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Air France KLM SA
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Air France KLM SA
PAR:AF
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Good day, and welcome to the Air France-KLM First Quarter 2022 Results Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ben Smith, CEO; and Steven Zaat, CFO. Please go ahead.
Thank you, operator. Good morning to everyone on the call, and thank you for being with us today for this presentation of the Air France-KLM Group's results for the first quarter of 2022.
I'm here with our CFO, Steven Zaat; and our offices at Charles de Gaulle Airport in Paris. As usual, I will start by presenting the highlights of the quarter, then Steven will provide a detailed presentation of our results and the outlook for the quarter, followed by a question-and-answer session.
First of all, I'd like to start by thanking all of our colleagues across all of our airlines and business units for the incredible hard work and dedication they continue to display every day.
Turn to Page 3 of the presentation. Let's start by looking at the big picture of the airline industry at the global level. Very beginning of the year was marked by a resurgence of COVID due to the Omicron variant and a tense geopolitical context in Ukraine, which didn't help in the short term. However, this negative impact seems to have been limited in time. And overall, the first quarter of 2022 continues the positive trends first seen in 2021, driven by strong passenger willingness to travel.
Indeed, despite a slight momentary decline in late January and February, capacity has continued to gradually increase globally toward pre-COVID levels of 2019. This is particularly true in Europe with intra-European capacity now at about 89% end of the year 2019 capacity levels and transatlantic capacities also up sharply at about 80%, both key markets for our group. While we remain cautious regarding the health and geopolitical context, our operating environment continues to improve.
Turning now to Page 4. For Air France-KLM, this positive environment resulted in an encouraging performance in the first quarter, slowed somewhat by Omicron and the geopolitical context in January and February, but which bounced back very well in March. This momentum points to a solid summer in 2022.
The group achieved a positive EBITDA for the third consecutive quarter, slightly above EUR 220 million. Operating profit for the quarter is up EUR 800 million compared to Q1 2021 and is positive for the month of March just above EUR 30 million. The group's passenger activity load factor is at 80%, and I'm pleased to note that we carried 200% more passengers than last year in the same period, even if we are not back to 2019 levels yet.
Our agile approach has generated strong revenue growth, up 106% compared to Q1 2021. Transformation is well underway across all 3 airlines and all of our businesses, strengthening our economic performance and our competitiveness. In that respect, the number of FTEs further decreased by over 3,000 compared to [Audio Gap]. Our cash position is strong with EUR 10.8 billion cash at hand, thanks to a positive adjusted operating free cash flow for the fourth consecutive quarter. Bookings for the second and third quarters are strong with more than EUR 1 billion in advanced ticket sales.
Now turning to Page 5. Thanks to the great loyalty of our customers, we're seeing a rapid recovery in bookings with high levels of new bookings over the entire passenger network, increasing the closer we get to the summer, almost at the level of 2019 despite lower capacity. This positive trend is particularly noticeable on transatlantic routes. It's also interesting to note the strong performance in direct online bookings, which represented more than 50% of tickets sold in the past quarter, driven by strong leisure demand.
Next, I also wanted to provide an update on long haul, which continues to gradually recover. In terms of load factors for first class and business class, the gap with 2019 continued to narrow during the quarter, reaching only a 4-point difference in March, supported by high-yield leisure demand. We also observed a good trend in premium economy and economy class with a gap of only 8 points compared to March of 2019.
Corporate travel revenue continued to grow gradually throughout the winter and into the quarter. Despite a drop in January and February due to the Omicron surge, here again, North Atlantic corporate travel is performing well with revenue at 70% of its 2019 levels in the same.
Seven, this encouraging performance for Q1 is supported by strong momentum in all our airlines and businesses. As I mentioned, the passenger business is driven by a solid booking trend and increasing capacity levels. For Air France and KLM, capacity is at 75% of 2019 with yields above 2019 and load factors reaching 80%. Transavia is also enjoying very strong momentum with capacity also approaching 2019, with both yield well above what it was in 2019 and a fleet which is now approaching 100 aircraft and with the domestic transformation plan nearing completion at value holding airports.
Cargo continues to do well, with a strong demand environment and yields at historic high levels. During the first quarter, we confirmed our order for 4 new Airbus A350 full freighters to be flown at [ a cost ], a strong signal of our confidence in the solid development prospects of the group business.
Maintenance is also on a positive track with a growing number of shop visits and new MRO contracts. We've also entered into exclusive negotiations for the purchase of CFMI LEAP engines and associated repair and license. After this overall summary of our Q1 performance, which as you can see, is very encouraging, Steven Zaat, our CFO, will go into more details about our results.
Thank you, Ben. Good morning, everybody. Thanks a lot for joining us this morning. I'm very happy to present the promising results of the first quarter. The first quarter is usually already a very, very cold quarter. In terms of results, it's always quite difficult to have a positive result.
But despite the challenging climate because we had Omicron, we had Ukrainian war and we had the oil price above the [ EUR 100 million ], we are still doing better than what we had guided to the market with a positive EBITDA of more than EUR 200 million.
We see, as Ben already explained, very strong bookings. We see days where we actually are above the 2019 level, and we see a big appetite to travel both in business and in leisure, despite that corporate travel is, of course, not completely back, especially not during the Omicron phase in January. So it's very promising for the summer to come. So let's go to Page 9 to take a deeper dive on the figures.
If we first go to the revenues, you see that we -- let's say, we have a revenue increase of EUR 2.3 billion. I will take you later to the different segments. And of course, we are still behind the levels of 2019. If you go to the aircraft fuel, you see that we actually have a fuel bill which is up EUR 533 million compared to Q1 2021. This is for EUR 337 million coming from the increased capacity, and there's an impact of the fuel price after hedge of EUR 236 million, in which we had a positive contribution from our hedge portfolio of $267 million.
On the synergy cost, you see an increase, but that has nothing to do with the increased efforts to, let's say, reduce our salary cost. It is actually coming completely from the fact that we have a lower state aids. So we had more than EUR 500 million last year in this period, and we are now, let's say, closer to EUR 200 million.
