AFRAF - Air France-KLM SA (AFRAF) Q2 2023 Earnings Call Transcript

2023-07-28 16:30:24 ET

Air France-KLM SA (AFRAF)

Q2 2023 Earnings Conference Call

July 28, 2023, 02:30 AM ET

Company Participants

Benjamin Smith - CEO

Steven Zaat - CFO

Anne Rigai - CEO, Air France

Marjan Rintel - CEO, KLM

Conference Call Participants

Harry Gowers - JPMorgan

Andrew Lobbenberg - Barclays

Jarrod Castle - UBS

Stephen Furlong - Davy

Sathish Sivakumar - Citi

James Hollins - BNP Paribas

Johannes Braun - Stifel

Conor Dwyer - Morgan Stanley

Muneeba Kayani - Bank of America

Neil Glynn - Air Control Tower

Sumit Mehrotra - Societe Generale

Achal Kumar - HSBC

Yan Derocles - ODDO BHF

Presentation

Operator

Good morning, and welcome to the Air France-KLM Half Year 2023 Results Presentation. Today's conference is being recorded. [Operator Instructions]

At this time, I would like to turn the conference over to Ben Smith, CEO; and Steven Zaat, CFO. Please go ahead, sir.

Benjamin Smith

Okay. Good morning. Thank you, operator, and to all those, who've called in today. Good morning, and thank you for joining us today for this presentation of the Air France-KLM Group's results for the second quarter of 2023.

I'm here with Steven Zaat, CFO of Air France-KLM; Anne Rigail, CEO of Air France; and Marjan Rintel, CEO of KLM. All of us will take your questions at the end of this presentation.

As usual, I will start with an overview of the quarter's highlights, after which I will give the floor to Steven for a detailed presentation of our results and the outlook for the next quarters. This will be followed by a short rundown of the contemplated financing we announced yesterday.

Before I begin, I'd like to thank all of our colleagues across our Group for the hard work and dedication they continue to display, especially during this busy summer season.

Turning to Slide 3. Air France-KLM delivered a solid performance in Q2. We carried 8% more passengers compared to the same quarter last year, thanks to a strong and sustained demand for air travel. The increased amount to nearly 2 million more passengers and translated into a 14% growth in Group revenue versus last year for the same quarter.

We posted equally strong numbers in terms of profitability. Our operating result improved by €347 million compared to Q2, 2022, and our operating margin grew to a historical level of 9.6% for the same period. We also generated positive cash flow with the Group's adjusted operating free cash flow amounting to €600 million.

Last but not least, we continue putting a lot of effort into restoring our equity through quasi-equity financing, which Steven will cover in more detail in a few minutes, and we stayed the course of deleveraging the Group from last December to the end of June, our net debt-to-EBITDA ratio dropped from 1.8x to 1.2x.

Turning on now to Slide 4. One of the main reasons we enjoyed such strong momentum in the second quarter was our ability to significantly improve the robustness of our operations at our main bases. We have been delivering better quality service more consistently despite carrying more passengers and contending with external factors.

First and foremost, I'm very happy to report that operations have remained steady at Amsterdam, Schiphol since the holidays in May. Also, we implemented continuous improvements to our operational processes that are helping us now feedback loops across the board and manage resources more agile.

More ever, we set up multiple initiatives with our partners aimed at strengthening our operations and customer care moving forward from bulking up the baggage flow, especially for connecting flights to tooling ourselves for a seamless customer journey. And we reinforced our training programs for both our internal and external staff to harmonize the quality of service we deliver and added close to 3,000 FTEs in temporary and permanent staff to our organization since the beginning of 2023.

Turning now to Slide 5. Our commitment to deliver on our customer promise did not waver in Q2 with continued investments and improvements. June marked KLM's first flight with our new state-of-the-art world business class seat on a Boeing 777 aircraft and the new premium comfort cabin is now available across the entire Boeing 787 fleet at KLM.

Air France continued to roll out its improved new business and premium economy cabins onboard select 777 and A350 aircraft. Air France also launched new in-flight entertainment content on its long-haul flights and both airlines improved their in-flight dining experience through new exclusive initiatives.

I resolved to honor our customer promise once again earned us the recognition and accolades of SkyTrax and APEX. During Q2, Air France and KLM were both certified as Five Star Airlines by APEX. APEX also rated KLM, a world-class airline, along with only seven other airlines in the world. And Air France was voted Best Airline in Western Europe by SkyTrax and it moved up a spot from 8 to 7 in the SkyTrax World Airline rankings. We're extremely proud of these results, which speak to our team's unflagging dedication to excellence, and I want to commend them for their hard work.

I'll now turn over the floor to our CFO, Steven, who will go into more detail about our results for the quarter. Steven?

Steven Zaat

Thanks, Ben. Good morning, everybody, and thanks for taking the time to listen to us.

As you can imagine, I'm quite happy with the results. It's an historic result. We are beating our best result of the Group in 2017, where we were just below €500 million, and we are above that. And if you see, where we are today compared to where we were just before the crisis, in 2019, in Q2, we had a result just above €400 million. So we are very pleased with these results.

Let's start with the revenue side. So of course, we increased further our capacity with 8%, which brought €560 million in terms of revenues. And at the same time, we were able to increase further our load factor. So 3 points up further, bringing an additional €200 million to our revenues. And we could further increase the yield with 2%, which brought €137 million.

There's a difference between cargo and passenger business, I will come back on that later, but let's say, we had fairly good performance on the pass, and cargo is actually coming to normal levels. So we see a unit revenue, which is still 10% above 2019, but more than 40% drop in unit revenue per ATK.

If we go to the cost side, then actually, there are three aspects. Actually, we grew. So the growth brought, let's say, the €500 million. And if you look at the two elements, which impacted our cost, you have the fuel price, and we have the unit cost excluding fuel price, and that is actually very well showed on the graph on the right side.

You see that actually, the fuel price is compensating the unit cost increase. I will take you further through this unit cost increase because we are currently actually at the peak of the increase because last quarter, all the inflations, and we didn't increase the salaries with new CLAs.

So the storyline is actually unit revenue were up €360 million, fuel price drop coming more to normal levels. In Q2, we had a fuel price last year of 1,300 per metric ton. We are now more to 900 per metric ton, and it's still above 2019, which was 700 per metric ton, but we're getting to normal levels. And with keeping the yields up, we are able actually to restore or increase further our profitability. That leads to a margin of 10% and which will also lead to a net income of €600 million, which is actually contributing further to our equity.

