00:00I'm here with the group CEO of Air France KLM Ben Smith. Good morning. Hi Guy. Nice to see you.
00:06So the news overnight is that you have just announced you're flying back in to Riyadh. You're flying back into
00:11the Gulf. Is this the first of many steps or is this the first step you are taking and then
00:17you're going to assess the situation and then you're going to look at what the rest of the Gulf is
00:20going to be looking like. What is the situation in the Gulf for an airline like you.
00:23Well today we're very cautious in returning to cities which we've pulled out of. So we've gone back into Riyadh.
00:32Close cooperation with the French state from a security perspective with our cabin staff, with our pilots. We have not
00:40reopened Dubai as of yet. Tel Aviv, Beirut are still closed. Daman is still closed for us.
00:46So any, what would get you back into those, into those routes? What do you need to see in terms
00:53of the situation on the ground? What did you see in Riyadh? What do you need to see elsewhere?
00:57Well I think we need, as I just said, we need to have all of our stakeholders aligned to put
01:02us in a comfort position to go. And right now we're not, we're not there on the destination that we
01:06have.
01:06But does it need a peace deal? Does it need, does it need a full cessation of hostilities? Does it
01:11need, like what kind of boxes do you need to tick?
01:14Yeah, I mean, peace deal, no peace deal. As long as we're confident that it's not going to have an
01:19impact on safety at the particular airport, there doesn't necessarily need to be a peace deal.
01:24But we need to have, you know, confidence that we're not going to see any danger around those airports.
01:30Okay. So Riyadh, there never was, and there doesn't seem to be any today. So we know as a precaution,
01:38we pulled out when the fighting started, but now we're comfortable to go back in.
01:43Let's talk about the situation when it comes to fuel. I think you updated the market a couple of days
01:48ago. You talked about the idea you've definitely got enough fuel for the summer.
01:51What happens after the summer? You get the summer and then what?
01:56So we've secured fuel through the end of August. We've got our full capacity in place. We have not pulled
02:05any of our capacity.
02:06It's a little unfortunate that a lot of customers are still not confident that there'll be enough fuel.
02:11So we're seeing a late booking environment, a little, you know, people are booking a little closer than we've seen
02:16in the past.
02:17But as far as the fall goes or the winter goes, it's a bit too early for us to make
02:22the decision on how much capacity we keep in the market.
02:25Okay. Just in terms of that messaging you've had to deliver, at the beginning of the war, there was this
02:30fear that there wouldn't be enough jet fuel.
02:33And the industry came out very quickly and said, we've got enough fuel. The summer's going to be fine.
02:38If fuel went up significantly from here, say in July or August, you see a big spike in fuel, are
02:45you effectively guaranteeing that all the routes that you're committing to now, you are going to fly?
02:50I'm going to get there and I'm going to get home.
02:52Well, first off, if the fuel significantly spikes, we're going to have to raise ticket prices to compensate for that.
03:00And when you raise ticket prices, there'll be less demand.
03:04So the need for the full capacity that we had planned is probably not going to be going to be
03:09the case.
03:10So how we balance that out with the availability of fuel, the price of fuel, the willingness for customers to
03:17pay, we'll see how that.
03:18So you might consolidate some routes. Is there a plan, if fuel went up further to, you would change maybe
03:27some of the current routes, the frequencies, kind of where you fly, maybe the overlap between Air France and KLM
03:33changes.
03:34Is there a plan in place if fuel goes sharply higher from here to kind of consolidate within the group?
03:40Sure. I mean, our companies are old, our global brands, and we've got a lot of experience in adapting, last
03:50minute, medium term, long term.
03:52COVID was probably the most challenging for us to manage capacity and frequencies.
03:56So, yes, depending on how the availability and price of fuel does evolve over the next few months, we'll adapt.
04:03If it means removing frequencies, consolidating frequencies, we'll make do with whatever comes of this.
04:11But that's not a plan you've got ready to go. That's something that you will do effectively kind of on
04:15the fly.
04:16Correct. You know, we're not sure. I mean, the supply of fuel, price of fuel could be different in different
04:20parts of the world.
04:21And so to guess what's going to happen, it's pretty difficult to do that.
04:26But, you know, airplanes can move around relatively easy and quickly.
04:30And we've managed to do that over the last few weeks where we've taken some capacity in other parts of
04:37the region in our network
04:39and started to use it on routes overflying the Gulf where there's been a lack of capacity.
04:44So to Southeast Asia, as an example, where a big part of the European traffic was going via the Gulf.
04:52Now we've been able to offer something that is important.