And that brings at the end of the day that we improved our EBITDA with EUR 850 million compared to last year. And if you look even at our operating results, you see that the gap with 2019 is again closing. We are at EUR 64 million despite the more difficult climate -- so especially the appetite in travel and the strong bookings brings that we generate sufficient revenues actually to cover a big chunk of our cost.
If we go to Page 10 and we take a deep dive in, let's say, the results of our businesses, we start with the network. There you see, on the passenger side, we increased our capacity with 56%. You see actually that the unit revenue is up with 90%. That is especially coming from the load factor. We had a load factor of 40% last year. We are currently having a load factor of 74%. So more traffic, more revenues and actually fuller planes brings, of course, an improvement significantly to our results.
On the cargo, we see actually a different one. So the cargo market is still very strong. So we increased our capacity, which is coming from actually the belly capacity. And there, we see that the yield is still going up with 22%. But due to the fact that we increased our belly capacity, you will see that the load factor is going down because the bellies, it's of course not the same load factors as we have with our full freighters. And we had several cargo-specific flights also on the passenger side last year. So the load factor is down from 77% to 59%, but still very strong, bringing at the end of the day an 8.5% increase in cargo revenues.
Then on Transavia, it's always a cold season for Transavia. But also here, the same is for our passenger business revenues, a strong increase in capacity first because we could benefit from the bigger appetite to travel. And at the same time, our planes are getting fuller. So we had the load factor of 58% last year, and we are now at 78%, bringing at the end the total revenue up by 573%.
And last but not least, on the maintenance side, we see now also increase again from our external revenues. The shop is getting more activities in the engine side. And also on the components side, we are gaining actually in this market. So 15% additional revenues, bringing also that the maintenance business is up with EUR 51 million to a positive result, again, of EUR 43 million.
So in total, EUR 830 million increase of operating results, strongly driven by the improvement of our network results. And also, let's say, in all domains, we see an improvement of our financial results.
If we then go to Page 11, you see the results of both airlines. So let's start on the revenue side. You see that both airlines increased the revenues with more than 100%. So a very good step. You see Air France especially improving their capacity, and that is also due, let's say, to the activité partielle system, which is there in France, where you need to take people out to reduce your cost, where we have an NOW system in the Netherlands where you can still fly and still can, let's say, use your labor force to operate planes. So we increased capacity on the Air France side, getting actually closer to the KLM levels and that both, let's say, we increased by 100% our revenues.
That brings that KLM is especially a very strong impact on the load factor. They come from 28% last year, also because of the strong cargo, and now you see that we could actually benefit from the strong appetite in travel going up to 73% for the KLM site.
Then if you look at the operating results, almost EUR 500 million improvement on Air France and EUR 340 million on the KLM side. And if you look at the absolute numbers, you still see that there is a gap, but we need not to forget there's a different government support scheme on both sides, plus that the load factor, of course, improvement brings a big contribution to the KLM results.
And last but not least, if you look at the Omicron impact on both carriers, you saw that KLM was more impacted, let's say, in the fourth quarter where Air France is more impacted, let's say, in January where we actually had the impact of closing all the offices and a more stricter policy in France.
Let's then go to Page 12, where we take a deeper dive on the development of our network. You see that actually, we are ramping up towards the summer. So in January, we were still at 69% in capacity -- sorry, 76% in terms of capacity ramping up to close to 80% in April. But what is very good news is that you see the load factor increasing actually month-over-month. So in January, we were still at 69% in load factor. And actually, in March, we were already at the level of 80%, bringing us very close to, let's say, the 90% where we are used to.
Especially on the long haul strong performance, so we have still, of course, the impact of the closure of China and the closure of certain -- of Japan, for instance, which is not fully closed, but let's say it's not as open as it was in 2019. But you see already there that actually all the planes are filling up better and better. And when that starts, that, of course, brings a positive result to our bottom line. So where we were at 70% load factor in January on the long haul due to the Omicron effect, you see that we increased there to 84% actually already in April in terms of load factor. So very promising for the moment.
If you go to the short and medium haul, you see the gap also closing, a load factor of 60% in January up to close to 80% in March and April. And on the Transavia side, you see actually that we are already above the 100% in March. We will continue that capacity for the year. So we will -- I will explain you later, but for sure, we will keep the Transavia capacity higher than it was in 2019. And you see that we are at load factors of 80% in March and April. So a very promising development in terms of traffic, which gives us, let's say, a good positive [ move ] for the summer to come.
If we then go to Page 13, and we take, let's say, a deeper dive on, let's say, how it develops over the world. So first of all, the good news is that we are already at the yield which is higher than in 2019. So actually, we could improve our pricing over this period again. And then if you look at the different areas, you see that we have certain domains where we are operating already very strong.
On the Caribbean and Indian Ocean, we are already at 85% in load factor with only a minus 1% yield. So we are getting closer to the 2019 levels of load factor. On Africa, 76%, we were impacted a little bit in January, but we see also on Africa, very strong demand and with the interest also that we can increase the yield to 5%.
Then if you go to the west side of the world, let's look at North America, one of our, let's say, strong contributors to our results, a load factor of 70%. We know that not all the business traffic is back. Of course, it's going in the right direction. But we are already at 70%, and this is also supported by a very strong cargo results.
So the minus 6% yield is, of course, lower than in 2019, but we don't see the big competition on this area in the world, which, let's say, there's always a question from the analysts, what is going to happen in the North America side? You see we are still benefiting from the strong traffic over there in terms of load factor without a big dilution on the yield side.
And then on Latin America, 85% load factor, only 5% of where we should be with a kind of flattish yield. Of course, we are still having, let's say, limited in Asia and the Middle East. If you look at this picture, it is a little bit, how can I say, confusing because it shows a negative yield. But actually, that comes by a mix impact which is there. So we fly more to the Middle East, less to China, and that has an impact on the yield. But the yields itself are still positive in this area. But still, you see we have minus 57% in ASKs and minus 28% in load factor.
