00:00The numbers look pretty much in line or above expectations, and you sound pretty positive on the demand picture.
00:07Can you just give me a bit more colour on that demand picture? How strong is demand?
00:13Hi, Guy. Yes, we're quite pleased with how last year worked out.
00:20It's beat our expectations as well, with all the geopolitical challenges we've had
00:25across many regions in our network, Western Africa, Middle East, and as you know, we still can't overfly Russia.
00:34But the transatlantic is a strong point for us, in particular the premium market,
00:39and in particular point-of-sale United States.
00:42We've introduced a whole bunch of new products on the premium end,
00:46and they're being extremely well received in the market,
00:50and we're extremely well exposed to fully take advantage of that.
00:55And you see that demand carrying on. That is not something that you see fading at this point.
01:01Well, it's been pretty consistent for the last, I'd say, three, four years,
01:06and we have not seen, despite recent press on change in people's travel patterns,
01:14we have not witnessed that ourselves at France KLM.
01:16Point-of-sale US and point-of-sale Europe as well, in particular premiums, as I just mentioned,
01:21quite strong.
01:23You know, we're not seeing anything in the near term that causes us any worry.
01:32Ben, good morning. It's Tom alongside Guy.
01:34The other end of the cabin, the economy class, yields under pressure.
01:37This is a part of the cabin where Guy Johnson never sits, Ben.
01:40Does that story continue in terms of yields under pressure on economy?
01:43When does that story start to adjust?
01:45How much pressure is on those flyers, particularly when it comes to their willingness to spend?
01:53Well, I think you've got to look at, well, you know, our groups in particular.
01:58France is 93 years old, KLM over 100 years old.
02:01You know, we have very high costs relative to many other carriers.
02:05I'm very pleased to say, you know, we achieved $2 billion in operating income last year in Air France,
02:11and it's 93 years, well over $1.2 billion.
02:14And the exposure we have to the premium cabin reduces our exposure to the economy cabin.
02:20And even though we are seeing some softening in the economy cabins,
02:24it is far more offset in the premium cabins.
02:30So, yes, there is a little bit of softness in the economy cabins,
02:34not only on the transatlantic, but also into Latin America and into Africa.
02:39Which are the biggest cost headwinds right now?
02:42Is it wage negotiations?
02:44Is it airport fees?
02:45Is it the training costs of switching from Boeing to Airbus?
02:48What is the biggest cost challenge right now for the business?
02:53Well, we've got something very particular in France and the Netherlands.
02:57We've got two countries, in particular the Netherlands, that have imposed new taxes and charges.
03:04And in the Netherlands, we have a government which is putting new artificial limits on the capacity at Skipal Airport.
03:13So those charges are weighing down heavily.
03:15They were not in our original midterm plan.
03:18So despite those new charges and taxes, quite pleased to say that we've been able to cover those.
03:25The one key item that we're trying to, along with our European competitors,
03:30we're trying to address is the SAF mandates that have been put in place for European carriers
03:35that are not in place for our foreign carriers, our foreign competitors.
03:39And we're really lobbying to try to get a border control mechanism put in place,
03:44which has been put in place for other industries, such as the maritime industry,
03:47to ensure we're on a level playing field.
03:49This is a big concern of ours.
03:52Sustainable aviation fuel, that's SAF.
03:54Ben, it looks like the stock is called 2% higher this morning, but it was 3% lower yesterday.
03:58And the reason it was 3% lower yesterday was related to what is happening in the Middle East right
04:03now.
04:03Oil prices have rocketed higher over the last couple of days on concerns
04:07that we are going to see a new Gulf War that could send prices significantly higher.
04:11I'm talking about Iran here.
04:13Ben, how hedged are you?
04:15What can you do to mitigate a sharply, a rapidly rising oil price and kerosene price?
04:22Just give us some background on what you would expect to do if we see prices continuing to rise for
04:27fuel.
04:30Well, the European airline industry, in particular our own,
04:34we're significantly higher hedged than our American competitors.
04:39You know, in the U.S., most airlines are not hedged.
04:41We've got well over 50%, 60% of our annual fuel spend hedged.
04:46So I think we're in a very good position to weather any significant increase.
04:51Of course, it's never enjoyable going through, you know, so much unknown tension.
04:58But, you know, our exposure to that part of the world is relatively limited
05:03because of the heavy Gulf airline competition we have.
05:07So the exposure, if it is in the Gulf region or in the subcontinent or going into Asia,
05:14I think we're in a better position in terms of exposure than some of our other competitors.
05:19Would there be an airspace concern?
05:21Airspace in that region accessing east-west, the Asia routes,
05:25would also potentially be impacted as well.
05:28Is there anything you would be able to do if we were to see airspace closures at the moment?
05:32You're operating in a very narrow corridor already.
05:37As I said, our exposure to that part of the world is quite small relative to the size of our
05:44network.
05:44I mean, we have 200 destinations which we serve around the world.
05:48Northern Asia, we avoid Russia.
05:52We're talking about, you know, a handful of destinations, 10 to 12 destinations,
05:56that could be impacted if that narrow, you know, corridor that we use today to access,
06:03as an example, Bangkok or Singapore, if that corridor were closed off.
06:09As I said, we're not talking big numbers in terms of destinations.
06:15Ben, before we let you go, I want to just loop back to the cost story.
06:19So from geopolitics back to the cost, and obviously your oil prices feed into that.
06:22Do you, is maintaining that margin target of 8% still doable, still realistic?
06:29What's your level of confidence?
06:32I think under the current environment, I'm very confident.
06:37I think reaching 6.1% despite this massive increase in taxation in our two major markets,
06:47I think it's a great achievement for us.
06:49I don't think many of our competitors would be able to achieve that kind of result in this environment.
06:54I mean, I've been in this business over 30 years,
06:56and this is a really, really happy and pleased with the whole performance of the team.
07:01So we're still on track to 8%.
07:04Air France is going on, you know, firing all cylinders.
07:07KLM, we're coming out with a new plan because of the new working environment we have there
07:11with the change in airport policy.
07:13No, I'm confident.
07:16Ben, always great to catch up.
07:18Looks like the stock's going to be called a little bit higher this morning
07:20on the back of what you've delivered this morning.
07:22Ben Smith, the CEO of Air France, KLM.
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