AFRAF - Air France-KLM SA (AFRAF) Q3 2023 Earnings Call Transcript

2023-10-29 20:52:09 ET

Air France-KLM SA (AFRAF)

Q2 2023 Earnings Conference Call

October 27, 2023 02:30 AM ET

Company Participants

Benjamin Smith - CEO

Steven Zaat - CFO

Conference Call Participants

Jarrod Castle - UBS

Alexander Irving - Bernstein

Sathish Sivakumar - Citi

Muneeba Kayani - Bank of America

Harry Gowers - JPMorgan

Conor Dwyer - Morgan Stanley

Stephen Furlong - Davy

Neil Glenn - Air Control Tower

James Hollins - BNP Paribas

Andrew Lobbenberg - Barclays

Presentation

Operator

Good morning and welcome to the Air France-KLM Third Quarter 2023 Results Presentation. Today's conference is being recorded.

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

Benjamin Smith

Okay. Thank you, operator. And good morning to all of you on the call. So, today we're here to present our third quarter results. And as the operator mentioned, I'm here today at our Paris headquarters with Steven Zaat, our CFO. As usual, I will start by presenting this quarter's highlights. Then I will give the floor to Steven for a detailed presentation of our results and the outlook for the rest of the year. We will then take your questions.

So, moving to Slide 3. On Slide 3, let's first focus on the group's performance for Q3. The number of passengers carried continued to trend high, up 8% versus Q3 2022, to reach 26.9 million. Over the same period, the group revenues grew by 7% to reach EUR8.7 billion. This commercial momentum enabled us to post a record operating result of EUR1.3 billion, EUR318 million more than last year for the same quarter.

The group's operating margin was up 2.9 percentage points, reaching 15.5%, with all businesses contributing to this increase. Furthermore, our cash position remains strong with EUR10.2 billion on hand, and we have also continued our deleveraging efforts and ended September with a net debt-to-EBITDA ratio of 1.1 times. In addition, we are also in a position to announce a return to positive territory for our IFRS equity, thanks to the contribution of our results and to non-dilutive financing results related to assets of our Flying Blue loyalty program, which Steven will comment in greater detail in a few minutes.

Before moving on to the rest of the presentation, I want to thank all of our colleagues for their dedication and commitment to excellence they continue to show. They enabled this solid performance possible.

Moving to Slide 4. Let's now look into the key milestones for the quarter in greater detail. The group placed a landmark order for 50 Airbus A350 aircraft for Air France and KLM to replace the group's Airbus A330s and Boeing 777-200s. These newly ordered aircraft will join both our Air France and KLM long haul fleets, with first deliveries expected as early as summer 2026. It completes the previous order for Airbus A350 passenger aircraft for Air France, all of which have consistently outperformed expectations since entry into service.

The Airbus A350s will enhance the versatility of our long haul fleet, improving scheduling reliability and capacity optimization. This order represents an additional multibillion investment and commitment to our sustainability roadmap, coming on top of previous orders for new generation widebody and narrowbody aircraft placed by the group, and it's complementary to our sustainability, aviation, fuel ambitions and commitments.

In line with our sustainability ambitions, these aircraft bring a 25% reduction of fuel burn and CO2 emissions, as well as a 40% decrease in noise emissions. By 2028, new generation aircraft will make up 64% of our fleet. Air France-KLM will be the largest A350 operator worldwide.

Moving to Slide 5. This quarter was also marked by another significant announcement where we reported an exclusive negotiations with Airbus to create a joint venture dedicated to A350 component support. This project aims to harness the combined expertise of both companies to address the highly technical needs and rising long-term maintenance requirements for the fast growing A350 global fleet.

Through this agreement, we will ensure customer satisfaction through responsive, high quality and cost effective support and service solutions, including global supply chain management, repairs and the establishment of a global pool of aircraft components. To establish a balance structure for this joint venture, both parties will each hold a 50% stake in the new entity and aircraft component assets from both partners will be transferred into the joint ventures pool. Pending approval from all relevant authorities, the joint venture should become operational by the first half of 2024.

Onto Slide 6. Finally, I believe that our steady results for this quarter should be largely credited to the exceptional service delivered by our dedicated teams every day. Can't comment on that enough. Getting through the summer here in Europe has been an exceptional challenge and I'm really, really proud of our teams.

Both our airlines have received prestigious awards. KLM was the winner of the Apex World Class Award for the third year running and the recipient of the World Travel Award as Europe's leading airline to Asia 2023. The introduction of new premium comfort cabins over a year ago has been particularly successful. Air France earned the APEX 5-star rating for the second consecutive year, along with the World Travel Awards in the categories of Europe's leading airlines, brand and first class.

Meanwhile, we have also continued to improve our operations and the quality of our services throughout the quarter by pressing on with our robust planning processes, which include, for instance, hiring new staff and increasing training capacities. The results are noticeable across various touch points of our customers' journey, ranging from Air France hub posting the best baggage handling performance ever during a high demand peak summer season, to our disruption costs dropping by 14% compared to Q3 2022 despite higher capacity.

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

Steven Zaat

Thank you, Ben. Good morning, everybody. As you can imagine, I'm quite satisfied with the results. Last year, we saw that we already were in Q3 at a level which was better than before COVID, and now you actually see that we have written our best quarter ever in our history. So with a result above EUR1.3 billion, we have to go even back to 2017, where we reached a result of EUR1.1 billion.

On top, I'm very satisfied with the signature of the hybrid financing of our loyalty program. We finally entered into a stage where we, let's say, we entered four years of a negative equity and it costed me some dark hairs who were becoming gray, to be honest. But it is much faster than what we have imagined when I actually started this job, when we had a negative equity of more than EUR4 billion. So, very satisfied that we are posting our best result ever. Very satisfied that we restored our equity in the quarter where we are now in.

So, if we go to Page 8, then you see actually that our revenues grew further with close to 7%. This was mainly driven by a higher traffic, so we had a higher capacity and we had a higher load factor. So that brought actually the revenues to a higher level. Of course, the yields were not growing as much as we have seen before because we are stabilizing actually our yields. It's a little bit positive, but it is not anymore the increase as we have seen, although it is still much better, of course, than 2019.

So if you look at the right, you see actually what's happening. Unit revenue slightly up, but we have, let's say, tailwind from the fuel price. The jet fuel was last year around $1,200 per metric ton. And we are -- we were at that moment in Q3 in 2023 at lower than $1,000 per metric ton. So that supported us. And then we had the unit cost. I will come back on that in detail. But we didn't increase, let's say, the salaries after COVID. We did it actually in the fourth quarter. So you compare a quarter in 2022 within quarter where we have increased the salaries, which is driving up part of the unit cost.

If we go to Page 9, then I'm happy to see that we see everywhere green figures except for the cargo that first start on the network -- on the passenger business side. We increase capacity by close to 5% and unit revenues are further up with 6%. So that's mainly driven by the yield. So we still see very strong pricing in the market. I spoke about amazing pricing when I had my interview with Bloomberg and we have seen that we even overachieved that because actually the month -- the weeks after were even better than what we have seen at that moment. So an increase of unit revenue, increase of capacity driving up our revenues by 9%.