So if you would disregard, let's say, the eastern part of the world, I think that we are getting back closer to the levels of 2019, and then we still have the summer to come. And don't forget, we had Omicron. We had the Ukrainian war. I think we are stabilizing now in terms of demand closer to the 2019 levels.
On Page 15, you see actually our unit cost development. If you compare our unit cost development, excluding currency, excluding fuel price impact, you see that we are close to the levels of 2019. If you look at the staff cost, you see that we reduced our staff cost with 23%. That is in line with the reduction in capacity. But of course, there is the state support. So if you take that out, we are currently, let's say, at the level of minus 12% compared to 2019.
So when we will increase capacity, of course, it will have a positive impact on our unit cost, which will also contribute further to our bottom line. If you look at the FTEs evolution between the 2 carriers, Air France is at minus 16% versus 2019, excluding the Transavia growth. So we are well on our way to reach the minus 70% at the end of the year. KLM was already at minus 70% at the end of 2021, and they need now to add especially flexible labor to support the activities. KLM is now currently at minus 14% compared to December 2019.
On Page 16, we see the development of cash. So from the -- let's say, we operated on a cash-neutral basis, let's say, our operation, but we had a very strong ticket sales, which brings us actually to a working capital development of EUR 1.3 billion, coming EUR 1.2 billion from our ticket sales.
So if we then take our investments of and the payments of the lease debt, we get to EUR 630 million positive free cash. That is the fourth time in a row that we show a positive free cash flow development, which brings back our net debt to a level from EUR 8.2 billion to EUR 7.7 billion. And of course, this also results in a very strong liquidity position. Where we ended the year last year with EUR 10.2 billion, you see that we still have EUR 10.8 billion cash at hand.
And then we go to, of course, a very important subject for our group, which is our equity strengthening measures. Let's start with KLM. KLM started to pay back the state guaranteed RCF. So there's EUR 311 million paid on the May 3. We see that KLM is strengthening its balance sheet with all the positive results. And we expect also further equity measures to -- which are contemplated currently for the coming year. So KLM is moving in the right direction in terms of equity.
If we then go to the Air France side, we are looking actually on a refinancing of EUR 500 million of assets, which will be quasi-equity, which will be used to redeem different state aid. So we are currently engaged in upfront discussions with various financial partners to do state aid transaction. Air France paid already EUR 500 million back of the state of the PGE, so the state guaranteed loan. So we are moving actually out of, let's say, the state aid approach, which we have over the last period on which we are very grateful towards our [indiscernible].
We are still looking at, let's say, the market. Of course, the equity market is quite a difficult market in the last quarter. If you see the transactions, which have been there, were mainly done by companies close to pharma or close to the oil industry. But we are still looking at the right timing for a rights issue or quasi-equity or convertible. So we are looking still at the right momentum. We are fully prepared to be ready as soon as the moment is there.
If we then go to the outlook on Page 18. So let's first start at the capacity side. So we are -- we were at an average capacity of 75% in the first quarter. We will ramp up further our capacity to gain from the momentum in the bookings. So that's 80% to 85% in the second quarter. And we were ramping up to 90% in the third quarter, given the fact that we see very strong bookings coming in. Transavia is already above the 100%, and they will stay above the 100% for sure in Q2, Q3 and I can even say Q4.
So we are making -- actually we will profit from this healthy yield environment for the remainder for 2022. If you look at the forward bookings, which you can see on the right side, for the second quarter, we already sold 75% of the capacity, which is getting us also close to the levels of the forward bookings, which we saw in 2019.
And we already sold 40% for the summer, where we're actually usually for the long haul 44%. Medium haul, getting closer to, let's say, 100% capacity in the summer. And also there, you see that bookings are getting strongly in with medium hauls always a later late booking market. So it will come, and we are for sure that we are filling this capacity.
And then on the French domestic side, we know that we are reducing our capacities. And you see that actually the booking load factors, I think, are quite closer to 2019, what we have seen over the past quarters.
Then on the fuel price, the jet fuel is -- there's 2 things. I think the oil price is more or less stabilizing. You see that we increased our hedges. So we were 74% hedged in the first quarter. We are 72% hedged for the second quarter already, and we are 70% hedged for the summer. So we accelerated our hedge portfolio giving, let's say, the international climate. And on the Q4, we are at 43% currently, which we will ramp up to 55% at the end of the quarter.
We benefited of EUR 950 million in terms of hedge results. At the moment, that's the current portfolio. But still, the jet fuel is still at a very high level, especially if you compare that to the oil. So we are closely watching this market, but we have significant hedges in place up to the end of the summer.
Which brings us back to the outlook for the full year. So as already explained, we expect 80% to 85% for the Q2 on our passenger network, 85% to 90% in Q3 for our network -- passenger network. And on Transavia, for sure, we will be above the 100%. If you look at the operating results, we currently guide you at breakeven. And we see that, of course, Q3 will be significantly positive, and we keep our guidance on the CapEx close to EUR 2.5 billion.
So that's for the outlook. That's for the financials, and I hand over to Ben Smith for the conclusion.
Thank you, Steven. So as mentioned in my introduction, the current booking momentum for the summer is very promising. Current new bookings across Air France and KLM networks for the upcoming summer already back to the level of 2019 before the pandemic.
So as Steven said, this is very encouraging and [Audio Gap] going to a little bit more detail here by segment and by sector [Audio Gap] operate. You can see the best capture for growing demand and appetite for travel from our customers, we are organizing ourselves to efficiently deploy maximum long-haul capacity in the most buoyant areas.
North America, Caribbean and Indian Ocean and Middle East and Greater India areas are those in which we deployed more capacity than precrisis levels. Conversely, the tense health context in China and more generally in Asia, combined with the circumvention of the Russian air space limit, this makes it more difficult to operate to and from Asia.
In total, we are forecasting a capacity index between 85 and 90 compared to 2019. Lastly, our current book load factor showed promising trends, particularly in first class and business class where it's ahead of the 2019 reference levels. This is extremely encouraging, and we will ensure that all our teams are fully prepared and mobilize to meet this demand.
