. And then lastly, any kind of commentary at the moment in terms of corporate governance from the perspective of the new shareholder or the Dutch government?
Okay. I will -- [ Stephen ] will take the second one, and I will answer the new shareholder. Okay. As you know, it has been the decision for us that we are not, and I will say, this is a decision we are not ready to comment. We will announce during the AGM if it is changing the company composition of the Board. And I will say at this stage, we have nothing we need to add. But I will say, for the debt to the business of the company, it doesn't change a lot the way we are working at things. Ben Smith, Anne Rigail and Pieter Elbers are totally concentrated and focused to the management of the company. And that's it. We are business people first above everything, and this is what we are doing every day.
Concerning the fuel bill, I suppose you refer to 2019 and the quarters.
That's right.
[indiscernible]
Okay. And then just the first question but the one on the load factors going from plus 2 in May and June to plus 1 now.
On that question, it's true that if you take the presentation of February Page 18, you add for April, May, June -- April, May, June plus 2, plus 2, plus 2. When you have now plus 1, plus 1. I think that the more you are close to the months, there is all this data because, of course, when you are 3 or 4 months in advance, booking load factor is relatively limited, yes. So -- and what is important when you speak to the team of the revenue management is to be sure that you are at least at the level of the year before. So from that point of view, as a plus 1, plus 1 for May and June give us a level of relative comfort concerning the size of the unit revenue for the long-haul will be positive, as I talked before, with, however, this effect of last year on the point-to-point, which explained why we have seen approach consisting to tell that unit revenue into 2 compared to last year will be slightly improved but positive for the long-haul.
We will now take our next question from Daniel Roeska from Bernstein.
Three also for me. Number one, on the SNPL, Frédéric, could you please remind us kind of your roadmap for the remainder of the year, kind of what are the topics you want to discuss with the union kind of as we look towards 2020? Because I assume it takes a considerable amount of time to get the discussions going, but what would be the main points you'd like to achieve? And Maybe in that context, number two, priorities for Hop and Transavia in this year? How do we think about those smaller ones? You mentioned the capacity growth? Maybe any color on the kind of top items on the Hop management and Transavia management's agenda? And lastly, I'll keep asking, fleet order on short-haul, anything to expect? Has MAX kind of issue right now, delayed that process? And can we expect any news on fleet order before the Capital Markets Day? Or is that kind of the big reveal for November?
Thank you. Very quickly to 3 questions. For the SNPL, for Air France SNPL because you probably heard about the strike announcement, but it was a national union for the French pilot, which is absolutely not the Air France organization, we have to say, but on that topic, it is mainly topics which are to be discussed with the French government. So we are not really involved. And we support, of course, any solution in order to avoid such strike for the time being, which has been postponed and even called as a technical priority by the national union of the pilots in France. Concerning, more precisely, as the union pilot in Air France, as you know, there is, as always, in any airlines, continuing and continuous discussion in order to keep their morale as high as possible. And one of the topic, which is discussed for the time being, is of course, the Transavia fleet and the possibility to go, one day, above 40 aircraft, which is today, a limitation for Transavia. Concerning Hop, there was a lot of work, of course, which is managed now by the management of the domestic point-to-point network. First of all, we have already indicated that the development of capacity will be negative on the domestic network. And for the year 2000, you saw that already in the slide, Page 6. You see that in the medium-haul point-to-point for the first quarter, we are at minus 3% in terms of capacity. It will be even less for the full year. We are more targeting minus -- so let me check minus 6 -- yes, minus 6% for the full year 2019. So clearly, there is a continuous effort consisting towards secure the point-to-point network mainly by operating lower capacity for this domestic network. Second, we are also working in Air France to the possibility to launch a voluntary departure plan concerning the domestic network and mainly some ground stations in France. This is a normal effect of the relation of capacity. As you know, we are still hit by the development of the high-speed railways. Last year, it was [Tobago] which had, of course, a very strong impact in terms of demand for the air travel, and we have just to follow this situation in order to adjust the Air France network to the new economic environment characterized mainly by the development of the trend in domestic France. Short question on the MAX and the short-haul fleet. So just 3 remarks. One, we are not ordering for the time being any 737 MAX. It is just a matter of fact. And of course, we are now all looking extremely carefully to the development and the announcement made by Boeings and all the bodies which are involved in the management to these events, and we will see later what to do, but for the time being, there is no fleet orders made by Air France or by KLM or by Transavia concerning this aircraft. Second, concerning the existing medium-haul fleet, 2 elements. One, in KLM, the short-haul fleet is relatively young, which means that there is no urgency to move or to launch big order. It is just a normal replacement year-on-year business but there is no -- there is nothing urgent due to the relatively low age of the medium-haul fleet of KLM. Concerning Air France, the medium-haul fleet is -- or the short-haul fleet is older. That is not urgent, but clearly, there will be a need for replacing some aircraft after the year 2020. So we are right now considering all the possibility, all resource, which are offered to us in order to prepare this change, but no big decision to be taken, I will say, in the next quarter.