If we then go to Slide 8, you see actually what is happening business per business. So on the passenger side, we grew capacity further with 8%. We could further increase our unit revenue with 13%. If you look at the split, it is actually coming, especially from the yield, yield is up with 10% and the load factor is further up with 2%. So that brought, let's say, around, let's say, 1/4 of this unit revenue increase. So in total, revenues increased with more than 22%.

If we then go to the cargo, it is a slightly different story, so a drop of 42%. We further increased our capacity, which is fully coming from our passenger planes. And then you see that, that has also an impact on the load factor.

So we are bringing the planes, especially to places, which are a little bit less cargo friendly, but we also see a softening into the market. So if you look at both aspects, 2/3 is actually coming from the yield, which is the softening of the market; and let's say, 1/3 is coming from the load factor, where we are shifting capacity and growing capacity on the bellies.

Then Transavia, Transavia, we grew further the capacity, and we were also able to further increase the unit revenues coming 50/50 from load factor and yield, and we have a breakeven-ish result. It was quite a tough quarter.

We had at Transavia, Netherlands, we had the problems with our fleet, and we had ATC strikes in France, so that's impacting Transavia France. But seeing this unit revenue and seeing this demand, and we will also see it later when we look at the forward bookings for Transavia, it is very promising for the third quarter, which is the peak period for our Transavia results.

Then last but not least, our maintenance division. So also in quite a tough - operating in quite a tough climate. It is especially impacted by the supply chain. And on top, we have also labor shortages, especially in Amsterdam. If you look at it, you see that we have now an operating margin of 4.4%, which is close to the 2019 levels, which was 4.7%, but we are not able actually to deliver all the shop visits at this moment.

So we are holding back actually our revenue development on third party, where we make actually our profit. So - that brings us that we are, let's say, less profitable than last year. We have quite a good margin, and we should further increase the revenue on that side.

If we then go to Page 9, you see the results of both airlines. So both airlines grew capacity with 8%. If you look at Air France, we see a very strong performance. We have to go back to 2006 if we look at the results, Air France beat the result, which ever made in the second quarter, a revenue increase of 15% and a very strong performance on our long-haul network. So coming to a margin of 10%.

If we then go to KLM, you'll see that the margin is - the operating result is actually flattish. We are still operating with what we say in that with the breaks on. So we still have a very tight labor market. We had fleet issues at KLM Cityhopper and Transavia in the Netherlands, as earlier explained. So KLM is currently actually 14% below the level of 2019. So there's still potential over there.

Then let's go to the next slide, which is Page 10. This is actually the picture over our network. So 8% increase in capacity, further increase of our load factor of 2.6% and a yield increase of 9%. You see that both premium and economy are holding strong. And what is still very promising is that we - on the premium side, we are still above the load factor of 2019. We saw strong demand on the premium side.

If you go to the long haul, you see actually on the long haul, everywhere very strong yield. If you see Asia, there you see a minus, but you have to keep in mind that the yields were very strong because we had a very low capacity in last year. So the yield increase compared to 2019 was 38%, and we are still 34% down in capacity versus 2019.

On the short and medium haul, it's more a mixed picture. So you see that we are still growing with 4.1%, but actually, this growth is totally coming from our hubs, where we grew with 6%, where actually our point to point in France, we reduced further in line with our strategy with another 14%.

And then last but not least, Transavia, almost 10% up in load factor, 4% up in - sorry, 10% up in capacity, 4% up in load factor, still slightly below 2019 because our route still needs to mature, especially in France, and you see the yield with 4.1%. We are actually up 26% versus 2019. And North America, South America, very strong. Caribbean more than 20% increase in yield, where we reduced the capacity because we had better spots to fly the planes.

Then on the unit cost. I think if you look at the graph on the unit cost, you see that in the first quarter, if you take out furloughs, our unit cost, excluding fuel price and excluding currency, was up 0.7%, but that was with the growth of 20%. In the second quarter, we grew only 8% because actually, the second quarter last year was already after-COVID period.

And actually, that is for us the peak in terms of unit cost because all the inflation actually kicked in actually more in the third quarter, in the fourth quarter, especially on the fourth quarter because then the new CLAs, where there - we had a new CLA at Air France, which was actually starting in the salary cost of November 2022, and we had a new CLA at KLM, which started in October 2022.

So we increased from that moment, let's say, with around 5% to 6%, our cost levels. And we closed the CLA in France now - for Air France with 3% in March. So the increase of our salary cost is actually kicking in, in the fourth quarter last year. And you see also year-over-year that the increase in the fourth quarter is much less, and we expect to have low single-digit unit cost over the full year.

If you go to the right part of that slide, you see that - you should actually see there are two impacts. One, we decreased slightly the capacity, but that still has, of course, an impact on our unit cost, then the profits are beyond our own expectations. So because the profits are beyond our own expectations, we increased the profit sharing, which we share with our staff.

And then also the fact that you have a load factor, which is higher than actually anticipated, you will see that your costs are going up because you have catering and all kind of passenger-related costs. So if you look at this non - what we call non-structural or compensated results, it's around 2% of the impact of our unit cost.

Then there are more structural increases. That is, of course, the salary. So we are done totally on Air France and Transavia France. And on KLM, we are still ongoing discussions on the CLAs, plus we have additional ETS cost because the ETS costs are going up because the, let's say, the right. We had during the pandemic, we have an average cost of, let's say, our right. So the ETS cost is in the market going up, but also we have still rights left over from before, which were, let's say, much cheaper than what we see today.

Then let's go to the cash on Page 12. So you see a very strong cash flow development, €1.3 billion coming from our operations, €1.5 million coming from the working capital, of which €1.8 billion is related to the ticket sales. And if you then deduct our investments, you see that we have an operating free cash of €1.7 billion.

And if you then also take out the payment of the lease debt, you get to €1.2 billion. So the net debt reduced to €4.9 million lower than where we ended in 2019, and that brings us at a net debt to EBITDA of 1.2x, which is actually already below our own target, but we know that the summer - in the summer, we sell less tickets than we fly tickets and a very solid cash at hand of around €10 billion.

If we then go to the outlook, it is Page 14, let's start with the capacity. So the second quarter capacity is at 92% compared to 2019. We guided yield between 90% and 95%. So we are very close to that guidance or we are within the range. But if you take exactly the mid spot, we are slightly below, but not that much.

On Q3, we keep our 95%, and for the Q4, we still expect to be above 95%. So in total, we are still at 95%. We were more at the upper range. We are still, let's say, at this range. So we expect to operate 95% for the full year, which is also I come back on it, if you go to the midterm guidance, where we expect to be in 2024 above the capacity of 2009, we are ramping up to those levels.