Economic performance and competitiveness, which drives our business focus, cannot be the sole objective of our group. Our responsibility goes beyond that, and the future development of Air France-KLM depends on its ability to significantly reduce its environmental footprint. A few sustainability objectives are now focalized under one group program, which we call Destination Sustainability. It is based on 2 main pillars: the environment on one hand and people and culture on the other.
As far as the environment is concerned, as you know, we are committed to becoming net 0 by 2050. And at the end of last year, we announced that we have embarked on a process to validate our emission reduction targets by the independent organization SBTi, making Air France-KLM one of the first European airline groups to have a decarbonization pathway aligned with the Paris Agreement.
This translates into a new commitment to reduce our CO2 emissions per passenger kilometer by 30% by 2030 compared to our 2019 levels, which represents a reduction of approximately 12% of our CO2 emissions in absolute terms. In addition, we also commit to use 10% of sustainable aviation fuel in our fuel mix by 2030, our responsibility to accelerate our environmental transition and be a leader in a more sustainable aviation industry.
As a leading employer, as a major airline group and as a responsible corporate citizen, we're also assuming our social obligations. People and culture is the second pillar of our sustainability ambition. This is why we're working, for example, to make diversity and gender equality one of the group's priorities.
Air France-KLM has committed having 1/3 of the positions on the Group Executive Committee to be held by women and 40% of the top management level divisions to be held by women by 2030. I can count on the commitment and determination of Anne Rigail, CEO of Air France; and Marjan Rintel, the newly appointed CEO of KLM, 2 exceptional leaders to hold this ambition high and act as role models for all employees of the group.
In conclusion, I'd like to reiterate that we are confident on our ability to deliver a great summer. The very good momentum we had in March is a signal that the recovery is accelerating, and we were able to take advantage of it. Our business indicators for the summer are all strong, with capacity and bookings narrowing with the 2019 levels. It's now up to us to engage all of our teams and leverage the power of all of our assets to meet the expectations of our customers. And finally, we will do this by following our moral compass that of being a responsible global corporate citizen.
Thank you all. I would now like to hand it over to the moderator and start our Q&A session.
[Operator Instructions] Our next -- our first question comes from Muneeba Kayani in Bank of America.
My first question is around yields. If you could help quantify what you think yields would look like this summer and this year? And secondly, if you could comment on loads which have improved quite significantly. How should we be thinking about loads for the rest of the year and especially into the summer. So basically, how are you thinking about yields versus loads for the rest of the year?
And then just going back to the comments on wage support, should we expect that EUR 1.7 billion per quarter of staff costs as kind of the run rate once all the state aid and if you can remind us when kind of the timing of that?
So we see a very strong yield environment. So we expect actually what we have seen in Q1 to be continued. Of course, we increased our pricing during this year. So the positive impact is there to come. And then in the load factor, I think I gave you a very good indication where we are on the load factor. So you see that we are getting closer to, let's say, the booking curves, which we had in 2019. So we expect actually a very, very good load factor climate. And so there's nothing to add over there. I think I gave you all the elements where you can make your own assessment.
On the wage support, the KLM wage with NOW will stop. There will be a continuing in terms of activité partielle on the French side, so that will be there till the end of 2022. What you will see on the labor cost, of course, is the fact that we are increasing capacity. We'll increase also, let's say, the flexible labor force. The structural cost savings are there. So if you look at the run rate from a very high level, you can take it. But of course, if we increase capacity, we have to also increase, especially the flexible labor force.
If I could just follow up. We've heard from the U.S. airlines that they're expecting RASK CASM of mid-teens to 20%. Is that something that we should be expecting for Air France-KLM?
We cannot give you that guidance at the moment. Sorry for that.
Next call is from Ruxandra Haradau-Doser in Kepler.
Can you hear me now?
Loud and clear.
First, I believe your initial planning for this year was that cargo will have a strong performance again, but not at the level of 2021. Cargo revenues were up year-over-year in Q1. Based on current disruptions in the market, could you please give us an update on your expectations for the cargo business for the remaining of the year? And could you please give us some indication on your current profitability in the cargo business and particularly on your operating margins to Asia and North America?
Second, with COVID restrictions being now removed in most of Europe, what are you seeing in terms of corporate traffic since the beginning of Q2? You made some reference to Q1, but what is happening in terms of corporate traffic right now?
And third, congratulations on your yield performance -- outperformance. Your Skytrax ranking has significantly improved since the start of the crisis. Could you please remind us what has been the main drivers for the customer satisfaction improvement? And do you think this is sustainable when the traffic normalizes?
So if you go to the cargo side, let's say, we have seen indeed a very strong Q1, but still there was a very limited capacity into the market. So I don't expect that we will beat the 2021 numbers in terms of revenues. We still have to see what will happen, especially in the fourth quarter because that is a very big important moment for our cargo market because there, the cargo market is very strong. And let's say, I cannot give a view on that side at this moment.
Cargo bookings are coming in very, very late and it all depends on the capacity development on the passenger side. So what we will lose on the cargo side, we will, for sure, double gain on the passenger side. So we keep the same guidance as we gave you on the cargo. Cargo was doing -- indeed, you're right, we were doing better in Q1, as expected. Especially on the yield side, we saw very strong yields. We were up 22%. But it all depends how this -- actually the Q4 results will be, on which we'll give you not the guidance at this moment. The other 2 questions, I can get to Ben.
For corporate traffic in Europe, we're seeing now between 50% and 60% versus 2019, and that is gradually increasing by the month. And then just as a point of reference, the long haul, in particular transatlantic, is actually recovering at a much faster rate. We're seeing over 70% versus 2019 on the transatlantic.
And then as I said, in the premium cabins, we are seeing a whole new segment, which has come to life, and that is the premium leisure, which is compensating, especially in our first-class and business-class cabins, for stuff fully making up for the reduction in corporate traffic, but it is helping in a big way.