Then on the counter side you see the cargo. So cargo, we know that cargo is in different spots than a year ago. But I have to keep to remind you that we are still 29% up in yield versus 2019. So capacity grew, of course, with the bellies of our passenger planes. We are at a unit revenue of minus 39% where we were in Q2 at minus 42%, so we're actually stabilizing around this level. But all in all, we improved our result with EUR240 million for our network business.

Then on Transavia, we grew further our capacity with 14%. At the same time, we were increasing further our load factor up to 90%. So that drove actually our unit revenue performance and we improved our operating result with EUR65 million year-over-year. So, close, let's say, almost to the EUR200 million for our Transavia business coming to a recovery as we were aiming for.

And then for the maintenance, a significant increase in revenues, almost 30% and we are now at a margin of 6%, which is more or less the same as what we had in 2019. So, very happy that we are delivering over there, and there's still more potential to come. We still have an issue on the GE90 production. So if that is gone, then we will further increase especially on the engine side our revenue. So very happy also with the E&M results for this quarter.

If we then go to Page 10. There, you see actually the two airlines. So both grew capacity between 5% and 7%, revenues up 6% to 7% and you see both more or less in the same size growing their results. So Air France above EUR200 million, KLM close to EUR100 million. It's good to see that we improve both results now to margins above the 15%.

And as Marjan always say, we are still operating with the break on. So if you look at KLM we are still at minus 12% capacity versus 2019, where Air France is already at minus 2% capacity versus 2019. So, although we have a record for the group, we don't have a record for KLM but the good news is it's better than 2019 when we made around EUR500 million.

If we then look at the world, so let's first start at the left side. You see the premium. We grew further our capacity with 6% that's mainly the phasing of our certain fleet and you see that we have more or less a flattish graph over there but we know that we have a benefit on the fuel. So we improved our results in the premium also.

In this quarter a strong demand on the economy. It's of course an economy season, the third quarter, with a yield up by almost 6% with a capacity increase of 4.5%. So long haul, you see holding very strong with a load factor of 91% with a 5% increase of capacity and yield increase of 6.1% and you see that still North America is holding strong, yield of almost 6% in the quarter where we already at the levels of 2019.

Then on South America, we further increased our capacity over there and we are very happy with that. We continue our cooperation with goal. So 9% increase of capacity. We know that the yields are there 37% up compared to 2019, so it is a very strong market. And despite the capacity increase and despite already strong yield, we could further increase the yield and we could further increase our load factor. Then on the Caribbean, it's a different story. We have better places to use our planes. So we reduced the capacity by 24% and at the same time we grew the yield by 25%. So we almost kept the revenues the same but with much lower cost which is good for the profitability over there.

And then Africa. Africa is a bit of a mixed picture. We know that we have some problems at the east side of Africa. But all in all, if you look at the total picture in Africa, we grew further our capacity up, we grew further up our load factor and we were able to increase even our yields with 4%.

And then Asia, yes, that is still we are far away from where we were in 2019, so 33% lower. But we grew our capacity by 50%. Also there, a very mixed picture. So if you look at China, we are at minus 56% despite the fact that we tripled our capacity. On Japan, we are still at minus 46% despite the fact that we doubled the capacity year-over-year. So, we still have more potential there to come. But Bangkok, Singapore and all these other regions in Asia holding very strong.

If you look at the medium-haul, short-haul and medium-haul growth further of 3% with an increase of yields of 2.8%. And as we have announced and Ben will come back later on that, we will further act on our domestic network in point to point in France. Transavia, as already explained, 14% up in capacity. The load factor up 2.2% and a stable yield, which is related, of course, to the steep increase of our capacity over there.

If you then go to Page 12, we guided already and I will come back on it, the market with a flattish unit -- sorry, a low-single digit unit cost for the year. If you look at the third quarter, you see that it's coming down to 3.4% exactly in line with expectations. I explained already to you that we didn't increase the salaries after COVID before October, November. So the salary increase started actually in October, November last year.

And in total, that has an impact of 2% of our unit cost. Then, because we have a good result, we have more of profit to share and that's close to 1% in terms of unit cost in this quarter because we start to record it now fully in our unit cost. And last but not least, the increase of fees, which we see everywhere, and especially at Schiphol, also contributed at 1% to the unit cost.

So we still see that the unit cost will less grow year-over-year in the fourth quarter because then we have also already in the salary increases and there is a one-time impact, it's good to know. It is the -- no, I will say -- I will not give an opinion on it, but it is IFRS that with the employee share plan, with the discount we give on the share and the contribution we give, we have to take those costs in EBITDA, despite the fact that it is a non-cash cost and that will impact probably our EBITDA with around EUR60 million in the fourth quarter.

Then on the cash, if we look at the cash on the -- up to now, it's still very positive. Of course, we know always that the summer is very seasonal. If you look at the impact of the advanced ticket, it was in Q3 more than EUR1.1 billion. We sell -- we are in an industry where we sell the tickets before we fly. So when we fly, we have to burn -- we burn a certain cash level. So the total cash burn in Q3 was EUR400 million, mainly coming from the increase in -- or the decrease of the advanced tickets.

So EUR800 million and then that results all in all that we are now at a net debt of EUR5 billion and a net debt of EBITDA of EUR1.1 billion, where also the quasi-equity financing on MRO asset contributed for EUR500 million. And we still have a very solid cash at hand, including the RCS we are talking about more than EUR10 billion.

So, let's go to the outlook on Page 15. We were able actually, and I think indeed, as Ben said, we should be very, very proud of our operational stuff, what they did this summer, because we are already at 94% of the capacity compared to 2009 (ph). We guided at circa 95% and I can tell you it was in this quarter easier to sell the tickets than to operate the flight.

So I'm very satisfied that we reached this 94%, despite a difficult context to operate. We keep the guidance as is. So it is 95% for the full year and we didn't change anything. We were guiding for the long-haul 90% to 95%, and for the short-haul and medium-haul, 85% to 90%. We expect that we are at the 90% and the 85%. So 95% building up to restoring fully our capacity in 2024 if you compare it to 2019.

If you then go to Page 16. There, you see our booking load factor. So, you see that for the long-haul for Q4, we already sold 72% of the ticket. We increased more capacity year-over-year than the previous quarter. So we have now an increase of capacity of 10% where in Q3 we only increased by 6%. So that explains also that there's still a slight gap between what we had in 2022 versus 2023 for the long-haul and for the short-haul and medium-haul. But good to see that Transavia despite the steep increase in capacity, we are able actually to sell these seats.

And we see so far, because everybody will ask, I know you will ask the question, so maybe I should already answer your question. It's difficult to tell what the yields will do in the coming period. We have seen, if you look at the bookings, we see -- we didn't see a big impact actually in the last weeks. But we don't know, of course, what's all happening in the Middle East. But so far, if you look at October, because there, of course, we have a few on the yields, we see that the yields are up with 25%.

