Registration document 2010-11 - Air France-KLM Finance

Activity2Passenger business❚ The transformation of medium haulThe medium-haul network contributes more than a third of Air France-KLM’s passenger revenues. By consolidating the Group’s commercialpresence across Europe, it plays a fundamental role in ensuringthe power of its three marketing tools: the Flying Blue frequent fl yerprogram, corporate contracts and contracts with the major travelagency networks. Furthermore, this network is key to the company’shub strategy in that a large proportion of passengers departingfrom Roissy and Amsterdam on long-haul services are connectingpassengers. A robust transformation projectFaced with the crisis which particularly affected the medium-haulnetwork, in 2009-10 the Group decided to respond by launching atransformation project dubbed the NEO, or New European Offer. Thisproject was based on three key pillars: an in-depth transformation ofthe commercial offering to produce a simpler product that is betteradapted to customer needs while preserving a high level of unitrevenues, a re-engineering of internal processes made possible by thisnew commercial offer to reduce costs and, lastly, a reorganization ofthe fl ight schedule.One year after its launch, the new commercial offering is clearly intune with customer requirements. Business customer perceptionof Premium Eco, the product aimed particularly at this segment, isvery positive especially in terms of value for money. After a period ofadaptation, the value for money perceived by customers in PremiumAffaires and Voyageur, which have been the focus of the greatest costsavingefforts, has returned to its level of last year. This satisfaction wasespecially refl ected in traffi c and revenues with more than a 60% rise inPremium Eco traffi c. The main aim, which was to encourage the bestcustomers to return to these fl ights, has thus been achieved.The project targeted a €500 million improvement in the operating resultfor 2011-12, of which €350 million in 2010-11, but ended up exceedingthis 2010-11 target after restatement for the exceptional events ofApril (shut-down of the European airspace due to the eruption of anIcelandic volcano) and December (signifi cant disruption to operationsdue to heavy snowfall).In 2011, the transformation project will be pursued in order to reach theinitial €500 million objective. After having restructured its medium-haulnetwork in 2010 within the framework of the transformation project,in April 2011 KLM launched the redefi nition of its commercial offer forBusiness customers. Business Class was thus reviewed to respond,as at Air France, to the customers’ need for fl exibility and additionalcomfort. The main characteristics of this new product are fl exibletickets, increased personal space by, notably, leaving the middle seatempty, improved catering and the upgrading of the ground service withdedicated check-in counters, priority during security and boarding,access to airport lounges, etc. Provincial bases: a new modelTo return to profi table growth on the point-to-point medium-haulsegment, particularly in its domestic market, Air France is currentlyworking on a provincial base project refl ected in a new productionmodel, aimed at regaining market share on departure from cities in theFrench regions.The aim of this new business model is to increase the use of aircraft toaround 12 hours a day, thanks to a reduced turn-around time and anoptimized fl ight schedule from each base.The increase in aircraft productivity should be accompanied by anincrease in the productivity of fl ight crews and ground staff and theamortization of fi xed costs over a broader activity base. The currentsimulations point to a 30% reduction in manageable costs, which inturn represent around 60% of operating expenses. The reduction inunit costs would thus be some 15% and, in addition to signifi cantlyimproving the profi tability of the existing lines, the project wouldsignifi cantly increase the offer on departure from the relevant bases.While not yet concluded, the negotiations with the unions are wellunderway. The launch of the fi rst base is planned for Marseilles inOctober 2011 and the envisaged three additional bases (Toulouse,Nice and Bordeaux) could be brought on stream during the spring of2012. Since the negotiations have yet to be fi nalized and the exactscope of the activity concerned remains to be determined, the Groupis currently not in a position to set precise quantitative objectives onthis project.❚ Customers at the heart of the Embark corporate projectBy placing the customer at the heart of the enterprise project, theGroup is engineering a real cultural change involving all employees.Making the company more customer-centric not only consists ofinvesting in in-fl ight services but also of developing a customer serviceculture. Being the number one in service recoveryService recovery is emblematic of this change. The experience of theIcelandic volcano in April 2010 particularly highlighted the fact that theability to handle unforeseen events is a key service when it comes todifferentiating the Group from its competitors.This response to unforeseen events becomes more robust whenthe Group can contact clients directly on their mobile phones and ifcustomers have the opportunity to manage their reservations directlyon their mobile phones. This is why the Group is investing in informationtechnologies (the Air France and KLM Connect system) and mobiletelephone applications.Registration Document 2010-11 ■ Air France-KLM41