On the Skytrax, the improvement in the Skytrax ratings at Air France and the consistent rating at KLM, we're quite pleased that Air France is now ranked #1 in Europe. What we've spent a lot of time doing on the hard product side is standardizing the offering to customers.
Prior to in the last few years, the offering to customers in the business cabin, as an example, were very different. By removing the Airbus A380s and the Airbus A340s from the fleet, the product is much more consistent. And we've renovated approximately 20 wide-body airplanes. We have 12 more to go. And at that point, the long-haul fleet of well over 100 airplanes at Air France will have a much more consistent product offering.
On the soft side, the services both on the ground and onboard remain very strong and very consistent, and that has also helped.
Next question is from Stephen Furlong in Davy.
I was just wondering -- just a couple of questions. Historically, as oil prices are very high, I mean, there's a lag when airlines try and push them through. And I got it from the U.S. airlines, so that kind of 6-, 9-month process is happening quicker because of pent-up demand. Maybe you could talk about that.
The second thing I was wondering about was in terms of the capacity developments in the market this summer, which it seems to be, to me, post-COVID recovery of demand. But are you worried about the industry in terms of execution risk on this capacity, given labor issues or supply chain issues with airports, ground handling, ATC, et cetera?
I mean just for Stephen, I just wanted to know, could you make any comment in terms of fuel hedging and how you hedge the operating or the FX risk, given obviously those huge movements in dollar, euro, et cetera.
I'll just make a few comments first and then ask Steven to go in more detail. On the lag yields versus an increase -- a sharp increase in fuel, because the booking curves have shortened, that helps us better balance out pricing with our costs. So that is a difference between what we're able to do now to shrink that lag versus the trends in 2019.
And then I'll just touch on your second question before handing it back to Steven. On, let's say, capacity levels in North America and Europe -- start with North America. Even with all these increases that many of our competitors have put into the market, overall, the level of capacity on the North Atlantic is about the same as 2019. Norwegian is not there. American Airlines has taken a large number of aircraft out of its fleet, same with British Airways. So if you look at overall capacity, if the trends continue, we're quite confident that we should be able to perform well.
In terms of the operational ability to process customers in and out of our airports, we know throughout the world, in particular in the U.S. and some countries in Europe, if there are staff shortages at customs and immigration and security, those types of areas, we are expecting delays and lower levels of service in some key airports, that's planned, those extra costs as well as [indiscernible].
So we're trying to build a much buffer into our schedule to absorb that. Of course, it's -- we're fortunate that in the Q1, Q2 period, but we do have backup airplane and the airplanes are not so full as we expect them to be in the summer. But we've learned with some of the experience as how best to adapt to what we're expecting to be lengthy period prior summer of operations [indiscernible] we've not had in the [indiscernible].
Maybe one other thing is the shortage of pilots that you're seeing in the United States, that phenomenon, we do not have that here in Europe. Of course, a big reason for that is the minimum aircraft hours required in the U.S. is 1,500 hours and [indiscernible] in Europe, so there are plenty of qualified pilots for the European airlines. So we don't have an issue of filling the openings that we have.
Steven, and then coming back on especially the development of the dollar. So you can see on Page 26, we have 20% of our revenues are dollar-related. On the cost side, it's 25%. So we are slightly, I would say, short in terms of dollar. Usually, we hedge -- or we hedge 50% of that -- of the operational part, so that is hedged. And then there's always a secondary impact, which is always difficult to measure. But of course, when the dollar gets stronger, we will sell more in the U.S. than we will sell in Europe. So there's also a second way actually to benefit a bit from this currency impact.
Then on the hedge side -- sorry, on the investment side, we always gradually hedge our portfolio when we take an investment decision. So we have that actually quite well in place. And we are very happy that we made a deal with Airbus, where we actually -- all the A350s and the A320s, we could already hedge at the moment in Europe. So we are quite well hedged on the investment side, and we are very happy that we could make this deal also with Airbus to directly hedge with them our dollar exposure.
Our next question is from Alex Irving in Bernstein.
Can you hear me?
Yes, we can.
Can you hear me now? Hello? Can you hear me?
We can hear you, sir.
Okay. Great. So 2 from me, please. First of all, on leisure management in premium cabins, so you pointed to good demand here, but is this something that you expect to stick around beyond the next, say, 12 to 18 months? Or do you think that's more related to customers burn through excess savings during the pandemic? And related, do you have the right cabin mix in your fleet to serve the structure of demand going forward?
My second question is on unit cost. So progress looks very good. But when we combine that with your comments around strong pricing, just wonder how your conversations are with unions these days, if they've had to accept redundancy through the pandemic? And if you've got costs flat and yields up, are you seeing pressure to improve pay and terms, especially against the backdrop of higher inflation? And if so, how are you feeling -- how to deal with this?
Okay. Thanks, Alex. On the premium cabin demand, so La Première and business class, I guess, we're very encouraged by what we've been witnessing over the past year. If I look at KLM, the relative size of our business cabin is quite small. Even before the pandemic, the KLM business-class cabins relative to all of the major European carriers are probably the smallest. So our exposure to that segment of the market was low. So on KLM side, we feel we're well positioned and well balanced.
On the Air France side, however, we had Airbus A380s with very large business cabins, but we do have a big portion of our 777 fleet, which does have a flexible cabin, which can be changed in hours, so we can actually shrink our business class cabins if necessary. To date, we have not done that. Normally in the summer, prior to the pandemic, we used to shrink all of the business class cabins on the airplanes, which we have the ability to do so. We're not doing that because of what I mentioned we're seeing.
Do we believe that's going to continue? We believe yes. From the surveys we do with our customers and the feedback that we get, customers seem to be more willing to spend then on for leisure purpose than they were in the past. So our -- for all our planning purposes, we do believe it's going to stay, but we do have that backstop that we can resize our business class cabin if necessary.
Our first class cabins are relatively small. We have a fleet of 19 777 at Air France, which are equipped with first-class cabins, only 4 seats on each aircraft, [Audio Gap] wide-body aircraft at Air France. So it's a very small segment, but it is, from a marketing perspective, high exposure. It really does help our brand. It positions our brand very well. And we're happy to say that the Air France La Première product is usually ranked #1 in the world. So this -- from a brand perspective, we're quite pleased.