On Page 17, you see our fuel hedging. So we give you all the full transparency on what we are doing with our fuel. So, as you can see, we are at 70% hedged already in Q4, we are at 64% for the first quarter 2024, and we will build it up very quickly to 70%. So I expect actually that in the last days, we are close to that 70% to make sure that there's no spike increase coming what's happening in Israel.

Let's go then to Page 18. So, I explained already last time this new hybrid financing. So, again, I want to repeat, there's nothing changing on the program for our customers. There's nothing changing, actually, for our staff. The airlines keep their database, but we will move the third-party contracts to an SPV at Air France-KLM level, which will be the one who will exclusively issuing the miles and will have all the third party contracts in it. So we were able to sign a deal last night with Apollo for EUR1.3 billion up to EUR1.5 billion and at quite favorable terms. We talk about a coupon of 6.4% and a financing cost of 6.75%. So I'm very happy with those financing costs. I think for hybrid equity, it is amazing to get there.

And if you now look at our exposure to interest rates, it's interesting to know of all our loans for the -- which we have outstanding 84% is actually fixed, the interest rate. Then we have, of course, the lease debt, which is for 100% fixed, and all the hybrids, the EUR3.5 billion, are all fixed. So more than 90% of our outstanding debt is fixed on the interest rate. So that makes us less vulnerable on everything what happens on the interest market.

On Page 19, we see where we were in 2019 at EUR2.3 billion. We all know what happened in 2020 and '21 that costed us more than EUR10 billion of equity due to the net results, especially EUR7 billion in 2020 and EUR3 billion in 2021. Then we did the two capital increases which supported our capital by EUR3.3 billion. We executed now, finally, all across equity financing which we have in our plans, EUR3.5 billion, and we start now to generate net profits which will support our equity with almost EUR2 billion. So we are definitely on the road. We bridged the equity gap by this quasi-equity financing, and it's good to see that we will end this year with a positive equity.

So on Page 20, it's very boring. The outlook is unchanged. I know you will ask, why don't you give any guidance on our profitability. We decided with the Board that we don't give any guidance on profitability. So we are consistent with our policy in the last quarters and also with the policy we had before COVID. Group capacity, as already explained, at 95%, low-single digit increase in the unit cost and a CapEx of EUR3 billion, which I consider as the maximum.

With that, I hand over to our dear CEO, Ben.

Benjamin Smith

Okay. Thank you. Thank you, Steven. So just ending here on Slide 22. So the season -- the winter season is about to get underway and we're working hard to strengthen our offering on selected strategic areas, offering our customers new attractive destinations and expanding our network footprint through strategic partnerships. So this winter, we'll be further bolstering our North Atlantic network with the opening of a new route from Paris CDG to Raleigh-Durham in North Carolina in the U.S. We will also be extending service to Ottawa, Canada and to Dar-Es-Salam, two destinations that have proven successful in recent months.

We are continuing to gradually rebuild our capacity to Asia, where it's projected to grow by 60% and 30% respectively for Air France and KLM, reflecting the strong demand we are witnessing in this region. And finally, we are excited Transavia will start flying to Dubai directly from Lyon and Marseille. This is a significant milestone for Transavia and it speaks to our drive to further leverage its strong growth momentum.

Looking ahead, we are also proud to announce new milestones with strategic partners. Air France-KLM renewed its strategic partnership with Etihad. Both groups will continue to build on the strong collaboration they have been enjoying for 11 years. It will provide our customers with more than 40 new routes via daily flights to Abu Dhabi, plus full compatibility with both our loyalty programs.

Finally, Air France-KLM also renewed for another 10 years its strategic partnership with GOL, and we are eager for this next chapter of the longstanding association between our two groups. This extended partnership with GOL will foster enhanced commercial cooperation to and from Latin America, notably through exclusive code sharing agreements.

Onto Slide 23, we recently announced an important strategic deal with SAS, the largest Scandinavian airline by passenger volume. Air France-KLM is eyeing up to a 19.9% non-controlling stake in SAS and is looking forward to establishing strong commercial ties with this regional leader and to benefit from a privileged access to the dynamic Northern Europe market.

SAS enjoys both a well-established position in the Nordics and a strong brand and is therefore a source of great potential for Air France-KLM. It will allow us to enhance our footprint in the region and offer Scandinavian and European travelers better connections. Looking ahead, we have the option to further increase our stake in the airline and become a controlling shareholder after a minimum of two years.

Onto Slide 24. Last week, Air France presented an important initiative to its employee representatives with a view toward adapting and securing the future of its domestic network to and from the Paris region. I'd like to spend a few moments to outline the main features of this initiative.

Air France is facing a significant decline in demand for its domestic point-to-point network, primarily due to the rise of video conferencing, a drop in business travel, and a growing shift toward rail travel, driven by government recommendations to moderate spending and practice more corporate social responsibility. Between 2019 and 2023, travel on domestic point-to-point routes from Paris Orly Airport dropped by 40%, and same-day return trips plummeted by 60%.

Although we've already introduced operational measures over the past few years to offset this rapid deterioration in activity, they are proving insufficient in view of the accelerating impact of the trends mentioned earlier. The operating margin for this business segment continues to falter and is getting worse than before the COVID crisis. We are therefore currently taking action to resolve these structural issues by offering a simplified operating model for Air France that will be put in place by 2026 at the latest.

Under this model, Air France would operate all its domestic and international flights from Paris CDG Airport, which will become the airline's main central base. Flights to Corsica will be the exception, the only exception, and will continue to operate from Paris Orly Airport in compliance with the Public Service Order guidelines by the French State. Paris Orly Airport will expand and solidify as Transavia's leading base, where we will hold over 50% of the slots.

The initiative as a whole would help Air France maintain a strong brand presence in all markets it serves and be more responsive to rapidly changing travel demand. It will optimize the use of each brand's resources, and the simplified offering should improve Air France's competitiveness.

To conclude this presentation, I'd like to briefly recap some of the group's major achievements during this third quarter. We delivered an overall very strong performance in Q3 marked by a record operating result, with positive operating margins across all businesses. This performance was driven by a strong summer demand, with all our brands offering our customers a remarkable level of service, as evidenced by the new prestigious awards and companies earned.

I'm also very pleased by the improved level of operations and quality of service we reached during the peak summer season, in particular at our two main hubs of Paris CDG and Amsterdam Schiphol Airport. Throughout the quarter, we made significant progress on our strategic roadmap.

Our landmark order for 50 Airbus A350s is significantly accelerating the renewal of our long-haul fleet with more fuel efficient, cost effective and quieter aircraft, which will only benefit the group's environmental and economic performance. So this new order, as I previously said, combined with previous ones, will make Air France-KLM the world's largest operator of the Airbus A350 model.

