Registration document 2010-11 - Air France-KLM Finance

Activity2Cargo business2.5 C argo businessThe cargo business is the second of the Group’s activities, representingsome 13% of total revenues and regrouping the Air France-KLM Cargoand Martinair Cargo activities. Since April 2009, Air France-KLM hasgradually taken responsibility for marketing the bellies of Alitalia aircraft.The joint-venture agreement between Air France, KLM and Delta alsoincludes transporting air freight in the bellies of passenger aircraft.❚ A remarkable market recovery within a volatileenvironmentAfter the sharpest decline in demand in aviation history during2009 (-10% in traffi c measured in revenue ton-kilometers or RTK),the pick-up in world trade during 2010 underpinned a recoveryin the air freight sector, refl ected in a 20.6% increase in traffi c(Source: IATA).Whereas the industry recently announced that the equivalent of twoto three years of growth had been wiped out, air freight recovered itspre-crisis levels as of the second quarter of 2010, driven by Asia andthe emerging countries. The growth in traffi c for the European airlinesremains, however, below the level seen prior to the crisis and well shortof that of the Asian carriers (Source AEA).Demand in the cargo sector varied signifi cantly over the course ofthe year, with a peak of +35.3% in May 2010 relative to May 2009corresponding to the high point of the inventory re-build, a troughof +6.9% in November 2010 and +2.3% in February 2011 versusFebruary 2010. Growth slowed as of the 2010 third quarter oncestocks had been re-constituted but also due to a series of exceptionalevents arising over the course of the year.The crisis linked to the eruption of the Icelandic volcano in April 2010weighed on the recovery, affecting carriers in all regions. This wasrefl ected in a three percentage point fall in traffi c during April (+26.6%versus +29.5% in March 2010). The bad weather conditions in Europeand North America in December which led to the closure of a numberof snow-bound airports also had a signifi cant impact on the air freightindustry. Europe was the most seriously affected, with growth falling to2.9% in December from 6.6% in November. The political crises in theMiddle East and North Africa led to a fall in demand: in February 2011,demand was below its pre-crisis level (-0.8% in February 2011 versusFebruary 2008), something that hadn’t been seen since the recovery.Lastly, demand was also weakened by the consequences of the tragicearthquake which rocked Japan in March 2011.Regional variations in traffi c remained marked during 2010. The LatinAmerican carriers recorded the strongest growth for the year as awhole (+29.1%) but represented only 3% of the market. The MiddleEastern airlines with a market share of 11% saw traffi c growth of26.7% while the Asia-Pacifi c carriers, whose market share was45%, posted growth of 24.0%. African airlines enjoyed robust traffi cgrowth of 23.8% but with a market share limited to 1.0%. The NorthAmerican carriers recorded a traffi c increase of 21.8% with a marketshare of 16.0% while their European counterparts, with 24.0% marketshare, saw growth limited to 10.8%, refl ecting the sluggishness of theEuropean economy together with the impact of the volcano in April andthe closure of airports in December (Source: IATA).Renewed growth in capacity: during the crisis, the airlines hadreduced their capacity, notably by withdrawing all-cargo aircraft fromoperation, leading to a reduction of some 200 aircraft in the global fl eetat the height of the recession. In 2010, with the economic recovery,the all-cargo aircraft grounded during the crisis were brought back intoservice and new all-cargo aircraft were delivered (22 Boeing B777Fsand 5 Airbus A330Fs). The belly offering continued to grow stronglywith the expansion of the passenger fl eet, notably with the introductionof 52 Boeing B777-30ER and 87 Airbus A330-300 aircraft withsubstantial hold capacity.The Middle East (+15.7% versus 2009) with Emirates and Asia-Pacifi c(+14.3% versus 2009) with Cathay and Korean made a signifi cantcontribution to capacity growth, unlike Europe where capacity wasvirtually stable (+0.6% versus 2009).In 2010-11, the growth in cargo demand did, however, exceed that ofcapacity, enabling the load factor to increase by 2.2 percentage pointsto an average of 53.2% for the year.After recording a historic collapse in revenues in 2009, returning to the2005 level, the priority for the cargo industry in 2010 was a recoveryin revenues. IATA estimates the improvement in revenues at +30%in 2010 relative to 2009, virtually returning to pre-crisis levels, with theimprovement particularly marked in the fi rst half.❚ Air France-KLM Cargo: an effective restructuring Air France-KLM Cargo confirms its leadership positionAir France-KLM Cargo confi rmed its position as the European andworld-wide leader, excluding integrators. Its market share (includingMartinair) amounted to 31.1% in 2010 (32.7% in 2009) amongst theAEA (Association of European Airlines) airlines and 7.0% at global level(8.4% in 2009). These declines in market share refl ect the Group’spriority on improving unit revenue and refocusing on the fastestgrowingmarkets.Registration Document 2010-11 ■ Air France-KLM47