Then on - and that's the question, and I will get it, I think a lot probably also during the call is how do we see the winter and how do we see current bookings? Do we already see a weakening, et cetera? We don't see any weakening at all. If you look at Q3 and Q4, you see that actually, it is almost the same, as we had last year, and we're increasing capacity.

And even Transavia is now doing better than we did last year, where we increased significantly the capacity. So I look every week at this bookings report, and I sometimes ask if they didn't send a version of last week because the yields are still very strong and also the bookings are very strong. And if you look at the first three weeks of July, I can tell you it is amazing.

Let's then go to the fuel hedge. So on the fuel, as I already explained, is coming back to normal levels, still not at the 2019 levels, but we are getting to normal levels. We are quite hedged. So for the third quarter, we hedge 70%. We are almost at 60% for the fourth quarter, and we will increase that part to 70% at the end of this quarter.

So almost 70% for the - hedge for the full year, and we're starting now also to hedge for Q1 and Q2, and you see still a backwardation. We saw the fuel going up, especially oil price and the crack went up actually. But we see that still the market expectation is that it will come down in the period to come.

So on Page 17, you'll find actually the summary of our outlook. So Group capacity at 95%, unit cost, low single-digit increase and net CapEx, we stay at the €3 billion. And then we, let's say, to confirm again our midterm guidance.

So one, we will reach our operating margin of 7% to 8% in that period. We are ramping really up to that level. This year already, capacity will be back on the 2019 levels. We will see in this period, a decrease of the unit cost year-over-year. We gave a guidance compared to 2022, but we see now an impact of 2023. But in our trajectory, we still have a year-over-year decrease of the unit cost in that period.

We keep our net debt/EBITDA target of 1.5x to 2.0x, and we keep our positive adjusted operating free cash flow, excluding the exceptionals, which are the repayment of the wage tax in - for KLM and the repayment of the social charges and pensions for Air France.

Then let's go to loyalty, I hand over to Ben, and I will do the second part. Ben, the floor is yours.

Benjamin Smith

Thank you, Steven.

Okay. Let's go to Page 19 or Page 20. Let's now take a closer look at the announcement we made yesterday regarding the discussions we initiated with Apollo for €1.5 billion in new non-dilutive financing to be backed by our loyalty program. Flying Blue is a fantastic asset for the Group. It is both a source of recurring revenue stemming from third-party contracts and co-branded card activity, as well as an outstanding driver of customer loyalty. Today, Flying Blue has 39 airline partners and over 19 million card members with a new member joining every 6 seconds. 44% of Air France-KLM customers are members of the program.

To further leverage the potential of this asset, we intend to set up a dedicated and scalable Air France-KLM NewCo focused on miles issuance with third parties. This NewCo would host some of the revenue-generating commercial assets related to the Air France and KLM Flying Blue program. This would allow it to raise financing through perpetual bonds issued to third-party long-term debt investors, which would positively impact Air France-KLM's equity. So that's a quick highlight here.

Steven will just go into a few more details on the mechanics of this contemplated transaction.

Steven Zaat

Yes. So if you go to Slide 21, let's first start, and I think that's very important, there will nothing change for the members, there will nothing change for the staff. We don't sell any assets, and we don't change any ownership construction. So what is actually happening. It is an internal reorganization to actually create quasi-equity. So actually, we kill two birds with one stone. First, we optimized our structure regarding the third-party contracts. This structure is already done by all European competitors. So Avios, we have at IAG. We have Lufthansa Miles & More, which is just one entity, let's say, at the Group level.

Then the second one - the second part is that we use this structure to put a hybrid bond in place actually to solve our equity gap. Actually, this is a structure which is in place at almost all U.S. carriers. They use it actually to finance the company by securing the stable revenue stream coming from the third-party contracts, which is related actually to, let's say, for us, for instance, for American Express or for Accor or for Hertz.

So those kind of contracts, we move those contracts to a group entity in NewCo, and we will move the Flying Blue trademark to the NewCo. But in the airline stays the full ownership of the Flying Blue database. And as I said, there is no change on any social aspects or operation vis-a-vis the Flying Blue members.

When we have moved these revenue streams to the Group, we will in provide cash actually to both airlines, which will improve further their equity. And at the same time, we have an operating agreement between NewCo and the airline to formalize that has access to the Flying Blue database and for the services provided from their staff. So the third-party contracts are in this NewCo. It will be a dedicated loyalty company, which ensure that we can further scale this business. And secondly, it will be the entity, who will issue the miles. And in that entity, we will put a hybrid perpetual bond.

We are currently going into exclusive negotiations with Apollo for an amount of €1.5 billion, where we have a fixed coupon, where we actually have this entity, the revenue stream is actually generating the cash to pay that coupon. So that's actually what we are doing. It looks like a revolution, but actually done at all the other airlines groups, and also, let's say, in all the American carriers to use it as a finance structure to finance the company. So with that, and we already did €500 million, we closed just this week, the deal on the MRO side with Apollo. We are solving actually the negative equity situation in our Group.

Then I hand over to Ben to walk us through to the conclusion and to our very ambitious sustainability trajectory.

Benjamin Smith

Okay. Thanks, again, Steven. So just quickly here on the last few pages, Page 23. So before wrapping up, I'd like to highlight some of the progress we've made on our sustainability road map. As you know, the two main leveraging tools at our disposal to decarbonize our operations, like all other airlines, our fleet renewal and the increased use of sustainable fuels. We've been very active in developing innovative projects in partnership with major players in the sustainable aviation fuel or SAF supply chain.

For instance, we signed a deal with EDF, Engie and Elyse Energy to support ongoing projects to develop a French e-fuel industry dedicated to air transportation. We also continued to secure SAF volumes with our existing partners and signed procurement contracts with new partners to further expand our supply sources.

Quarter after quarter, we strive to make tangible progress in sustainability. This applies, of course, to our environmental road map, but also to our corporate governance and our approach to internal social issues. I'm pleased this progress is being recognized by independent third parties, as was the case again in Q2 with S&P awarding our Group, an ESG score of 65, up from last year, which places us among the solid performers amid our peers in the airline industry.

To conclude this presentation, I'd like to briefly underscore again some of the Group's major achievements during the past quarter before looking ahead to the rest of the year. So business momentum remained strong throughout Q2.