We also reaffirmed our ambition to further grow our business and market share in maintenance activities with the creation of a joint venture with Airbus Dedicating To Service servicing A350 components. This venture, which combines the expertise of our widely reputed E&M teams and Airbus encompasses an optimized commercial offering aimed at better meeting the growing long-term maintenance needs of the Airbus A350, the cornerstone of Airbus' long-haul fleet.

And in addition, we have pursued efforts to further restore our equity while fostering the value of the group's assets, as illustrated by the non-dilutive financing linked to assets of our Flying Blue loyalty program. So the months ahead offer both challenges and opportunities for our group.

In an operating environment marked by sustained travel demand, we plan to continue growing our capacity back to 2019 levels, so we are planning on doing that by sometime in 2024. This operating environment is also subject to acute geopolitical tensions, driving fuel prices up and persistent inflation, which is weighing on our cost structure and urging calls for heightened vigilance, strict cost controls and greater operational efficiencies in order to protect our margin.

So now we can open up the session to your questions. And I'd like to remind you all that we are organizing an Investor Day on December 14 in Central Paris and we hope to see many of you there.

So, thank you and we'll now open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Jarrod Castle from UBS. Please go ahead.

Jarrod Castle

Thank you and good morning, everyone. Very good progress on your net debt with net debt to EBITDA now at 1.1 times. I'm not sure if that includes the Apollo Global Management transaction you announced yesterday, but interested in your thoughts on kind of conversations with rating agencies now, how they're viewing things or how you think -- how you see things are going to progress there. You've called out, I guess, Mana, as an area, obviously of concern. Can you give an update on kind of your exposure there and also just on business travel. And then any views on XFuel cost next year in terms of updated views. Thanks.

Steven Zaat

Hi, Jarrod. Let me take at least the first and the third question, but maybe you can repeat after I have answered the second question. Note it doesn't include yet the Apollo. So the amount which we are mentioning there is the net debt, but it excludes all hybrids anyway. But if we of course execute the deal with Apollo, that will improve further our net debt and IFRS. We are still discussing with rating agencies, but there's nothing to disclose over there. And if you talk about XFuel cost, we are working actually currently on our budget, so there's nothing so much to say now. But we have a nice Investor Day in December where I for sure will see you and I will give you more update on that side for the years to come. Can you repeat the second question, Jarrod?

Jarrod Castle

Yeah. Thanks. It was just on your -- kind of what you're seeing on business travel and, just an update on your exposure to Middle East and North Africa and how you see things there. Thanks.

Benjamin Smith

Sure, Jarrod. I'll take that one. Business travel I think we're seeing with our medium-haul service outside of domestic France and to all our global regions, it's leveling out, so we don't see any decreases. Some of the markets we see -- we continue to see slight increases. It's particularly in the domestic market where we are not returning to pre-COVID levels and we do not expect to return to pre-COVID levels. And there, because of the TGV rail links here in France, there is a true viable alternative.

So, in particular to routes like Marseille where the train takes about 3 hours, we've seen demand plummet by 50%. And what we've decided to do, as you've seen, is we are going to streamline and centralize all Air France activity to CDG Airport and we will bolster flights from some of these regions to CDG Airport, not particularly for local flying, but to enhance our product and utilize and leverage our hub to attract further long-haul connections via more competitive offering versus our main European competitors.

The domestic point-to-point, we will then move to the rest of the services that are left in Orly will transfer to our low-cost operator Transavia which should improve results. But, of course, those will be -- the frequencies will be much lower and those slots will then be used for new European services out of Orly and we intend to make Orly, as we previously mentioned, a true asset for the Air France-KLM Group.

Up until now with the Air France cost structure flying a significant domestic network which we've been unable to make profitable over the last decades, now having a viable low-cost operator and 51% of the slots a new metro link that will be in place by May of next year. The airport is going to be a very attractive airport for both business and leisure travelers, in particular to Europe. And we are going to be very well positioned with a highly competitive, cost structured brand in the name of Transavia.

So, your question about demand, yes, we're seeing in the domestic market some big, big decreases, and we're taking action there and the rest of our global network, we're not seeing anything at this point that is outside of what we were previously expecting. In the Middle East, the main route that is being impacted by the geopolitical situation that's going on or the wars that are going on, is Tel Aviv. We have suspended service to Tel Aviv.

This route was, financially not a top performer during the winter, but it performed well. So in terms of its impact on overall results, it's insignificant. We have areas where we can redeploy the aircraft that were assigned. We are seeing some slight reduction in demand to some of the other destinations we serve around Israel. We have not suspended service to any other destination in the Middle East.

And Western Africa, we have suspended service to four points, and we've restarted to one point. So out of the 26 destinations we have in Africa, that's at Air France plus the destinations we have at KLM, the impact is rather immaterial, I would say, at this point. We do have an enormous pressure on the number of aircraft. We have plenty of destinations to reassign.

And as we're planning out our summer '24 schedule, we will see if things do not improve in Western Africa. We've got other places to redeploy these airplanes. So at this moment, we've got two options for next summer. One with these destinations online and one without them. And I think our projection, in terms of the result that we'd linked in our budget are pretty similar.

Operator

Thank you. We will take our next questions from [indiscernible] from HSBC. Please go ahead.

Unidentified Participant

Good morning. Three questions, please. First, the French regulator has recently made a proposal for a change of the regulatory framework at French airports from a dual till, more in the direction of a single till. What is your view on this proposal and do you expect it to be implemented? Second, I understand that there will be some upgrades of the French ATC system at the beginning of next year. What will this imply for your H1 2024 capacities? And third, how shall we think about cargo in Q4? Do you expect a year with a normal seasonality with Q4 significantly stronger than Q3? Thank you very much.

Benjamin Smith

Okay. Good morning. Achal (ph). I'll take the first two questions, your first two questions, and then Steven will take the one on cargo. So, regarding some of the proposals for new taxes to be imposed or changes the taxes and charges in the French market as it relates to airports and to road networks, they have not been fully worked out with the budget for the French state for next year and beyond. But as it stands today, with the various options that are out there, we do not see a material impact on our cost structure at CDG Airport or at Orly.

So we're still going through the impact with the French state on what that could be. We have an idea that the different options that are being discussed, obviously, we don't like new taxes, we don't like new charges, and we're trying to get all of them imposed on a level playing field. So if there are additional costs that they do impact, they do have the same impact on all of our competitors. That's still work in progress and we'll get a better idea later on this year as the French state finalizes its budget. ATC improvements.

As of today, what we see coming, nothing material in terms of our operations at the airports that we serve in France. There are improvements, obviously, technological perspective happening every year. The major improvement, which is not something that we expect in the short term, would be a single European skies throughout Europe and the immediate advantages that would bring from an environmental perspective and for us and many airlines that operate in this region, more direct routings means less fuel, so makes us more efficient, less costly. So we don't see based on information that we have that the technological improvements being put into place are going to have any material impact on us.

Steven Zaat

Hi, Alexandra. On the Q4, yes, we know cargo bookings are coming in two weeks to three weeks before the load gets on board, so that's always difficult to tell. But we expect, of course, at Q4 we will increase the yields. We will see that also -- we see that also happening and I even -- we even expected year-over-year deterioration, which we have seen in Q2 and Q3 will be less, so -- but it is also there a little bit too soon to tell.