04:56Okay, let's just talk about that for a minute.
04:58How sticky do you think that demand is to go over the Gulf?
05:03I.e., do you think people will want to fly through the Gulf after this once there is a peace
05:09deal?
05:09Do you think you may retain some of that traffic going out to Asia?
05:12Well, I think it's another example of how dependent Europe is and European customers are on flying over the Gulf
05:21to destinations that I think could support more non-stop service.
05:26You know, with an unlevel playing field, you've got companies that are based in the Gulf that have been able
05:30to attract a big portion of the European demand via the Gulf.
05:35So when the full capacity comes back in the Gulf, I would expect some, you know, is it 5%, 10
05:42% of customers that, you know, in the past would have flown over the Gulf to prefer to fly non
05:47-stop.
05:48But the Gulf carers are going to be, our expectation is, is they're going to want to get their full
05:52capacity in place as quickly as possible.
05:54The talk is there's going to be a massive price war once they come back.
05:57Tim Clark's going to want his capacity back at Emirates.
06:00For sure. For sure.
06:01So you ready for that? What does that look like?
06:04Look, the three Gulf carriers plus Turkish, they're extremely aggressive. That's not new for us.
06:09As I said, without a level playing field, we're not flying non-stop to many of the routes that under
06:15a normal scenario where there would be a level playing field that we'd be able to support.
06:18So this is not, it's not going to be a surprise to us.
06:22Okay. Just back to the issue of pricing and demand. Will the consumer take much more?
06:28The story post-pandemic has been that I'm going anywhere. I don't care what the price is. I'm going. I'm
06:34going to fly up the front of the plane. Demand has been very strong.
06:36If prices get pushed much higher from here, does that still apply? Are you confident that the pricing won't affect
06:45demand? What are you expecting to happen?
06:48Well, we're pleasantly surprised that demand is holding. Paris is still a very attractive destination. Amsterdam is still a very
06:55attractive hub to flow over.
06:57So what we're seeing on the bulk of our network is strong, strong demand, predominantly in the premium cabins.
07:02And we're not seeing customers avoid the trip. Sometimes, as I said, they're booking a little closer in, but demand
07:09is very strong.
07:10Let's talk about M&A. Okay.
07:12Let's talk about EasyJet. So EasyJet, for those that know, is a low-cost carrier based in Europe.
07:19Castle Lake, we understand, has made an approach. The details of it remain sort of fairly opaque at this point
07:25in time.
07:26You have some experience in working with them. We've obviously seen what the SAS deal did and how you managed
07:33that process.
07:35Air France was the first name that came to mind when I heard that they were involved. You came to
07:40mind.
07:41Any conversations with Castle Lake? Any interest? Are you in any way involved in this process? What's happening?
07:46No, we're not involved. Is there any interest? It's not something we've given much thought.
07:51I mean, EasyJet is a very impressive airline. They've had a fantastic history in how they've developed.
08:01They've got some great positions in Geneva, London Gatwick, etc. So it's very attractive.
08:07And their market cap is low. So it's no surprise to us that there's a party or there's a group
08:11that's looking at buying them or buying a portion of them.
08:15Not a surprise to us. Castle Lake is an excellent private equity firm as well. We had and still have
08:21a great experience with them in SAS, as you've just said.
08:24So it's not surprising to us. But we're not involved in this transaction.
08:27But your sense would be that the market is undervaluing that business right now, undervaluing the slots in Geneva and
08:33places like that, undervaluing the slots that they have for Airbus aircraft in Toulouse.
08:37Your sense is that that is being undervalued at the moment, hence why we're seeing the interest.
08:42Well, the slot portfolio is quite impressive.
08:46The number of slots they have at Gatwick.
08:48I mean, they've got some new slots at Linate that they gained through the remedy slots that Lufthansa had to
08:54give up with the purchase of ITA.
08:57And even what they have at Orly in Paris is a little uncomfortable with the position they have in Orly.
09:04So it is impressive.
09:04So if Castle Lake came to you, you're sounding like you would be, you think this could be an interesting
09:11opportunity.
09:11If they came and wanted to talk to you, you'd pick up the fight.
09:14Oh, yeah, for sure. Yeah. And I would expect all of our competitors to do the same.
09:18OK. But, yeah, I don't think IAG would work very well, but I could see Air France won't be working.
09:24Do you expect the call? Do you think they're going to come to you?
09:27I think, I don't know. I mean, I guess that's that question to Castle Lake.
09:32It feels like it's a fairly early stage in the process.
09:33I think so. I guess so.
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