We will now take our next question from Neil Glynn from Crédit Suisse.
If I could start, first of all, with you've touched on premium traffic and premium demand in earlier questions. But on the leisure side, as we progress into the summer, clearly, the gilets jaunes stuff continues, but also, clearly, across Europe, macro concerns are certainly relevant. Are you seeing any change in consumer behavior and appetite to book whether short-haul or long-haul leisure trips for the summer months? Second question, it might sound small, but I noticed that the temps headcount has fallen year-on-year for the second quarter in a row, if that's correct. Just interested, does that actually suggest any change in approach in terms of managing headcount as you progress? And if you could give us some insight in terms of how headcount should actually grow through the rest of this year, that would be helpful, following a 1% growth at the total group level for the first quarter. And then, third question, obviously, Lat Am challenges continue. Can you give us an update on your expectations as to the timing of the launch of the Air Europa joint venture and give us some insight in terms of how you think that structurally changes your returns or at least your operations within the Lat Am market, which is always volatile?
Concerning the gilets jaunes, I have to say, it's a bit difficult first to make estimate on the impact on the current development. We have asked the revenue management team to look at it. And for the time being, we consider that for the period November to December, it was something between EUR 15 million and EUR 20 million. And for the first quarter 2019, we have an estimate, which is between EUR 11 million and EUR 13 million. So clearly difficult to estimate but there is an impact. So I would say that with such an estimation of the impact, it is difficult to say that it is changing the behavior on the tourisms of the nonpremium traffic. It's clear that it cannot be positive for the time being. We consider that it is, of course, negative. But the order of magnitude is relatively limited based on the numbers I just gave you. Concerning the headcount, I'll give the floor to Stephen.
Yes, if you look at the headcount figures, there is -- first of all, there were a lot of training needed for our pilots related to the growth. So actually, we don't have any strategy change, and the main increase of FTEs is coming from our E&M business where we try to in-source more and also to support our external turnover growth. So that's actually the main reasons for our FTE growth. And there, you see a little bit of mismatch because the FTEs of E&M are not linked to the capacity growth because there's, of course, the capacity growth is just our passenger business and Transavia activity.
Concerning your last question, which is Air Europa, we continue to walk, of course, with Air Europa in order to fulfill obligation vis-à-vis the competition authorities in South America. So we walk in the various country which are concerned in order to get necessary antitrust immunity, and we still hope to launch the JV between Air France-KLM and the Spanish partner before the end of the year. Clearly, we have not yet given full estimate of the impact of this project, but it's clearly seen by us their impact on step concerning the organization of opposition on the Lat Am market. And I will also take the numbers we give right now concerning both the capacity and the unit revenue a bit cautiously. The capacity, again, it is not that we fly to Brazil or to Argentina, it is more that we are developing new capacity to serve Andean countries. And concerning the unit revenue, I think that it's mainly the impact of the crisis in both Brazil and Argentina. This JV is a step in terms of increasing our market share together with [Virginia] to the South Atlantic. We will expect that, probably, we will reach something around 20% of capacity in the future when we'll have this joint venture with Air Europa.