Unidentified Participant

Thank you.

Benjamin Smith

And, Alexandra, thank you for your extensive positive reporting and your recommendations.

Unidentified Participant

Thanks.

Operator

Thank you. We will take our next questions from Alex Irving from Bernstein. Please go ahead.

Alexander Irving

Hi. good morning, gentlemen. Three for me, please. First of all, how have unions reacted to your plans to further restructure France domestic? Second is on SAS and your recent agreement to take a stake here. How extensive are the changes required for SAS to make this airline sustainably profitable and how much influence will you have in running the restructuring? Or are the benefits to Air France and KLM enough to make the deal worthwhile?

And then, third, on yields, I'm noticing your economy yields are much further ahead of 2019 than your premium yields. Have you may be added a bit too much premium capacity relative to economy and should be reversing that, or how should we think about the path of premium and economy capacity going forward? Thank you.

Benjamin Smith

Hi, Alex. Could you repeat your first question? Didn't come through very clearly.

Alexander Irving

Certainly. My first question, how have unions reacted to your plans to further restructure France domestic?

Benjamin Smith

Okay, unions. We have many unions in France, we have 17 at Air France. Look, I think the size of the operation that was remaining at Orly Airport, at least from a long-haul perspective, was not huge. We had already closed our flight to New York JFK during the pandemic, and the slot for JFK had redeployed to CDG. Our services to French Guiana, Cayenne that were operating from Orly for many, many years are already planned to be transferred for this winter season. It's actually starting in just a couple of days’ time.

And the domestic network, which was both the Navet routes, the shuttle routes to Marseille, Nice, and to Toulouse, there was a fourth destination, which was Baldo. Baldo was cancelled during the COVID period as part of the conditions that the French state attached to their support package that they put forward for us along with services from Orly to Lyon and Orly to Nant. And then we had approximately 30 regional aircraft based at Orly Airport operated by our regional carrier Hop.

So, throughout, just -- I'm just giving you the steps that we've gone through and how this has impacted our union. So throughout the pandemic, we removed all regional flying from Orly. So that's been some time now, so it has not returned, has not been in place since the beginning of 2020. So that capacity has been removed. We removed the bulk of our long haul. We only have five 777 left at Orly and we've seen a marked shift in the demand already, and obviously during the pandemic when we had no operations for the remaining Navet routes.

So from a union perspective, obviously, any major change like that is negative, both for pilots, cabin crew and from ground staff. We still have an extensive maintenance facility to Orly, which will remain. We do a lot of heavy maintenance there and engine work, and we have -- we've consolidated our operations already under one single roof, but that work will remain at Orly. So we do expect challenges with the menu that have members impacted by this. But over the medium term, we think that'll work out.

We've given a lot of notice up to three years. There will be no forced job losses. For the ground staff, there will be offers to take necessary training to move possibly to new jobs in maintenance and all the cabin crew and pilots can take an option to be based at CDG. And for the staff that work inside the airport, we have -- we are expecting people to either transfer or to take retirement. The average age at Orly is quite high. It's one of the oldest -- it's one of the oldest groups that we've got in the system. But I think the -- I'm not sure if you're aware of the setup of our Transavia work relationships.

The pilots who fly Transavia are now Air France pilots under the same contract with different work rules. So, the work rules enable us to get the same productivity and overall unit cost versus, as an example, easyJet. And we do have at market, separate contracted cabin crew. So the overall impact with the three-year -- with the three-year notice, we think we can manage with the unions. So things here are complex, as in France with unions, especially with our -- with our company, but we think it's manageable, especially when we're in a situation where there'll be no forced job losses.

For SAS, the management in place we know quite well. The CEO is a former KLM -- KLM senior manager. So he's part of the reason we were comfortable with this investment. He already have -- we view, as very good strategic plans to improve their position within Europe. They have a network that was quite spread out. So for people who are, who are close to airline strategic management, it's basic things that can be done to improve the position. I'm not going to go through what the plan is going to be, but what they have planned in place is I think quite solid.

They've done a lot of fleet re-work, a lot of productivity from their staff, and I think switching the main benefit that we see initially is the switching from Star Alliance to SkyTeam and the commercial relations we can put in place, pending SAS joining, hopefully, our transatlantic joint venture. So, obviously, we need antitrust immunity from the U.S. DOT and equivalent from the European Commission, but that'll be the biggest benefit that we see out of SAS, but the initial benefits more than justify the investment.

Operator

Thank you. We will take our next questions from…

Benjamin Smith

I’m sorry, there was -- you had a third question. Sorry, here. The yields, that's quite a complex but straightforward question, there's a bit of a complex response to that. The average size of the business cabins in particular at Air France have been growing. So, with the -- if you look at the configurations by pulling as an example, the A380s out where we had very large economy cabins. So the tightening of economy seats, of course, the yields -- the yields that we're taking out of the market are higher from a premium cabin perspective with a relatively larger-sized cabins.

The yields that we're taking from the market, we're taking more customers than that. So the yields that we Air France-KLM are not growing at the same rate as the economy yield. Premium economy is, as most airlines in the world, is proving very successful. KLM was the last major transatlantic carrier to introduce a premium economy cabin. So we expect that to be just as successful as what we have at the Air France brand. And we do -- we are planning to increase the size of that cabin throughout the Air France fleet as well.

Alexander Irving

Thank you.

Operator

Thank you. We will take our next questions from Sathish Sivakumar from Citi. Please go ahead.

Sathish Sivakumar

Yeah. Thank you. I got two questions here. So firstly, on the booking load factor Slide number 16. If I look at, say, Q4 as well as Q1, it's slightly lagging behind the previous years, like 2% or 3% point. Is it consistent across a network or are you seeing within the network, say some regions are slightly more than the average year what we are seeing. Any color by region would be helpful. And then secondly, regarding the restructuring in Orly. How should we think about restructuring cost given that you said it's mostly the redeployment and then self -- the retirement and so on. Should we expect a significant restructuring cost there? Yeah. Thank you. Those are my two questions.

Benjamin Smith

So, I'll take the second question. First of all, we're really, really excited about Orly. This has been -- we see there's no other opportunity like this in all of Europe to have a close-in airport that is at capacity. All slots -- there are no slots available. We have 51% of the slots. The airport is strategically located close to the city center and it will now have, in eight months to nine months’ time, a direct link to Central Paris. So Paris, of course, is the largest city in Europe. And this combination of a renovated, easy to use, close-in airport with direct transit and having 51% slots and having now a low-cost unit vehicle, we're very excited as this deploys.

What is frustrating, but what is a challenge, is getting through this transition period as we bring in new airplanes at Transavia and we train the pilots. We not only have incremental aircraft coming, we're also changing the aircraft type to the -- from the 737NG to the Airbus A320neo family. So, we have a lot of work to do through that period. And those are where the costs are. So the -- in terms of transition costs from Transavia to -- or from Air France to Transavia. No, it's not something that is material.