On the cost efficiency side, not only are we continuing to work with our unions to better optimize and find more productivity, but we continue to densify our airplanes. There's still a lot of room for cost -- for unit cost reduction, in particular at Air France, with the reconfiguration projects we have in place, anywhere between 5% and 9%. So we still have quite a number of airplanes that is available to us.
And then union relationships, KLM, they've always been quite good. We had a small disturbance last week, but nothing really out of the ordinary. We do have lengthy, lengthy delays in some of the [indiscernible] at Amsterdam Airport, which has put a lot of pressure on our own staff, but we're working with Schiphol Airport to try to better balance that out.
But on the Air France side, where historically union relationships have been tense, I could say, we'll continue to build the -- build on the relationship improvement that was started about 3.5 years ago, in particular with our pilots. So I can say that we're quite confident we can continue down that path.
We do obviously need to balance expectations with inflation and what the company is able to do from a wage perspective. But to specifically answer your question, quite optimistic that we can maintain the positive relationship with our labor. You have 17 unions here at Air France, and I'd say we have pretty good relationships with the majority of them.
Next question is from Sathish Sivakumar, Citigroup.
I've got 3 questions. So firstly, on the load factor, thanks again for the detailed slide. If you could actually give some color between the premium and the economy segment that we have today versus the 2019, that will be helpful. Any color on that?
And secondly, on corporate travelers, what is your exposure to small- and medium-sized business? You do point out a strong recovery from SME. How does that compare in long haul versus short haul, especially from the SME segment? And third on the U.S. point-of-sale, what is your current exposure to the U.S. point-of-sale? Those are my 3 questions.
So on the load factor difference between premium and economy, premium is improving versus 2019. In Q1, we had a 4-point differential and, for economies, 8 points. On the SME side, we're seeing a faster recovery [ percentage ]. Let's get back to that exact number. I don't have that in front of me. And U.S. point-of-sale where the majority of our routes, the exposure, it can be anywhere up to 50% of the traffic. And so far, the U.S. point-of-sale is performing extremely strong. But because of the balance of our network over 200 cities, we are able to balance out point-of-sale relative to the strength and latencies of each market.
Next question from Jarrod Castle in UBS.
Three from me. Firstly, I was quite surprised to see that your pension deficit is basically flat, like EUR 1.9 billion. We've obviously just had Lufthansa's results this morning and material from year-end. So can you just talk a bit about that? Is that just differences in kind of how you plug in the assumptions or what's going on there?
Secondly, you've given a very helpful outlook for the summer kind of quarters. You haven't said anything on Q4 capacity. Just trying to get an idea what's holding you back. Is this just kind of China and Japan? Or is there something else in terms of your thinking holding you back? And indeed, incrementally, what kind of difference are we talking 5%, 6% anyway? So just, I guess, why you're not giving Q4 and maybe when can we expect that?
And then just lastly, just thinking about going a bit forward and an ability to offset fuel price increases as the hedges roll off, any comment on how you see that in '23?
Very good questions. Let's start with the pension deficit. If you look at our pension deficit, we are not at the magnitude as the Lufthansa. So there's a big difference in terms of pension, let's say, debt, which some, let's say, banks are not counting in their net debt, which they should do. We have -- at the KLM side, we reduced significantly the pension exposure. We have now a defined contribution scheme. So we have not a big pension risk over there. So actually, it's very limited on the KLM side. Actually, it's only related to some foreign countries where we still have a kind of pension scheme, where we have a kind of a defined benefit scheme in it.
On the Air France side, it is always difficult. We have to put in an ICS, which is actually a payment when you leave the company, which is not really a pension. So that also brings, let's say, the impact of -- let's say, the interest rate is differently for us than for the other airlines. Actually, we have -- in France, we have, let's say -- it's guaranteed by the state. It's not guaranteed by the company. And we only have, let's say, a final payment when people are leaving the company.
But that's much sooner than it is for Lufthansa because they have to pay till the end, still the people, let's say, are dying, it's a little bit hard to say like that, the pension or at least they should have [indiscernible] that. So therefore, we have a much lower exposure, and we are very happy with that one.
On the Q4 capacity, yes, we did -- we don't want to guide anything on Q4. First of all, you don't know what is going to happen in the world in terms of Omicron any -- or sorry, of COVID or anything. So I think we cannot guide. But look at the numbers we have, we are not going to scale back significantly compared to what we see today. So -- but we didn't want to give already a guidance for this quarter.
And then on the fuel, yes, of course, if the fuel price -- if the hedges fall out, of course, we will pass that through our revenues. We have seen that we have been very successful on that side so far. We see also that the U.S. carriers are increasing their prices quite significantly. So we are able then, of course, to increase the pricing at the moment when we're all exposed to this higher fuel price.
Next question is from James Hollins at BNP Paribas.
Two from me, please. I don't know if I've missed it, but Transavia capacity for Q2, Q3 of above 100, a little bit vague. Should I be assuming sort of 105, 110 million, that sort of range for both quarters? Or are you going crazy in the summer and much higher than that?
Secondly, looking a bit longer term, not much because it's the airline sector, but you've cut 16% of staff at Air France, I think KLM is 14% and the [ Transavia ] 17%. As I look at sort of unit cost, staff cost, et cetera, for next year on [indiscernible], but does that sort of staff level, roughly 17% below, kind of does that cover you for your, what I'd call, current capacity plans for 2023? Or will you be sort of starting recruitment in H2, assuming no major blocks?
On the Transavia, I think the number you gave is quite correct. So indeed, if you look at the capacities in terms of plans, you are right, that's the kind of number.
And then on the second question regarding staff numbers, at KLM, much more flexible because of the Dutch law surrounding employment. So as we ramp up, we are starting to rehire in key positions. In France, with the sharp increase in capacity at Transavia, as you may know, when we signed the 2 labor agreements with pilots over the last 1.5 years, which gave us the flexibility to put Transavia on the domestic and to remove the artificial cap of 40 airplanes, we are transitioning the bulk of our domestic French operation to Transavia, with the exception of the shuttle routes to those [indiscernible] and flights to Corsica.