We will now take our next question from Andrew Lobbenberg from HSBC.
Can I ask -- just come back on the comment about cautious point-to-point revenues in the second quarter. I mean, is that all focused purely on the domestic market? Or is it point-to-point international? And how should we read it for the Transavia as well in that regard? Then can I ask about the partnership with Jet because up until very recently, you guys were very positive about the scale of connections that you were getting in the collaboration you were getting with Jet and it was driving quite a lot of traffic on the India-U.S. market, I think, for both CDG and Schiphol. So to what extent is that a loss? And how can you mitigate that? And then a third question might come to your approach towards Aéroports de Paris and their proposal for the next regulatory review with a remarkably low cost of capital and drop, and yet a doubling of their CapEx plans. How are you engaging with that consultation process?
Concerning the depth of our approach, when I speak point-to-point, I speak about point-to-point, which means that this is really domestic, short-haul domestic, which means that if I look at what we have in mind today, in terms of unit revenue between point-to-point domestic and the hub, is a little different. When I speak about something negative, it is really limited to the point-to-point domestic partly explained by the base effect due to the railway strike in 2018 Q1. Second question, Jet Airways. First, of course, it is not a good news. We have agreed that for all colleagues of Jet Airways with whom we used to work with for, I will say, a long period. It is, of course, a disappointment because we worked with them in order to establish this JV, which was a very important project. And now, at least for the time being, as you know, the company is just grounded for the time being. It is not bankrupt. We have to manage the situation. So economically, what we can say is that there is one-off negative effect, we estimate around EUR 10 million, EUR 15 million due to the fact that there is some ticket booked on one of those [airways] and you have [indiscernible]. So it is a normal effect of any situation where one of your partner is stopping flying. And that, you have to take the economic consequence for that. So it is something not very large, but it is significant, I will say. Then, concerning the normal impact on a year-on-year basis, we have considered that the impact of the loss of the partnership with Jet Airways could be around EUR 20 million per annum but, of course, progressively, we'll find a way to compensate for that and find another way to continue to increase our presence to the Indian market, and also to offer to Indian passengers a good connection to the U.S. So first, it is not a good news. And we work with that, of course. Second, for the time being, the company is grounded, not bankrupt. And third, a short-term impact, something around EUR 10 million, EUR 15 million per year before we find the remedy in order to compensate something which can be an estimate on EUR 20 million per year. Then your last question is -- you can repeat it because Marie-Agnès will answer it. Is low cost of capital and sorry, Andrew?
And their doubling -- proposed doubling of CapEx.
We will now take our next question from Jaime Rowbotham from Deutsche Bank.
You may want to come back on Andrew's last question, but I'll just give you mine as well. 4, hopefully, quick ones, 2 on the guidance, 2 on the nonfuel unit costs. On the guidance, just firstly on fuel, is it really the case that spot going up, say, 4% or 5% since 28th of February, the impact of that on the 40% of your requirement that's on hedge has no impact on the full year guidance? And secondly, on cash generation, despite the EUR 200 million CapEx reduction in Q1, you maintain your guidance to rise by EUR 600 million year-on-year on the full year, and you also maintain your view that net debt to EBITDA can come down from 1.5. I think, with EBITDA likely to be flat at best, I would have thought, what do you see offsetting the step up in CapEx to leave the net debt lower in the full year? Then just turning to costs. On the nonfuel unit costs, the nonrecurrence of strikes must have been a material tailwind in Q1, yet the nonfuel unit costs only reduced by 40 bps, and you've given some helpful reasons as to why that was. When the strikes tailwind goes away in the second half, if they're not at risk of the nonfuel unit costs going up quite a lot year-on-year. And lastly, on employee costs, you've mentioned in today's press release the additional hirings that took place in Q1 to the parts of the business where you're growing capacity, but obviously alongside that, it's encouraging to hear about potential voluntary departure plans for employees in the domestic network. Is that plan something you might be able to have in place and be able to update us on by the time of the Capital Markets Day in November? And is there anything you can say at this stage on associated costs and benefits?