Where the costs lie is the pace in which we're doing that, moving the aircraft onto routes that we have not previously flown, so pushing to get those flights to profitability. But as we're seeing in this particular year, we'll outline more of that at the end of the year. The improvement in the domestic market, even though we're still lagging from a profitability perspective, if we had not done what we've already done today, the losses would be very -- would even be more significant. So, in terms of transition costs, I mean, the transition costs are really associated with how fast we can get Transavia into, with the airplanes it needs and how fast we can get the pilots trained onto the new fleet over there.

Steven Zaat

Hi, Sathish. I suppose you are referring to Page 16, just to be clear.

Sathish Sivakumar

Yes, that's right. Yes, Page 16.

Steven Zaat

Yes. So, I think what you see is that the booking load factor is slightly below, but we increase significantly capacity. So the increase of capacity by 10%, which is more than the 6% that, of course, gives more capacity to fill.

Sathish Sivakumar

And is it like the booking goes consistent across the network or are you seeing slight variations?

Benjamin Smith

No, it's consistent over the network. Even with everything happening in the Middle East, we didn't see any real change. Of course, there's an impact on Tel Aviv. Of course, there's an impact on Beirut. All the destinations closed, but those are minor for Air France. There's some impact on Transavia France, but if you look at the whole network and our main business that we didn't -- we didn't see any changes over the regions.

Sathish Sivakumar

Okay. One quick follow up for Ben, actually, on the restructuring or transition cost. Should we expect most of that to come true in 2024 and as you ramp up into 2025 summer?

Benjamin Smith

I think you said should we expect more costs in 2024? Is that correct?

Sathish Sivakumar

In terms of the Orly or CDG back to restructuring, you said there will be incremental transition cost as we go into this restructuring. So should we expect those transition costs to come in '24 or do you expect it to be more late '24 into '25?

Benjamin Smith

Well, as we switch the Transavia fleet from 737 to 320, we have those transition costs or the operational maintenance transition costs and the training costs. So those will continue all the way out to the delivery. I mean, we've ordered over 100 of these aircraft, so that will go out to the end of the decade. There's many airlines, and we've done that in Air France. When you take an airplane out, you put in a new one there transition costs for training, but the structural cost of transferring the employees and accompanying employees who want to leave the company, there are one-time costs associated to that and those will take place all the way through to 2026.

So structural cost wise, it will be the -- how do we manage the exit of the employees who would like to leave on a voluntary basis because at Transavia, we do have Air France pilots, however, the rest of the population, so the cabin crew and ground staff and maintenance staff attached to the Transavia operation are all outsourced. So that work that's being done today by Air France staff will be -- now be done by outsourced staff. So those who are assigned to that work can either transfer to CDG Airport, upgrade their skills and work in the remaining Air France maintenance, heavy maintenance and engine facility that we have at Orly Airport, or choose to exit the company.

So those are where we'll see those types of one-off restructuring cost through to 2026. We've already experienced and gone through this type of transition or restructuring cost when we significantly downsize our domestic operations starting in the -- during the COVID period. So we're quite familiar with how to put these in under -- in the French context under French labor rules and laws. And these, of course, will be incorporated into our budgets, but nothing new from what we've experienced before and won't have significantly reduce operations elsewhere in domestic France.

Sathish Sivakumar

Okay. Yeah. Thanks, Ben and thanks, Steven.

Operator

Thank you. We will take our next questions from Muneeba Kayani from Bank of America. Please go ahead.

Muneeba Kayani

Good morning. Thanks for taking my questions. Firstly, I just wanted to clarify your responses to some of the recent -- in the call earlier. On Slide 16 on the booking load. So capacity is higher, and that's why the load factor is a bit lower. So are you saying that overall the bookings are higher year-on-year for 4Q? That's my first clarification. And then just on yields, if I understood you correctly, you said they're 25% higher in October versus 2019. So that compares with the 26% in 3Q, so slightly lower. Is that right?

And then just on balance sheet and great that you'll have positive equity by yearend. So with these Apollo financings, how are you thinking about them going forward and like when would you look to refinance them or do you keep them on the balance sheet? If you could help us think about the balance sheet kind of in the medium term. Thank you.

Steven Zaat

I say that let's first go to your face -- first question Muneeba on the forward booking. So it is increased capacity compared to 2022. So we speed up further the increased capacity year-over-year than what we did in Q2 and in Q3. And that results that you have more to sell. And, of course, the bookings are higher than -- because we have, let's say, a close booking forward -- booking load factor, but it has 10% more capacity. And so, of course, we have more bookings.

On the yield, I said more than 25%. I didn't say that it is 25%. It's more than 25% what we see up to now in October. And on the positive equity, let's see, I think we have still some time to replace those hybrids. First, it depends a lot on what will be the interest rates on the market. That the first one we did at around 6%. This is also 6.4% coupon and 6.75% interest rate if you take all the cost together. So we have to see how the market develops. But, of course, if we can keep a finance and we have the equity there, we will do it like that.

Muneeba Kayani

Thank you.

Operator

Thank you. We will take our next questions from Harry Gowers from JPMorgan. Please go ahead.

Harry Gowers

Yes. Good morning. Thanks for taking the questions. I've got two, if I can. First one is just on SAS. So, I mean, we'd be potentially looking to buy out the rest of the business at a later date and if so, are there any conditions that, that's dependent on? And then secondly, can I just ask your thoughts on Transavia and also maintenance profitability for Q4? Obviously, Transavia seasonally, you'd probably expect a loss in Q4. And when I look last year was just over EUR100 million loss. So can you get that closer to break even this year? And then also when I look at the maintenance result for Q4 last year was only just above breakeven. So, again, do you think you can take that upwards in Q4 this year? Thanks.

Steven Zaat

Let's first start on your question on SAS. So, there is, first of all, lock-up period and there are, let's say, options to buy the shares when the financial conditions are met on our margins. So that is very important that we stick to our margin trend and also stick to our net debt EBITDA. So only if we are getting the margins over there, then there will be, let's say, going for a majority share, but it will not happen in the first two years. Your question on Transavia.

Let me look at all the pages. It will for sure not be breakeven in Q4. We never had a breakeven in Q4. I think for the Transavia. It's not the strongest season, but of course we expect a better result than what we had last year. And going to the engineering and maintenance business, it is well progressing well. I think we can see that it will go up further compared to last year, yes. Yes, so the E&M is really coming back in the business. We have good contracts and especially the supply chain is not yet fully solved. That is a pity, but we see that we are performing better and better over the period.

Harry Gowers

Cool. Thanks a lot.

Operator

Thank you. We will take our next questions from Conor Dwyer from Morgan Stanley. Please go ahead.

Conor Dwyer

Thank you very much. Just one for me. So you're pointing to yields roughly anyways, remaining flat versus 2019 levels into Q4. But obviously with the higher capacity growth, book load factors are tracking out a little bit behind. So that kind of implies some sequential softness in the overall unit revenue. Is that something you kind of expect to continue then into next year for the, let's say, for the full year as you continue to kind of grow capacity into that year. That's just the only one for me. Thank you very much.