We delivered yet another set of strong results, thanks to the unabating increase in the number of passengers carried, high load factors and strong yields across the majority of our network. We posted double-digit growth in our revenues and a record operating margin. This solid performance translated into a robust cash flow generation, allowing us to further deleverage the Group.

In this favorable environment, we succeeded in demonstrating operational efficiencies. We worked hard to bolster our capacity to cope with steadily increasing passenger flows since the upturn in traffic. Further operational initiatives are in the pipeline for the near future. These will help further consolidate our operations and nurture the trust of our customers.

I'm also very pleased with the significant progress we have made in further restoring our equity and consolidating the Group's balance sheet. Non-dilutive transactions we announced and carried out not only increased our equity level, but also highlighted the exceptional value of some of our assets.

Looking ahead, we've made good reasons to remain optimistic for the second half of the year. We will continue to increase our capacity to meet an ever-increasing travel demand. As Steven mentioned, we expect to end the year at 95% of our pre-pandemic 2019 level and to return to 100% capacity during next year 2024.

Sales momentum for the upcoming quarters is encouraging, and we are seeing a good level of post summer bookings still in a strong yield environment. As demonstrated by our planned Flying Blue transaction, which we announced, again, yesterday, we are relentlessly pursuing our efforts to sustainably restore our equity and strengthen our balance sheet by focusing on non-dilutive initiatives.

Putting the Group back on a solid financial footing is essential to ensure we emerge stronger from the pandemic and play a leading role in the competition for European leadership. This goes hand-in-hand with our sustainability road map, which is a core component of the Group's strategic agenda.

In the coming months, we'll see the arrival of additional next-generation aircraft, along with a further acceleration of SAF procurement contracts. A final word to let you know that we'll be hosting an Investor Day on November 7th in Paris. We hope to see many of you in attendance.

So with that, thank you, and we'll now take your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question today comes from Harry Gowers from JPMorgan. Please go ahead.

Harry Gowers

Yes, good morning, thanks for the time. The first one, just focusing on the ex-fuel cost guidance in terms of the drivers that you mentioned on the cost increase on Slide 11. Would you be able to maybe split out and quantify the different moving parts in terms of what's actually causing the increase of a few percent year-on-year versus flat previously. And Steven, I think you mentioned on yields, you gave some comments that the first three weeks of July were amazing. So if the yields were 25%, 26% above 2019 in Q2, could you maybe quantify how amazing they were versus '19 in those first three weeks of July? Thanks.

Steven Zaat

Yes. So let's start with the unit cost. If you look at the unit cost, I think I already explained that the non-structural part is around 2%. So I can - yes, let's say, the main part of that 2% is, let's say, 70% is in the capacity decrease and the other ones in the increase in profit share and the load factor. So that is more or less the split of the low single digits, and I don't provide you any more details at the moment.

And amazing is better than what we see in the second quarter. So what we see now. So that is what we see. But we are just three weeks, and we don't guide, as you know, yield because yield will always be played out in the last week. So we see strong pricing momentum in the market, but the yield game is played by the revenue management in the last week before the departure.

Benjamin Smith

And maybe, Harry, I'll just announce - I'll just let you know a couple of other points. So on our strongest markets, the North Atlantic and the South Atlantic, if we had more capacity, we would be even happier. I mean, those markets are performing extremely well, both on the business front, but also, in particular, especially into Paris on the high-end leisure. Our premium cabins are doing very, very well with this new segment that is they are buying tickets at levels we never see.

Harry Gowers

Great, thank you very much.

Operator

Thank you. We now move on to our next questioner, which is Andrew Lobbenberg from Barclays. Please go ahead.

Andrew Lobbenberg

Hi, there. Can you talk a little bit more about Transavia and how confident you are about the inflection to the third quarter? Are the operational problems that you saw in Amsterdam and Paris, I mean, to what extent do they go away in the third quarter? And to what extent do we see revenue strength given that I think at Q1, you spoke about the challenges of inflecting Transavia France, where they are growing so quickly and moving from domestic to international? And then can we just come back to the situation at Amsterdam. I think you guys have launched a legal challenge to the plan to cut capacity. What do you think the time line is on this process? And how does that time line fit in the context of the new elections that are coming in Holland?

Benjamin Smith

Okay. Thanks, Andrew. So first off, Transavia. So this time last year, Transavia France, we had unbelievable operational difficulties this weekend, particularly going into this weekend, we definitely see a much improved situation. We've struggled since January with external air traffic controller strikes that mostly concentrated around Orly Airport, which is where Transavia has its main base, so we were disproportionately affected in Transavia.

But from a controllable growth and stabilization perspective, quite pleased with the latter half of Q2 and going into Q3, how the - how that unit is developing. The bookings, the yields, the robustness of the operation is, I mean, I would say, in some areas, exceeding what we had hoped. We are - the aircraft are coming in slightly late, but the transition of the domestic slots over to European slots, as I said, a little bit later than we had planned, but the initial plan we had in place, we're super confident that, that is the right plan, the right strategy, and we're moving as far ahead and as quickly as we possibly can.

But in terms of the overall Transavia France strategy, we're still sticking to it, and we see no reason to shift from it. But as I say, we can't move capacity out of domestic France faster than what we currently do. We would love to go faster, but it's a challenge. We have new management at Transavia France that has a little bit more experienced in growing an operation as quickly.

We're happy with the cost structure, so let's - let's continue to do that. And I think after Q3, hoping that we'll have even a better story to tell to Transavia, the Netherlands. After a difficult Q2 operationally, we now see that things are getting back to normal. And here again, we believe that going forward, we should see a return to normal and a full - taking full advantage of the positive and strong demand environment in the Mediterranean basin.

And on the second question you have regarding Schiphol, I'll let Marjan take that one.

Marjan Rintel

Yes. We started cassation because the verdict in the appeal was really unexpected for us and creates a lot of uncertainty. The judgment will like - will not likely have impact on the winter season, probably on summer season. But first, it's unclear, and it creates operational uncertainty for all the airlines flying from Schiphol.

Part of the decisions are not motivated at all. And if motivated, there are - these are not done fruitfully. So that's why we started the cassation because we need to make sure for the future, what it means. Otherwise, it will create a negative precedent, not only in the Netherlands, but also in Europe. So that's the first part of the question.

The second part, in regard to the government, the government, the parliament will decide in September, which topics they still will discuss, which topics will be controversial. So we need to wait until September to have clarity on this.

Andrew Lobbenberg

That's very messy. Thank you, though.

Operator

Thank you. And we're moving on to our next questioner, which is Jarrod Castle of UBS. Please go ahead.