Your first question is the guidance on fuel, correct?
Yes, please. Yes.
And why we have not increased the fuel bill compared to what we said at the beginning of the year. If I...
That's right.
In fact, during the last week, you saw the fuel price increasing significantly, and I have to say that we had the same surprise as yours when we look at the forecast given by the fuel department, but I would like to give you some explanation. The first one is that if the fuel price increased, so if the Brent price increased significantly, it is not exactly the same for the fuel in the sense that the [ cash ] margin have reduced over the last week. Second element, we are exactly at the range where the fuel hedging effect is extremely efficient in the sense that we have taken some barrier, some collars, et cetera, no more options. And when we look at the efficiency of the hedging when you are in the neighborhood of $70 or $71 per barrel, it is exactly where the efficiency of our portfolio is for the time being maximal. And there is a way to illustrate that, which is that in February, we told you that hedged reserve will be 100 million, and in the last figures, we have in this presentation, it is 200 million. Now just to indicate that we [indiscernible] in terms of jet fuel where the hedging is extremely optimal. So we said, this is the 2 reasons why. But we look at it extremely carefully with Stephen because we're a bit private, it is the 2 explanation we found in order to explain why the fuel bill seems to be relatively stable in spite of the evolution of the Brent during the last week. Your second question is a cash generation and the CapEx in the first quarter, if I am correct. Clearly, for the time being, you can observe that the CapEx level in Q1 is lower than last year. It is a matter of fact. We are not changing today our CapEx guidance for the full year, which means that if you are consistent, we should have an acceleration of the CapEx during the next 3 quarters compared to last year. In spite of that, however, based on our internal calculation and budget plans, we still expect to have net debt on EBITDA below 1.5 at the end of December 2019. Concerning the strike effect, yes, you're right, the strike had, last year, negative impact from the unit cost, mainly in Air France, of course. We have, in fact, 2 different amount in the unit cost for the first quarter. In Air France, in fact, there is a relatively sharp reduction due to partly this effect of the strike in 2018. In KLM, on the other hand, we have, for this first quarter, an increase of the unit cost. So there is -- so that's why you don't see that at the global level but, in fact, the strike effect is present into Air France where the unit cost for the Q1 are negatively oriented. And what explains the global Air France-KLM data is due to the fact that in KLM, because KLM developed a relatively limited capacity during this first quarter, KLM has been hit by weather and some technical problems, which reduced capacity severely compared to their budget, for example, and this is why you don't see that at the global level. So to summarize, minus 0.4 for the group, negative for Air France, positive KLM, negative for Air France because we have to correct it for the strike last year, and positive for KLM, due, of course, to the CLA of the labor agreement signed last year, which was due to the fact that the capacity in KLM is relatively slow and, in any case, [fall as] under budget. You have to repeat the question if you want.
Just any additional color on this potential voluntary departure plan for employees in the domestic network, timing, associated cost benefits, anything you can say at this stage?
As you know, or you don't know, but there will be a discussion with employee representative mid-May. And as with all, we are not willing to speak before the business dialogue between the management and the employee representatives. So I believe to be discussed for the first time mid-May into Air France, but I will not say more for the time being.
We will now take our next question from Malte Schulz from Commerzbank.