Benjamin Smith

Good morning, Conor. You were breaking up in and out the first half of your question there. If you could repeat would be great.

Conor Dwyer

Sure, my apologies. So, you're basically guiding for yields to roughly remain flat in the Q4, so above 25%. But with the higher capacity growth, book load factors are tracking a little bit weaker. So that implies a bit of sequential weakness, obviously, in unit revenues. And I'm just wondering, is that your expectation into next year for the full year that you continue to see some weakness than in the overall unit revenue as you restore that capacity?

Steven Zaat

No. That's -- this is a little bit too early to tell, but of course the growth of our capacity will be lower if we are reaching the point of 2019. So I cannot say anything yet on the full year expectation. We are busy, let's say, with our budget process. But even then, that there are not a lot of bookings in, only our bookings in for the first quarter. But we see that the growth is not as steep as what is in Q4.

Conor Dwyer

Perfect. Thank you very much.

Operator

Thank you. We will take our next questions from Stephen Furlong from Davy. Please go ahead.

Stephen Furlong

Hi, gentlemen. I know, Steven, you mentioned about first question, the Board doesn't give now profit guidance. I know, but you have this medium-term financial ambition of operating margin of 7% to 8% and maybe we get more detail after Investor Day. But I was just wondering the very top kind of airline sometimes a few of them can get double-digit margins. Is there a structural reason why Air France-KLM can't achieve that? I know in the past I think it was really Air France CDG maybe transfer flows to domestic business.

Just a general comment on that. And second thing on consolidation. I know people have talked about SAS. It seems to me there's bit of an end game in terms of consolidation with a number of airlines around Europe. I was just wondering they tend to be the network airlines? And I was just wondering with Transavia, do you think, Ben, Transavia could be part of a consolidation play or participate in consolidation in the point-to-point market in the future or is it really more going to be in the type of network airlines with hubs? Thanks a lot.

Steven Zaat

Thanks for your question. Let's first start with the mid-term guidance. So we didn't change that. If we see some reason to change it, people do it, but there's no reason to change. And I think you answered indeed the question yourself. So we see that Air France is coming back, let's say, in the game in terms of margin. We know that KLM had, in the past, double-digit margin, but it of course depends all on the -- let's say the macroeconomic circumstances over there. So we will come with a new mid-term guidance during the Investor Day for sure, and we don't change our current mid-term guidance and we will get back to you. But we have reached with KLM in the past the double-digit margin. So there's no reason that, that will never happen in our industry. But as we have ups and downs in our industry.

Benjamin Smith

And to your second question, look, we're in a highly competitive market. There are weaker players, smaller players that do make sense to perhaps join or be bought out from a larger player like in many other industries, and we've seen how the U.S. market has played out and it's now the most profitable in the world. So strategically, yes, we look at every single opportunity. But to say are we looking at something specific for Transavia versus just network plays? There were some, we've put in place a foundation of Transavia that was not there when I started five years ago. Transavia France was limited to 40 airplanes, did not have the ability to fly in domestic France and the pilot unions were separate, were separate.

So, if you were following us back then, we did manage to put in place a landmark deal with the Air France pilots where we could merge the two agreements and that we would be dealing with one union representative that covered both airlines but with different working conditions and productivity levels at Transavia. So that was really important, really key. And then we were able to lift the capacity ceiling on the number of aircraft from 40 up to as many as we would like. So there is no cap now. And we were then also able to negotiate the opportunity to fly domestically with Transavia.

So, we have full flexibility now commercially to put Transavia into the markets which we believe they would outperform Air France and into markets that Air France had pulled back from in previous years. As to does it have -- does Transavia have any strategic views on should it participate in some form of consolidation point-to-point airlines, I'm not going to say anything here, but I think the Transavia, we do have a lot of work to do there. We are transitioning and a lot of growth that will take place in all the airports. So we have our hands full there. But if the right opportunity obviously came about, then it's not impossible.

Stephen Furlong

Great. Thank you.

Operator

Thank you. We will take our next questions from Neil Glenn from AIR Control Tower. Please go ahead.

Neil Glenn

Good morning, everybody. If I could ask three questions, please. The first one just following on Transavia. I noticed for the nine-month period, the operating margin was 1% today, whereas in 2019 it was around 11%. I'm just interested in terms of how you think about the margins for that business over the medium term. Do you have a long-term transition in mind to touch on with the Orly recalibration, or do you task Transavia with recovering margins more quickly?

Then the second question on SAS. Can you tell us how you think about your current market share on Scandinavian flows outside of Europe that are connecting via hubs. I'm sure you monitor that closely relative to your competitors insofar as you can. And then the third question with respect to Asia. You've mentioned the capacity deficits in China and Japan.

Obviously, a lot going on, but those deficits of Japanese and in particular capacity to Europe are far more dramatic than into the U.S. So, I'm just interested in your thoughts on whether that is influenced by Russian aerospace closures, whether it's influenced by passenger perceptions of Europe, or how do you think about that as we move forward into 2024? Thank you.

Benjamin Smith

Okay. So, for Transavia, the domestic market in France has been for many years and continues and we forecast to be challenging on the profitability front. So we took the difficult decision, very difficult decision to pull the Air France brand completely out of the domestic market from Orly. That was not an easy strategic decision. And with Transavia, which took many years, three years to negotiate with the pilot union to be able -- the main pilot union at Air France to be able to get the flexibility that we're looking for as I just mentioned in the previous -- with the previous question. We now have a tool that has a cost structure depending on the -- depending on the stage length of between 15% and 40% over Air France.

So we will have a transition period where we replace some Air France domestic flying but the bulk of the slots released will be put onto routes that will be competing versus other European -- European low-cost carriers were up until today. The Air France cost structure was not able to do that and ended up where Air France was actually not flying a single, non-domestic route out of Orly Airport, which is quite incredible when we had 50% of the slots and not flying to a single European capital city or European major point out of Orly Airport with the Air France brand.

So with Transavia and moving through the next two or three years taking over all of the slots, so 51% of which Air France was flying, a big portion of those. When this and as we evolve the product to meet -- to be a better balance for business travel and for leisure travel, this product, we believe should be quite profitable and we're hoping will lead the group from a profitably perspective because of the combination of the size of the French market, our market position, the cost structure for Transavia, and the Flying Blue program we have, which will make the -- should make the offers that we have quite attractive. So it's quite big transition.

If you look at Transavia individually, it's not going to produce the same margins in the initial period as we had before we started out on this strategic path, which was very -- which was optimized for 40 airplanes, was doing a specific mission, had many years to gain into that. But you have to look at Transavia in the bigger picture where the improvement in Air France -- Air France's performance domestic is being, the cost of that is being transferred to Transavia, and Transavia is operating in those markets in a much better way than Air France was.