Jarrod Castle

Thank you. And good morning. Three as well. Firstly, just on TAP, again, coming back to that, it seems like the process kicking off. Are you still interested? And if so, what would you now say about the strategic rationale? Secondly, just on conversations with rating agencies, you've obviously got through now 1.2x net debt/EBITDA. Interested how they view quasi-equity and how conversations are progressing? And then just MRO, is there anything you can do to improve the situation at the moment? How much is in your control? Or how much is linked to the OEMs? Thanks.

Benjamin Smith

Okay. Thanks, Jarrod. So on TAP, so our position is unchanged, and our views are unchanged. So more than 1/3 of the TAP long-haul destinations, they don't overlap with Air France-KLM. So we're very, very interested in their big position in Brazil and some of the unique African destinations. We're very strong in Africa, Air France. So these would - their African network along with just the extensive Air France Africa network would put us in a great position. There are 11 destinations to Brazil, along with our position from Amsterdam, Paris and Brazil, we're pleased or we would be pleased to the improved position that - that would put us in.

The - we believe the product is solid. They've gone through an excellent transformation. The margins that they've recently been publishing that we see it with their southern base, as a nice complementary addition if we were to move forward on such a transaction would fit quite well. So depending on the conditions, depending on what the Portuguese state puts out as those minimum requirements, we are following it closely, and we're interested, and we'll see how it plays out.

So for questions - your question number two and three, Steven is just next to me, we'll have him take those.

Steven Zaat

Yes. So on the rating, as you know, we are contemplating that. So I cannot give any - disclose anything on that side at the moment.

For the MRO, it is - if you look at Air France Industries, it is specifically dedicated to a topic of the blades of the GE90, and we are in heavy discussions with GE. So when that situation is solved, then we will restart fully our, let's say, production speed in the engine shop. At KLM, it is more related to labor. There are also - it's also related to the supply chain, but it is also related to labor, and we are - we are having recruited quite a number of labor. So I think that will stabilize in the periods to come.

Jarrod Castle

Thank you.

Operator

Thank you. And up next, we have Stephen Furlong from Davy. Please go ahead.

Stephen Furlong

Hello. Good morning. Yes, two questions. I think they're mainly for Ben. But just generally, maybe some color, do you think that the very buoyant strong revenue environment, do you think it's more to do with pent-up demand or the real supply constraints in the system or the great initiatives you guys are doing particularly Roissy Charles de Gaulle, in terms of point-to-point traffic and the product sets? Or is it just a combination of all 3?

And the second thing, can I just ask about sustainability and the excellent work you're doing there. I know do with ETS. I know that ICAO Assembly were saying that the - if the CORSIA scheme wasn't strengthened or there wasn't - if there was an insufficient number of countries implementing it, commission would propose that all flights apart in the U.K. would fall under ETS in 2027. I know it's a while away the emissions trading scheme. So potentially long haul would come into scope for ETS, and I was just wondering do you agree with that? And does that worry you? Thank you.

Benjamin Smith

Okay. So following on Steven, given our view of how things are playing out. All of the things you mentioned there, pent-up demand, I think people prioritizing travel ahead of some of their other, where the disposable income sits. We're still absolutely amazed the number of people that are inbound into Europe from some of our biggest markets, in particular, the United States. And as I mentioned over the last quarters, buying premium cabin tickets and the elasticity demand from these particular segments is different to what we're seeing with others.

And as I said in previous calls, I don't know, if you followed the hospitality industry here in Europe, it's obviously across the whole spectrum here. So we - as of today, we don't see any changes in this demand. Obviously, we look at this very, very cautiously. We've got a lot of flexibility when it comes to pulling down demand if things do change. We are going full out at both the full-service carriers in terms of buying all the airplanes we have at full capacity, ensuring we have enough pilots.

But if there is a slowdown in this, we do have a lot of unencumbered wide-body airplanes. There are some delivery delays, as you may know, from Airbus and Boeing. So we're taking advantage of some of the airplanes that were supposed to exit to ensure we can fly the planned schedule. Same thing on the narrow-body. But no, I don't want to be too positive on this. I'm always careful with my optimism, but 33 years in this business, to see a rebound like this, we're quite positive on it.

On the environmental front, I've got Anne Rigail and Marjan Rintel, as I mentioned in front of me. But overall, what we are pushing at the EU is for a level playing field in any strategies that come out or any policies that come out. And so far, what we're hearing from the regulators is, I would say, what we'd like to hear that there is an understanding of how important that is for European airlines.

Obviously, there's a lot of talk about how rules could be tightened or charges could be added to what's already in place, but the level playing field, which is so important for us against our international competitors seems to be holding. And as of today, we don't see anything yet, not to say that it wouldn't happen that could put us at a disadvantage to some of our international competitors. But if Anne and/or Marjan would like to perhaps add one or two other comments going on sustainability?

Marjan Rintel

Yes. On sustainability, we're quite proud that Air France-KLM to be pioneer in the use of sustainable aviation fuel above the acceleration of the fleet renewal that you know. We noticed that last year, we used 17%, 17% of the global worldwide sustainable fuel, which is quite a lot for our size.

We are also committed to go above the mandates that we had in France. And by the way, KLM is doing the same without any manic. So above the 1% that we need to put in our aircraft, and we are committed also to go to 10% SAF by 2030, which is a lot given the current market. So we're fighting as Ben provided you all the companies that we - with whom we secure some sustainable fuel. So strong commitments.

Our strongest worry, as Ben mentioned, is to keep a level playing field because the mandatory - mandate - the mandates of sustainable fuel are only for European airline depart - are mostly for European Airlines departing Europe. So we fear that it could create some discrepancies on travels that can be disrupted by some airlines like Turkish Airlines. We thought that are right near to Europe.

And in that sense, we think that CORSIA ensures at least a level playing field. At the moment when we see the pressure on our cost of ETS of future SAF, CORSIA is really marginal, but we think the relegation should become more and more worldwide, so that we ensure a level playing field and that's what we tell to European regulators.

Anne Rigail

Maybe one. Marjan, we are on the same page. Maybe one thing to add. We submitted our view in the Netherlands for a balanced approach for more cleaner, more silent and more economical way of the reduction of flights, but at the same time, reduce noise with 20% in a better way than the government is proposing with fleet renewal and all kinds of operational measures.

Stephen Furlong

Very good. Thank you.

Operator

Thank you. And we're moving on to our next question, which comes from Sathish Sivakumar from Citi. Please go ahead.