So that's reducing half of the regional hub aircraft fleet, transferring the rest of the Air France aircraft out of the French domestic market. All the ground staff, maintenance staff [ work ] is now outsourced. So those jobs will not be coming back. That is a permanent structural change.
Next question is from Sumit M at Societe Generale.
Obviously, the fuel cost pressure as well as personnel costs, you bank on yields compensating to meet your guidance that you've shared for Q2 and Q3. It's helpful. So I just want to understand that what essentially is underpinning this strong improvement. Is it still your strong hedging position that drives that confidence? Is it North Atlantic demand? Or it's really the premium -- strong demand in premium cadence that you see?
Secondly, on MRO, do you expect that the 2019 levels of activity will be [ recouped ] by 2024? And when would you really see the boost from the margins -- to the margins from the improving mix that you will have from the next-gen aircraft that you have in MRO mix?
So thanks for the question. Let's say the results improvement, we see it actually everywhere. So it's not a specific market. Of course, the North Atlantic is always one of our backbones of our profitability, and we also see there a strong, strong recovery over there. So it is indeed -- of course, we don't -- we still miss China because we don't expect that China will come back before the end of the year. So indeed, it is, of course, coming from a mix of North Atlantic. But also, for instance, we see a fairly strong result at the Indian Ocean and let's say, the Caribbean and also in South America.
So let's say, where there is demand and where we can fly, we see this improvement of our results, including on the Transavia side, including on the European network. On the MRO side, yes, in 2024, we expect to be back on the 2019 levels, even maybe a bit further. And the next-generation aircraft that is, of course, going slowly, let's say, that transition to going to happen. So that's not a onetime shot.
We have a lot of contracts still on, let's say, the older aircraft types. And we are getting -- actually, we see that in the current context -- there was an MRO conference last week. We saw a lot of signatures also on this old-generation aircraft, where current customers even continue like Air Canada, et cetera. So quite strong in the MRO market. We are well positioned on the products, and we are also now positioning ourselves for the next-generation aircraft. We get slowly that it's impacting actually our business levels.
Our next question from Johannes Braun at Stifel Europe.
Yes. I have 3 questions. First of all, congratulations for the free cash flow. Of course, I think working capital for Q1 was helped a bit by Easter dropping into Q1 this year. So at the end of Q1, you still had the Easter bookings and the working capital. So the question would be if you could split the working capital benefit into Easter and summer bookings for Q1.
Second question, you said that unit costs, excluding fuel, excluding currency, was stable in Q1 versus 2019. Could you also split out the unit performance excluding the state support compared to 2019?
And then lastly, I'm still trying to get my head around what the ultimate solution for the balance sheet is. You target EUR 4 billion in equity measures. But looking at the equity deficit of minus EUR 4.2 billion at the end of Q1, this does not seem to be enough for a sustainable solution. It will basically only bring you back to a neutral situation, which is, I think, over the long term, still too low.
And then secondly, you are saying that your measures would include quasi-equity-like perpetuals, which I think cannot be a long-term solution. It is expensive and it's the equity -- like it's not counted as equity for credit agencies and also for analysts, I think. So it feels that much more is needed than what you are currently planning for to get the balance sheet back into a really sustainable situation. So any additional thoughts would be helpful there.
So thanks for these very good questions. So let's start with the free cash. The bookings are still -- let's say, we see our cash flow still growing. So there is -- in terms of to split it before and after Easter, we don't have that analysis, let's say, in place. But we still see that the cash liquidity and, let's say, the upfront ticket sales is still going up. So don't worry about that, that there will be a big drop after Easter. Of course, when we are flying into the summer, we will consume a part of the -- a big part of these tickets.
Then on the unit cost, let's say you can do your math yourself. It's EUR 210 million in terms of state support, which we got in Q1. So you can do the math on the unit cost, excluding, let's say, this contribution.
And then on the recapitalization, so the EUR 4 billion let's say, we actually are getting now into the direction that there will be positive results in the coming years also on the net results. So that will also sustain our equity. So maybe your assessment is not enough. I think with the current trajectory, which we have in place, we should be able to also restore equity by ourselves just by the performance of the business.
And then on the quasi-equity side, you're right, that is -- of course, it is a moment to bridge, let's say, the equity need. And again, if we have, of course, net results getting in, then of course we can also replace the equity coming from the net result and, let's say, pay off the quasi-equity. That is actually the scheme which we have in our mind.
All right. But just -- I mean do you have any, let's say, equity target? What would be your equity ratio that is -- that would be a sustainable situation in terms of the balance sheet for you longer term?
I don't come back on that at this moment. But as you have seen, for instance, what we are doing now on the Air France side, there are a lot of solutions to do over there. So we have our solutions in place, but I can update you further in the periods to come.
Next question from Carolina Dores, Morgan Stanley.
I have 2 questions on costs. Just coming back, you have flat unit cost [ tax ] revenues. Should you expect to keep this flat unit cost revenue over the coming quarters? And my next question is, by March, you say operating results was positive EUR 30 million, but you're guiding for breakeven in the second quarter. So positive unit environment, I would think that Q2 results could be even better. Are you just being conservative? Or is this -- are you seeing inflation pressure or fuel costs that should offset the positive yield environment for Q2?
So on -- let's start on the unit cost. Yes, of course, when we are ramping up capacity that will have a positive impact on our unit cost. So I don't expect that it will be worse off in the coming period. Are we pessimistic on the Q2 guidance? We had a lot of internal discussions about it. I think that the main importance, uncertainty is still what is happening on the jet fuel. And as long as that jet fuel is unstable, as it is today, we want to keep this guidance for the moment.
So is it positive? Is it optimistic, pessimistic? The truth will come later. Up to now, we every time see actually that the demand is stronger than we expected. So actually, I don't know, 3 sessions in a row, I gave guidance. And every time we beat actually what we guide due to the strong revenue development. So let's see. I'm a little bit cautious, especially what's happening on the jet fuel side.
