Air France - KLM “how to survive the global battle”

Air France - KLM“how to survive the global battle” Presentation for TU-Delft International Seminar on Airport Planning ‘Airport of the Future’ Thursday, 30 March 2006 Athar Husain Khan Director Government & Industry Affairs

“Make flexible adjustment of tactics according to changing circumstances of the battlefield” (Sunzi’s Art of War, around 250 BC)

Contents ... • Brief history • Our strategy • Where do we stand • External world • Opportunities • Challenges • What do we need 3 presentation aotf 300306 ahk

? ? ? … quest for economies of scale and scope ... June 1989 1992 1993 1999 2000 May 2004 • June 1989 : KLM investment in NW • September 1997 : Global JV • Begin 2002 : informal discussions • Spring 2003 : discussions intensify • September 2003 : public announcement • May 04 : entry into force • September 2004 ; Joint holding Air France - KLM 4 presentation aotf 300306 ahk

… our strategy ... • Committed to play a frontrunner role as a truly European airline • Operating under a bi-national structure, from a dual-hub system • Aiming for profitable growth / fit to compete • Managing the transition to a global free market • Creating favourable conditions: costs, infrastructure • Securing Europe’s global competitiveness • Demonstrating good citizenship: environment/social 5 presentation aotf 300306 ahk

.. market size segmentation for a dual hub ... Number of O&D passengers Dual hub service (CDG & AMS) Dual or single hub service Single hub service (CDG or AMS) Super stations  LHR, CDG, ... Primary stations  MAD, BCN, FCO, ... Stations Secondary stations  MRS, GOT, TRN, BGO ... Tertiary stations  KRS, PSA, TRD, VGO, ... 6 presentation aotf 300306 ahk

… KLM + Air France + SkyTeam ... 7 presentation aotf 300306 ahk 645 destinations

… European leader on main global markets ... AF-KL: ~12% 1st European carrier Europe AF-KL: ~10% 2nd European carrier AF-KL: ~8% 1st European carrier North America Asia Middle East AF-KL: ~16% 1st European carrier AF-KL: ~24% 1st European carrier Latin America Africa Long Haul AF-KL: 13.2% BA: 8.8% LH: 8.0% Capacity share on Europe-Long-haul routes Source: OAG data week 37 (Summer 2005) – non stop operating flights 8 presentation aotf 300306 ahk

… and the largest in turnover…in bln US$ 9 presentation aotf 300306 ahk

… need for transfer traffic at Schiphol ... 10 presentation aotf 300306 ahk

… hub development ... hub model Europe long-haul – medium -haul Paris, Frankfurt, Schiphol,... hub model USA medium-haul – medium- haul Atlanta, Chicago, Dallas… hub model Orient long-haul – long-haul Dubai 90-ies : Europe 2000~ Gulf 80-ies : USA 1980 Atlanta 1981 Dallas 1986 Washington 1996 Paris 1992 2000-01 Dubai Schiphol Frankfurt 11 presentation aotf 300306 ahk

… and the external turmoil continues ... • Iraq crisis, Bird Flu, Iran-IAEA, what more? • Still increasing external costs: fuel, airports, Air Traffic Control • Increasing regulatory costs: security, environment • United States Chapter 11, bankruptcies • Inevitable consolidation between airlines • Ongoing liberalisation (EU-US and others) • Low cost / no frills carriers, more differentiation and competition • Ambitious developments in the Middle East (Dubai et al) 12 presentation aotf 300306 ahk

… somewhat lower but still high oil prices ... Rising fuel costs Air France-KLM (04/05 + 33.3% to € 2.65 bln, Q1 05/06 y-o-y + 32.2% to € 809 mln) 13 presentation aotf 300306 ahk

… the operating charges we pay ... 14 presentation aotf 300306 ahk

… and the battle for Europe ... CPH SkyTeam hubs Oneworld hubs LHR AMS Star alliance hubs FRA MUC VIE CDG ZRH MXP MAD 15 presentation aotf 300306 ahk

Expected growth rate of 4-5 % per year until 2012 Average annual growth rate 1988-2003: 6.0 %(passenger traffic within and to/from Europe) 3 Source: AEA, incl.domestic, excl. charters … in a growing European passenger market ... 16 presentation aotf 300306 ahk

… an opportunity : China ... - Traffic growth perspectives - Very strong growth between China and Europe +18% (last 10 years) Until today p.a. 4,3 million passengers in 2004 China - Europe ì 12% p.a. China Domestic +15% p.a. Opportunities Risks Emerging Chinese middle class Crisis of the financial system Implosion of the single party Tourism and VFR traffic potential (both inbound and outbound) Potential hitches in Chinese development : corruption, violation of intellectual property, increasing social inequalities Increasing presence of foreign firms in this huge market Chinese tourism development slowed by measures to counter illegal immigration Chinese firms developing their presence Exposure to major epidemics (SARS …) in the Rest of the World 17 presentation aotf 300306 ahk

… the passenger market ... Worldwidepassenger market 1.600 mln European passenger market (intra - EUR) 558 mln Relevant marketfor Schiphol 185 mln Traffic at Schiphol 42 mln Local potential 27 mln Local traffic SPL 24 mln(89% share of NL market) Rest of the world 1033 Mln. Europe related market 554 Mln. Rest of Europe related 373 Mln. SPLrelevantmarket 185 Mln. Transfer potential 158 mln Transfer potential 158 Mln. Transfer at SPL 18 mln (11 % share of transfer traffic) 18 presentation aotf 300306 ahk

… lcc/nfc fast growth over the last 3 years ... 2002 easyJet: 44 routes 1.840 flts/week Ryanair: 76 routes 2.220 flts/week KL Eur.: 2.530 flts/week 2005 easyJet: 92 routes 4.738 flts/week Ryanair: 222 routes 4.477 flts/week KL Eur.: 3.200 flts/week 19 presentation aotf 300306 ahk

… growth of the lcc fleet ... Sources : Airclaims, press releases, OAG 20 presentation aotf 300306 ahk

… also the Middle East has ambitions ... UK - India ‘90~ Australia - UK/Eur ‘95~ Asia - Africa ‘00~ USA-more Europe ‘05~ 21 presentation aotf 300306 ahk

A340-600 A380-800 B777-300ER A340-300 A340-500 B777-300 A330-200 Seats (95-04) : +20,5% Seats (04-10) : +15,7% … with their fleet plan ... Emirates fleet plan Sources : Airclaims, press releases, Global Insight 22 presentation aotf 300306 ahk

… what do we need on national level ... • Capacity at Schiphol > mainport requirements • infrastructure • environment • Low costs and high quality from our service providers > Schiphol and ATC-LVNL • A government with a vision and integrated policy regarding the long term development of aviation in NL 23 presentation aotf 300306 ahk

… and what do we need at European level ... • An integrated European aviation policy to enhance: • Reduction of costs (security) • Addressing the imbalance (airline-airport relationship) • A level playing field both intra and outside the EU (market access, environment) • Innovation (ETS, SESAR) 24 presentation aotf 300306 ahk

… thank you. athar.husain-khan@klm.com 25 presentation aotf 300306 ahk

Air France - KLM “how to survive the global battle”