Sathish Sivakumar

Yes. Thank you. I actually got two questions here. So firstly, on the premium traffic recovery, right? So obviously, you've seen strong momentum on TransAtlantic with now Asia/China opening up. What are you actually seeing on that part of the network? How does it actually compare versus, say, Transatlantic, even both regards to booking goes and then the load factor as such?

And the second one is on the asset monetization. Obviously, you talked about engine and then loyalty program with those two being done. What else do you have like - have in the pipeline for further monetization? Or are we done with most of the program here? Thank you.

Benjamin Smith

Okay. Thanks, Sathish. Okay. On the Pacific China, which was very, very restrictive in allowing capacity into its market throughout COVID. And quickly, just recently, abruptly removed the bulk of those restrictions. So we quickly put in place capacity. We are now operating daily flights from Amsterdam and from Paris into Beijing, Shanghai, New Delhi into Hong Kong and we put those flights in relatively last minute, and the demand for those and the bookings for those are far exceeded what we expected. So those flights are going out full this summer at strong yields despite the fact that we are not flying over Russia and the costs are higher, but the yields we're putting in the market more than being absorbed.

We're back in Tokyo-Haneda and Tokyo Narita, so plus all the Southern Asian destinations that we were serving prior to the pandemic. So we don't have the capacity levels back to where they were. We are going, as steady as we can. We don't see the rebound happening, as quickly as North America, but it is rebounding. But obviously, we have much more competition to that part of the world before the crisis and even now.

But we don't have the capacity levels back to where they were in 2019. We are gradually getting there, but we're following the - I'll say pent-up demand, but the return to demand levels that we had for 2019. So it's - I think it's positive. We don't see any surprises, which is quite. It's new for us not to be over flying Russia. We're taking the assumption that, that will be in place for the rest of this year and for next year.

Sathish Sivakumar

Thank you, Ben.

Steven Zaat

Sathish, I will still answer the question on the asset monetization. So we have an equity of €2.2 billion before actually the deal which we closed on MRO. So that was €500 million. So when this loyalty deal will be come to a conclusion, so if you get an agreement with Apollo, that will be another €1.5 billion, so with the €2 billion, we close the equity situation because, of course, we will have a net result also this year. We have no other plans to solve, because it's solved.

Sathish Sivakumar

Okay. Yes, thanks for the clarification.

Operator

Thank you. And we are moving on to James Hollins from BNP Paribas. Please go ahead.

James Hollins

[Foreign Language] Air France wages looked pretty good to me in terms of the deal you've done there. I just wanted to follow-up on Harry's question about the costs. I assume you're going to say now we've told you everything, but I'm just myself a little bit surprised that the cost guidance has moved. Obviously, you talked about the wages in October, November last year, the Air France deal felt okay to me. I suppose I'm afraid that where is the surprise and obviously load factor higher getting that capacity tweaked down very slightly. Just wondering if there was any other cost pressures we should be thinking about whether you're factoring in not a significant KLM wages increase?

And then to follow up on the Apollo deal, should we be assuming a 6.9% coupon like the MRO deal you did with them? And then, is there anyone in the real world that actually looks at quasi-equity as anything other than debt, and Apollo having €2.5 billion of quasi-equity might have some sort of ownership issues, I would assume not, but [I thought, I'd ask]?

Steven Zaat

So coming back, so indeed, the CLAs were no surprise. But as I told you, the capacity and the load factor that came to a surprise and with the profit sharing, which also the high profit also came as a further surprise, that is around 2%. And then, we have also an impact of the supply chain. So that is actually in our external M&A - sorry, engineering and maintenance revenues, and that also has an impact on the net cost because we always talk about net cost, including those revenues. So those three elements. So I agree with you, the CLA is not a surprise at all.

Then on the - I don't disclose the coupon. We - of course, we have an agreement over there, but we first need to finalize it before I can disclose it. But we will not sign a deal if we are not happy with it. So I cannot give you any further information. And on the ownership, there is no ownership. It's just a quasi-equity bond. That's it. There's no ownership. They don't have any stake in this company.

Benjamin Smith

And maybe one last make about wages at both airlines, in particular, at Air France, there is a significant number of older employees, older population of the employees that are exiting. So we do have that effect as well.

James Hollins

Okay. Thanks.

Operator

Thank you. And up next, we have Johannes Braun from Stifel. Please go ahead.

Johannes Braun

Yes, thanks for taking my questions. Two for me. First one, sorry if I missed it, but can you give us the reason why you actually reduced - slightly reduced the capacity guidance for the network airlines, you said 90%, I think previously it was 90% to 95%?

And then, secondly, maybe related to the first one. You mentioned the bottlenecks and staff shortages in your MRO segment, holding you back to grow the business. To what extent those - does those bottlenecks, not only, I guess, in your own MRO business, but also in the broader supply chain of the industry holding you back to grow?

Benjamin Smith

Okay. So Johannes, I'll take the first one here on the capacity guidance. So it's - we've been working extremely hard to get to - get back to 100%, as quickly as possible. As I mentioned earlier, there are a few aircraft delays that we've been experiencing across all of our airlines, both long haul, short haul and regional. We've managed to cover the bulk of those, as I said, with the airplanes that were supposed to exit, as well as a few wet leases on the medium haul. So that's put a little bit of pressure there.

Also with the supply chain being tight, some of the airplanes we had in line and heavy maintenance have been slow to exit. And then the last point being because some of the supply chain items that we need to run the operation, effectively have forced us to add more backup aircraft in the fleets to ensure that the operations run smoothly. So the airplanes are there, the pilots are there. We're just - we're dealing with supply chain, and we're dealing with overall strains on the operation.

Steven Zaat

Yes. Hi, Johannes. So on the bottlenecks in the supply chain, I think it's a general problem. It is not only for us. It's not only the G90 related everywhere in this segment industry. You have seen also the delay of the planes for us. It's relatively well, but it is quite difficult for this whole, let's say, industry to come that quickly back on the capacities, where we want to be. So I think it's a broader problem. It's not only for us.

Johannes Braun

Thank you.

Operator

Thank you. And our next question comes from Conor Dwyer from Morgan Stanley. Please go ahead.

Conor Dwyer

Thank you very much. The first question is actually back to CORSIA. So just on that, if indeed it is marginal in terms of costs, do you think that, that actually increases the risk that ETS itself is extended to include long haul emissions?

And then secondly, Ryanair obviously commented the other day that they were seeing some slight weakness in late booked fares, but clearly you guys and IGA aren't of calling that out today. And I'm just kind of wondering what the differences here. Is it a business exposure mix difference? Is this - are you seeing some slight weakness in short haul, but that's just less relevant for you? Interested to hear your thoughts about this?