[Operator Instructions] And our next question is from Andrew Lobbenberg in HSBC.
So to ask this question, I do every time, you don't normally answer it. But what can you tell us about the talks with the competition authorities in the context of the restructuring of Dutch State pay? Is anything happening [indiscernible], we don't get news?
Then can I ask a question, saying in Holland about the Schiphol Airport charges, which seem quite [ fraught ]? And then the third question would be about the potential resumption of flying to Asia? And how should we think about the reopening to Japan as well as China? And as and when that happens, how do you think about the viability of those markets if you're continuing to circumnavigate Russia?
And also really is the aircraft capacity there? Because -- or would a reopening of Asia [ straighten ] the market on the North Atlantic? Because yes, there's a shortage of metal, isn't there, at the moment because Boeing can't build them or can't deliver them and a lot of stuff has been chucked in the bin.
Okay. Thanks, Andrew, for this -- especially the last question. It's an interesting one. But I hand it over to our CEO, and also, we have Erik Swelheim with us. So he will come back on that one. We are still in discussion with the Dutch State. You can see what is happening actually that KLM already starts to pay back on the state guarantee loans. So we are in a good discussion with the Dutch State. And when we come to a conclusion, we'll let you know, Andrew. You're the first one to know.
Yes. On Schiphol charges, Andrew, you're hinting to the 37% increase in the next 3 years, that is 9% and then 2x 12% in the coming years. Of course, very unfortunate now, given the circumstances in Schiphol, very unfortunate for our passengers, for our staff as well, the combination of a very high increase in number of passengers and, at the same time, some tension in the labor market.
And of course, we have reminded Schiphol of increasing tariffs and then performing a low-quality, if not a very successful combination. The authorities -- competition authorities, looked at the process and the process went well, but that didn't help us and we are continuing our discussions on these tariffs. And if there is news, you will certainly hear about that.
Okay. And your question on the network fleet surrounding [indiscernible], this endless analysis in [Audio Gap] ability to react to the market as it changes, and we've been doing this since the beginning of the pandemic. And I think relative to some of our competitors, our teams have done a great job. So on the fleet side, we're trying to maintain maximum flexibility while also dealing with some delayed deliveries. As you know, we still have a few 787s for KLM that have yet to be delivered in 2022.
We're not as exposed as many other carriers, but we do have quite a number of airplanes where we have flexibility on when to retire them. So we have a fleet of approximately 20 777-200s that were planned to start exiting now and all be out by 2024. We can juggle the engines to ensure that we avoid some of the heavy checks and keep up to 15 of these airplanes, which are owned, 15 of the remaining airplanes are fully owned, unencumbered. And we can push those out to 2027, which is much longer than planned. So we do have that as flex capacity.
And then also with Air France, we do have a fleet of 15 Airbus A330-200s also that was originally scheduled to leave the fleet in the 2025 period. Those as well can be pushed out 2 years approximately. So we do have some flexibility on the fleet side. We have moved the bulk of our Asian capacity to the stronger markets, North America in particular.
Also, we've reintroduced after many years service to the French overseas territory markets of Réunion, Martinique and Guadeloupe out of Dzaoudzi Airport. Historically, all this capacity was flying out of all the airports. So this is -- as an example, 4 777s that have been redeployed. Some of this capacity can be put back on Asia. I mean we have the flexibility, this is really key.
Prior to the pandemic, we had introduced many new services to Asia, which we're still building up. So they weren't contributing material amounts of money to our bottom line. So we're in no rush to go back to those destinations, and we haven't got the aircraft to go back in there. We're not losing too much sleep, and we have to wait 2 years or 3 years to get back into those markets.
We -- relative to our competitors, our position in Asia is we're not the #1 carrier from Europe to Asia. We are not Finnair. We don't have that kind of exposure. So we think we're relatively well placed to react in the appropriate way, have enough lift to cover the important and most, I'd say, strategic markets that we serve.
Next question is from Tom Gibney in BNP Paribas.
I just wondered if you could give us a sense of what your fuel hedging position is for next year, for 2023? And then secondly, you've been talking about the equity strengthening measures for, I guess, quite a few quarters now and the time line is to be delayed and delayed. What's the -- for you, what are the constraints in terms of the time line and what are the pressures? Where is the pressure, if any, for you to get that -- those equity-strengthening measures completed?
First, on the '23 -- sorry, 2023 hedges, so actually, we have a policy that we will be at 25% in Q1. So that is actually to come. Then on the -- yes, we are just looking for the right momentum. That is actually what we are looking for. As we have seen, we were not prepared yet for this Ukrainian war. We have seen what is happening and the volatility of the market. So we're just aiming at the right momentum to execute it, for that we are fully prepared to execute and to go through it. I cannot give you any more specifics at this moment.
Next question is from Nuala McMahon at Goodbody.
I'm just interested on the yield side. You're talking about a positive yield environment during the summer versus 2019. And I just want to know within that how Europe and the North Atlantic are trending versus 2019. Don't need to know the quantum, I can understand why you don't want to give that now.
But just interested if the trend has turned positive for the summer? Because I'm just looking at Slide 13, which shows the short to medium haul, slightly down. And North Atlantic, I think, was minus 6% in Q1. So just wondering, is the big shift in yield to come from those 2 markets? Apologies if you've already touched on this earlier, but interested in your comments.
What we show here in Q1 is, in our view, going to continue. So Africa has been resilient since the beginning of the crisis, abated our fears that we were going to get hit in a much more [Audio Gap]. We believe that Latin America will continue on its [indiscernible] trend, so we're expecting a material improvement in our yields in Latin America. And in particular on the North Atlantic, as I said, demand is very strong.
With that, we're expecting -- so without going into too much detail there, those are the overall trends I can give you. [Audio Gap]
There are no questions at this time.
[Audio Gap] questions, and thanks for taking the time to listen today.
Thank you. And this will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.