A little bit on the unit cost, you've been giving us a lot of guidance on what you expect for the next quarters, if you can maybe give us a little bit more color, particularly when we effect strike effects. I mean, if you can also then clearly reiterate that you are quite confident on reaching the full year guidance of minus 1 2 0. And one clarification cost -- on the cost, it sounded like it was EUR 11 million to EUR 13 million and not EUR 30 million, just to be sure that, that's just EUR 11 million to EUR 13 million on the extra cost. And my final question is on MLA. Do you also plan to engage into the consolidation wave to a certain degree? Or do you particularly leave it out to your legacy competitors to move their head and benefit rather passively from the consolidation?
Concerning the unit growth per quarter, I think it's difficult. We will not give the unit cost per quarter, to be honest. What I can just tell you is that for the time being, in the forecast we made in March, we are confident to stay absolutely in the range we gave concerning the unit cost. And I can add under your insistence that you are rather on the good side of the range, yes, but I will not do more than that and not giving to you the unit cost per quarter. Second question, yes, for [indiscernible] I think that we gave you, it is EUR 10 million to EUR 13 million for the months of -- for the period of the Q -- of the last quarter. And for Q1, we are EUR 11 million to EUR 13 million also. So it is around something like EUR 10 million per quarter for the time being. It is not that significant. It is not enormous, but clearly, nobody can argue that it is a positive for us or for the tourist industry into Paris. Then you had a third question on M&A?
Yes. If you plan to become more active on the consolidation or if you'd rather leave it to your legacy competitors to drive consolidation, if you're also looking at some of the [indiscernible] markets.
Even if we had a plan, I will not tell you that by phone, first. Of course, we are looking as usual what is happening in the market. What I have to add is that, last year, you saw a big step in terms of consolidation and that there is no immediate plan for the moment to participate to the consolidation in Europe.
We will now take our next question from Michael Kuhn from Societe Generale.
Three from my side. Firstly, on personnel costs, you mentioned that the 6.5% increase in the first quarter was partly influenced by timing effects. I would be interested in what we should expect on personnel costs for the whole year. Then secondly, on the Capital Markets Day, I understood earlier that it was rather planned for summer, so some indication what determined the timing of the [ CMD ] would be interesting. Is it union negotiations? Are there also other topic that [indiscernible] November? And then, lastly, on financing, you issued convertible lately. What are your general thoughts on financing? And your capital structure at the moment, what elements do you prefer and what is possibly on the agenda here?
Okay. Concerning the labor cost, yes, indeed, they will be lower for the full year. This says that there is at least between 1 and 2 person in excess for the Q1 compared to the full year, and then I'll let you to make your own calculation. Concerning the timing of the investor update of the market today, there is no table or suspect of secret interpretation to give to seize debt. We have just considered that, probably, there will be more content if we postpone a bit that to the month of November. And also, you have to organize that in the quiet period, so which means that if you want to take the time to prepare and to be sure that you will be happy with the content, we have to say that -- to put that in November, but there is no other interpretation to give to that. Concerning the convertible bonds, it is a convertible bond which has been launched by the group, Air France-KLM. In today's, organization, we try to let every carrier to be responsible for its own financing, which means that at the group level, also to manage the cash situation and the future amount of debt. As you know, in 2020, we have to reimburse EUR 400 million of the hybrid which has been launched, I do not remember when, but we have in 2020, EUR 400 million to be reimbursed. It is in hybrid which is extremely costly because it was a coupon of 6.25%. And by launching this convertible, we are just preparing the reimbursement of this hybrid, which means that we will exchange a coupon of 6.25%, buy a coupon at 0.1%, which is less expensive and which is good for the unit cost base of the group. For the rest, as you know, the 2 company are financing independently from the group their needs in terms of capital, which are mainly to invest in acquisition of aircraft, developing some secured operation in order to finance aircraft acquisition.
We will now take our next question from James Hollins from Exane.