Marjan Rintel

Yes. Of course, that is exactly what we tell the European regulators that everything about long haul should be put in the CORSIA regulation because, again, ETS is not ensuring a level playing field towards the hub that are near Europe, like Istanbul or Gulf hubs. So that's, I think they understand. We give a lot of examples.

For example, if you go from - at the moment from Nice to Singapore, you can go via Paris, so you can go via Istanbul, and it can bring a sharp difference given the European mandate of and the SAF mandate of more than €100. So I think that more and more regulators are understanding that they must ensure a level playing thing for the European airlines.

Steven Zaat

Yes. And then, almost Ryanair, Ryanair is usually pessimistic. Let's start over there. They predicted that the high inflation would have an impact on the residual income of people, and they will not fly on legacy carriers and see what our yields and demand is today. So I don't know what they are seeing, but we don't see any drop in the bookings and in the yield.

Conor Dwyer

Great. Thank you.

Operator

Thank you. And up next, we have Muneeba Kayani from Bank of America. Please go ahead.

Muneeba Kayani

Good morning. So I just wanted to follow up on the Apollo financings. If the structure of the recent one is similar to the previous one, from what I understand, the coupon is fixed for three years and then it steps up. So how are you thinking about the financings in three years' time, as those coupon step-ups come through?

Secondly, just on your medium-term guidance, you have unit cost expectations to come down in '24, '25. How confident are you about reaching those? And what could be potential risks to that? And if I may ask a third one, actually, on loyalty and the slide there, that's very interesting. Can you give us a sense of what EBIT contribution you've had from loyalty and the revenue growth you've seen there and what your expectations are? Thank you.

Steven Zaat

Thank you. Let's first start with the financing. So you know that this tool is actually used to bridge the gap between the net result generation in our equity. So we have, let's say, three years to four years in terms of when there's actually the call date, and we are confident then that we have a positive equity at that moment. So that is the moment to review it.

As you have seen, the coupons are not that debt and even if the coupon goes up, that increase will be especially used to pay down the principal. So we have quite an interesting deal over there. So we will make the call, of course, at the moment, it is the call date, but we have in our trajectory sustainable net result generation to pay off these coupons.

Then on the unit cost, the unit cost, there is still further growth, so there's still further growth to come. We know that KLM is actually operating with the brakes, and we are continuing our transformation plans, where we have dedicated groups working on transformation, and we have dedicated plans. So we are quite confident on that side. And then on the loyalty, I cannot - I will not disclose the EBIT contribution, but it is quite significant. That's also why we can put such an instrument in search in NewCo.

Operator

So moving on to our next question now, which is Neil Glynn from Air Control Tower. Please go ahead.

Neil Glynn

Good morning. I'll keep it to two questions, please. The first one on corporate traffic. Just interested in your thoughts, as to whether we're at full recovery or normalized corporate traffic at this point, people worry about how demand move into 2024, might there be an additional step up in corporate traffic? Or are we effectively there now?

And then on the MRO side, we've seen a 12% operating margin in the second quarter following a couple of quarters of only 4%. Can you give us a bit more detail in terms of whether MRO is probably recovered from a margin perspective or whether we should expect that to remain volatile for the foreseeable future? Thank you.

Benjamin Smith

Hi, Neil. On the corporate traffic demand, it continues to edge up in all of our sectors, with the exception of the domestic French market, which continues to be very far from where we were in 2019. We see decreases in demand, and we're pulling capacity accordingly. But what's different with the Air France-KLM versus some of our other European long haul competitors is even prior to the crisis, the leisure component of our premium cabins was much more important.

The percentage was higher because of the stronger demand in leisure. That balances out quite nicely with the corporate traffic that we're purchasing tickets in our premium cabins. So we're not there for 2019 levels. It is slightly improving. Obviously, right after the crisis, we saw a big step up towards the levels that we enjoyed in 2019, but it's not like our competitors. We're not seeing 100% as of yet. And we believe in France, we will - we probably won't - well, we're not going to get there.

Steven Zaat

Yes. And then on the maintenance side, I don't think I said 12% margin, but maybe you mean the decline in results compared to 2019. So I think on the margin side, we are getting close to the 2019 levels. So in 2019, we had a margin of 4.7% in the second quarter. In this quarter, we had 4.4%. So when we grow further our external business and when we don't have, let's say, the supply chain issues in our engine shop and also in our component shop when external revenues grow, then also our operating income will grow because that is where we make our profits with our MRO business. It's not so much on the internal business.

Neil Glynn

And just actually on the MRO side. So you've got a pretty Slide 8. You've got an operating result of €46 million and revenues of €384 million that's why I'm getting the 12% margin?

Steven Zaat

Yes. That is because the revenues are only the external revenues, and the margin increase, also the internal revenue. So what they supply, let's say, to the airlines, Air France and KLM and also to Transavia. So the 4.4% is actually the margin over the total. And the margins on external is still very good, but we don't the size - the revenue size that needs to come back to the 2019 levels.

Neil Glynn

Great. Thanks Steven.

Operator

Thank you. And next up, we have Sumit Mehrotra from Societe Generale. Please go ahead.

Sumit Mehrotra

Thank you. So I would like to know that why - what's driving you to change your medium-term unit cost outlook from minus 1% to minus 4% earlier? How should we look at this development?

Secondly, what do you think is the outlook for free cash generation for this year? Do you think you can be free cash flow positive this year? Then your question about - I have a question about your cargo outlook. I mean do you have any visibility of how things will settle into next year? Thank you.

Steven Zaat

So the midterm guidance is updated because we compared it to 2022. So that is the reason. And we still - we changed it actually because we don't want the, let's say, the impact of 2023 in it. So we still expect a cost decrease, let's say, for the years to come.

On the free cash flow, I don't guide it, but you have seen that we are significantly positive up to now, but there is still the summer to come, but we don't guide - give you any guidance on that one. So I can't give you a lot of more information.

And on the cargo outlook, I think we are, let's say, getting - we have actually reached the new normal, which is still 10% better than in 2019. But as you know, the cargo market is really a late booking market. So you can really have a - real say on yields and load factors two weeks now, maybe one week before because then the bookings are actually starting. But we have the assumption that it is exactly the same as we have seen right now on the development.

Sumit Mehrotra

If I'm just may add - ask, do you see the yields going down further into next year? Or we have already reached the bottom from what you're seeing now?

Steven Zaat

We expect that we will be above 2019. So we still keep it, let's say, we expect the levels of what we see now. So 10% above 2019. It is more or less what we expect. But again, we have not even one booking in for 2024. But I just - the analysts in the industry say, so the analysts in the industry say that still despite the fact that it comes down, that we still we be better than where we were in 2019. Due to one, there is less capacity; and second, you see more e-commerce, which has a positive impact on our business.

Sumit Mehrotra

Okay.

Operator

Thank you. Now we're moving on to Achal Kumar from HSBC. Please go ahead.

Achal Kumar

So first, going back to Asia, so basically, Asian yields have been strong, and hence the operations have been profitable despite the increased stage length. Now of course, the yields have softened according to your today's result. So just wanted to understand, I mean, how much yield decline you can afford to - for these operations to remain profitable? And I mean are you - how do you see the fares? I mean, are you sort of - is it something, where - because you need to come - you need to cope with the Chinese carriers, who are still enjoying shorter stage length, so you need to drop the fares now? Or the sales are still high, but then, of course, the booking mix has changed or so what's happening there? And how much the yield decline you can afford on the Asian sites to make the operations clearly profitable?

Second question is about the consensus. According to the consensus, I think the full year consensus stands at €1.9 billion in EBIT, which means in the second half, you need to make €1.5 billion EBIT to meet the consensus. Are you comfortable with that number? How do you see the second half numbers?

And my final question is, any thoughts around the recent development with Pratt engines, do you see that could actually - that could actually tighten the capacity further going into FY '2024, and that could help the yields further. How do you see the situation there?

Benjamin Smith

Okay. Sean might be - it was - it's very hard to hear you, but let's see if we can answer your questions. We think we got it. If we're not doing that, we could - you could reask them. But on - from what I understand you were asking about yields on Asia. So out of Japan and Korea, there where we've expected or we don't feel any concern at this moment, demand is good. Yields are good. And we're not quite at capacity, but we're moving back to 2019 levels, and that's what we have planned.

On China, it's - we're being a little bit more cautious. We're not nearly as exposed to China as some of our competitors. And just to give you an example, we had prior to the pandemic at Air France, we had before, we had five flights a day into China, and at KLM, we had four flights a day into China, and we cut back to more than half and we're finding our highest yielding customers are avoiding flying Chinese carriers because of the China [indiscernible] flight.

So in terms of yields, in terms of reaction of our customer behavior, and the significant lowering of capacity since 2019 and the fact that we have very strong areas to deploy that capacity that was there before, such as the Transatlantic, overall, the network, the impact on the market conditions in overall Asia, and particular in China, we're okay with that. It's not something that we have too much concern at the present time.

Benjamin Smith

Yes. And then on - so as you know, I don't give any EBIT guidance, but you see that we give a midterm guidance for 7% to 8%, and we are very well on that level. But that is all I can say. The third question was totally unclear for me. Sorry for that. It was probably the line. Can you repeat your third question?

Achal Kumar

Yes. Sure. My third question was about the recent issues with the Pratt engines. So I mean, do you think that could actually tighten the capacity further going into 2024, which means that - which means, you'll get a support on the deal side. That's my question. What is - what are your thoughts on that?

Steven Zaat

So do you say the Pratt engines, just to be sure.

Achal Kumar

Yes. Pratt engines.

Steven Zaat

And then you refer to the KLM Cityhopper situation?

Achal Kumar

I'm generally talking about the industry - overall industry. I mean, is the [Pratt engines issues] and further tighten the capacity down like how - what are your thoughts on that?

Steven Zaat

Okay. So my thoughts. Let's say, first, we are - we have not a very big Pratt and Whitney fleet. So we have it on the A220s. So that is building up. Those are pretty new engines. And so let's say, we are not impacted, as we have seen for the competition. And we have on KLM Cityhopper there is we have the fleet on the ground related to that engine type. But we are a small Pratt and Whitney player in our engines in our fleet.

Benjamin Smith

Yes. We don't have the - we don't have any PW engines coming on the - on the Airbus narrow-body the neos that we ordered 18 months ago. So we selected, as you may know, the CFM engine. So we will not be exposed to that with the new airplanes arriving starting this fall.

Achal Kumar

Okay.

Operator

Thank you. Up next, we have Yan Derocles from ODDO BHF. Please go ahead.

Yan Derocles

Good day. Good morning, everyone. Yes. Just have two questions left. The first one is a follow-up on Schiphol because I would say if your capacity is cut by 12% knowing that it will only be your first step in my view. Can you still continue to operate Amsterdam Schiphol, as a real phenomenon in a strategic standpoint.

And then the other one is on Flying Blue, if I understand well, you are creating, I would say, a kind of a separate entity. And I was wondering if in the near future that you might see the obviously - the possibility of a transaction that will crystallize the value of this asset?

Benjamin Smith

Okay. So on Schiphol, Yan, the - whether - how this plays out with the potential reduction in slots in the mid to long term after we go through these different processes, the cassation and then the balanced approach by the European Union. If we get a reduction in slots, this - the hub has been built up over 50 years, and each year up until the 500,000 artificial limit was put in place, and we've had steady growth through a few airplanes, few flights being added each year. Obviously, this would be a step back.

But we do have strong ability to just continue to perform very well vis-a-vis the other hubs in Europe. We have the ability to upgauge the aircrafts. We are not, we - today, we've caught on the wide-body side. We don't have that many airplanes in the top end size airplanes, and we've got the ability on the lower end to upgauge as well. Same thing on the medium haul, same thing on the bottom end. So we can maintain the same capacity level if that's the model we'd like to continue.

And then, of course, we could reduce exposure to some of the lowest yield in traffic. So we are modeling all that out. We're modeling out the different scenarios from a slot perspective. But to answer your question, can Amsterdam remain a viable hub in Europe? Absolutely. So that is - that's not something that we're concerned about is how well we position the fleet and the network vis-a-vis the potential new reality from a slot perspective.

Steven Zaat

And then to answer your question on crystallize the asset, I didn't know that saying. For us, it is a very highly profitable business, and we are - we want to be full control the program. So we don't have any plans for that. I think with this new setup, we will actually, we will optimize further, let's say, the scalability of this business, and we will keep it for Air France-KLM.

Operator

Thank you. And that concludes today's Q&A session. I'd now like to hand the call back over for any additional or closing remarks.

Benjamin Smith

Okay. Thank you to all of you for participating today and for all of your questions, and we look forward to hearing from you at the next quarter end in October.

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Air France-KLM SA (AFRAF) Q2 2023 Earnings Call Transcript