Two for me. Just on the operational performance, on-time, are we seeing better air traffic control issues year-on-year? And is there any sort of indication that we should be thinking that, overall, looking ahead as well, ATC might be less of a headwind for you this year? And then, secondly, just coming back to some of those questions at the beginning on premium traffic, obviously, against the comp of plus 8% on premium last year, you were only down a little bit. Your comp in Q2, I think, is up 6%. Should we be thinking that premium actually being up in Q2?
Concerning the improvement of operational performance in Air France, I will say it isn't a problem from the ATC because it's your ranking compared to the global industry. So if it is improving, it is improving for everybody. So that's why we think that this evolution of the on-time performance of Air France is clearly -- it's just the beginning. It has to be confirmed. Of course, it is in winter. So everything has to be looked at quite carefully in the next month, but at least it is a good beginning. Second, I cannot give you any complete assurance for the summer concerning the ATC. We know that we're still constrained and really tense activity for all the operations in Europe, especially during the summer period. So at that stage, we continue to monitor carefully the situation, but I can really not ensure you that for the entire industry and more specifically for Air France and KLM will have necessarily the capability to maintain the high standard of operation we want to develop vis-à-vis our passengers. Concerning the premium traffic, now, as I told before concerning the forecast, we prefer only to give you a global estimate concerning our view for the unit revenue for the next quarter, so I cannot tell you what it is for premium and what it is for economy. However, I'd just answer different to one of the questions that we had no [alarm, alarm of light] of concerning the development of the premium traffic up to now. I cannot tell you more about the forecast of the premium RASK in Q2, which is a bit too small than [indiscernible]
We will now take our next question from Nuala McMahon A&L Goodbody.
Just 2 questions for me. The first one on the cargo business. I'm just wondering what are the trends you're seeing for Q2 in terms of pricing and demand, and then is there any areas that remain weak on outlook? And then the second one is just on ancillary. I understand it's a very small portion of your total revenues, nearly be less than 3%. I'm just wondering -- and it's also coming off a very low base in Q1, but just what was the driver of the results. And has management set any target in terms of what ancillary could be of overall revenues on a 3- to 5-year view?
Okay. Concerning ancillaries, we have no, I will say, complete target concerning the share of ancillaries in the global traffic revenue. Of course, what we just know is that there is still a lot of opportunities. And when you look at the growth there is last year, it is normally 2 digits of growth already for a relatively long period, so we have to continue. And it is always the same, the client is extremely sensitive to the price of the ticket when he buy it on Internet, but after that, if you are offering to him a specific service of good quality during his trip, he is able to pay for that. So it is this combination to be able to offer as low tariff you can in order to attract the client, and after that, thanks to the quality of the service and all the offer, you're able to develop the ancillary service. So we will continue. I don't know exactly what is the limit or if there is a golden rule in terms of a percentage of the ancillary and the total revenue, but I can address to you that we will clearly continue to develop this type of service. And of course, the new distribution capability is an opportunity by improving the quality of the dialogue between the airlines and the clients. We are able with this new type of distribution to enrich the content of the dialogue we have with the customers. And this is extremely important because when you are just working with the normal channel with a limited exchange of info, it's difficult to add new services [indiscernible]. With all the potential of -- by the new distribution capability, we have this possibility to expand this ancillary revenue. Again, for the quarter, it is EUR 161 million, and the growth is more than 17%, which is clearly excellent number. Your second question was on the cargo. I cannot add anything compared to what I just told you in the presentation. As you know, the predictability of the traffic in the cargo is extremely limited. When we speak with our colleagues from the cargo business unit, we speak to the last -- so over the next 3 weeks, which is very difficult to go further that period. So for Q2, we have not yet indication concerning what could be the unit revenue in cargo. Only info, Q1 is weaker compared to what we have experienced during the year 2018.
[Operator Instructions] We do not have any questions at this time.
I would like to thank you for your participation to this call, and I wish you also a good weekend, and the next rendezvous is for the communication of the second quarter, so bye and thanks a lot again.
This concludes today's call. Thank you for your participation. You may now disconnect.