So if you look at Transavia on its own, it may not look as good as it was before. However, it is far better than what the results would have been if Air France were still operating those flights. So that, if you put that together, we're quite pleased with Transavia and then you put on top of it the fast growth that we have at Transavia today and plan for the next few years, and then the introduction of a more fuel efficient, best-in-class, medium-haul airplane, the 320neo family aircraft. We have a lot of work to do there, but we believe in the mid-term we're going to have a fantastic position at Orly Airport with the right -- with the right product, with the right cost structure, with the right city center links.

So our view on Transavia, challenging transition period, we're well equipped to do that. And we will do our best to balance out the margins so that the transition doesn't cost us too much money. And this, of course, is a massive, massive effort on the part of our commercial teams that are managing the Transavia part of the business. But we have great bench strength there and I think we should be able to do that. But as you're looking at the Transavia performance, I think it's absolutely necessary that you take into account the flying that it's replacing at Air France, which was extremely lossmaking.

SAS, with KLM we have a fantastic position already with dozens of destinations which connect via Amsterdam globally. So we're quite familiar with the market. If you look at the SAS route structure, it completely underperforms from a long-haul perspective. If you look as an example versus KLM, KLM and Amsterdam versus as an example, Copenhagen or Stockholm from SAS, I mean, it doesn't compare whatsoever. So we believe the opportunity with a friendlier group, let's put it that way.

A larger group with -- which can capitalize on the position we already have and eventually, hopefully, come into our joint venture should position us to pull and attract traffic from the other two big joint ventures. So we, of course, are not looking to transfer our own traffic or shift our own traffic. They were looking for incremental traffic that today is more difficult to capture because SAS is, unfortunately, not part of the, unfortunately, which is one of the reasons why I believe we were selected, was never invited into the United Lufthansa joint venture, and they were -- that had probably held them back from being able to fully leverage what we believe positive strategic geographical location.

So, overall, SAS, we don't see anything other than upside there. It's a fantastic market opportunity. Yields that we derive out of there are quite strong, and growth opportunity for shifting traffic or attracting traffic from our competitors we think is quite strong. And if you look at the size of SAS today, we don't see anything other than upward opportunity.

Asia, Japan, South Korea, in particular, Singapore, have been coming back very strong. Hong Kong not too bad. Out of China, the visa issuance by Europe has been very, very difficult for Chinese citizens, and that's where we see the lack of the return of demand that we're seeing in the rest of the Asian markets. So, luckily, our fleet is not back to the size as we had from a seat perspective in 2019. We are getting there quickly.

So we do have -- and with the strength of the transatlantic market and the South American market, we've -- we're not short of opportunities to deploy the airplanes that were originally assigned to China. So up until to date, it has not been an issue for us and the Russian overflight, yes, it costs more money, but we don't see any -- don't see any of our previous customers or our loyalty frequent flyer customers that feel comfortable flying over Russia on a Chinese carrier.

Operator

Thank you. We will take our next questions from James Hollins from BNP Paribas. Please go ahead.

James Hollins

Hi. Good morning. Just one from me, and I would beg you not to say we'll get back to you at the Investor Day because that's still two months away. It's about 2024. I'm just wondering if you could, if without maybe giving a number on year-on-year capacity growth expectations as you're planning today, perhaps just the thought process. If we're looking at aircraft deliveries, maintenance and supply chain issues, I think most importantly, as you look at Schiphol and looks like caps coming in next summer, how would I -- how should I be thinking about your capacity growth year-on-year in 2024? And should I be thinking about unit costs down year-on-year? Thank you.

Benjamin Smith

You want us to share all of our secrets?

James Hollins

Yes, please.

Benjamin Smith

I'll see what Steven has allowed us to say publicly to this date. Why don't you take this over, make sure I don't -- we're not allowed to say here.

Steven Zaat

Okay. Yes. To be honest, I indeed wanted to come back on that question in December, but of course, let's say if you look at the ASK evolution year-over-year, then we, of course, we will not do the same jump as we did in this year. So it will be let's say in the -- we know it will be 100%. So the 5% you already have in your pocket, let's say, it will be slightly above that if you look at the fleet which we are facing in. So think about the high-single digit range.

James Hollins

Okay, useful. And then -- that's one. I thought you'd give, actually, and then maybe on unit costs coming down?

Steven Zaat

We are in the middle of our budget process. I will come back on that one. You have to wait for December, but I will tell you there.

James Hollins

Okay. Thanks a lot. Cheers.

Operator

Thank you. [Operator Instructions] We will take our next questions from Andrew Lobbenberg from Barclays. Please go ahead.

Andrew Lobbenberg

Good morning, Steven. We've had a lovely dance around what's happened with the October yields. I thought we might try a little dance around what happens with October load factors. We can see that the advanced bookings are down for Q4 and investors are worrying that, that's a sign of weakening demand. Are you able to say anything about how the advanced bookings looked for October as you came into the month and whether you caught up through the month or whether your lag year-on-year on load factor stayed the same?

And then the second question might be for Ben, I guess, which is, you've announced the SAS deal, we know you're very interested in TAP and you see a lot of upside for the industry from consolidation, which I agree with. But if we look at the deals that are on the table from your competitors, Lufthansa, ITA, IAG Europa, they are having grave difficulties, evidently, in progressing those deals with the competition authorities.

And there have been articles in the press from the EU competition authorities about wanting to get more aggressive in imposing remedies on airline mergers. So to what extent are you concerned that the potential consolidation in the European airline industry is going to be stymied, going to be blocked by competition authorities? Thanks.

Steven Zaat

Hi, Andrew. Good morning. Good that you're still with us. If you look at the load factor, if you compare the load factor in Q3, it was around minus 0.5 points compared to 2019 and we are in that range also for October for the flights which has been flying. So I look at the actual development of the flights which have been flying in the case. So I think [Multiple Speakers]

Andrew Lobbenberg

Can you give that year-on-year, Steven?

Steven Zaat

Let's say my -- our dear friends of revenue management, they have this day-to-day update and they still compare to 2019. But if Q3 is versus '19 around minus 0.5 versus '19, it's the same for Q -- sorry, for Q4 -- or sorry, for October. I don't know for November and December, but for October. So that's all I can give. So I would say that it should be more or less in the same range.

Benjamin Smith

And your second question about regulatory -- potential regulatory challenges in approving some of the consolidation transactions that are taking place today and potential ones in the future, the way we're looking at SAS and potentially others is obviously to look at a worst case scenario from a regulatory remedies perspective. And, of course, going through COVID, we were significantly hit with punitive remedies far in excess what Lufthansa Group experienced.

We, as we had to give up slots at Orly Airport, even though Lufthansa Group did not have to give up. They had to give up slots at Frankfurt, but with enough flexibility where it didn't impact them whatsoever. No airlines took up any of their slots, but we had the ones at Orly that were picked up immediately. So with Copenhagen, first of all, there are no slot restrictions at Copenhagen, there are no slot restrictions at CDG, and there are no SAS flights into Orly Airport, and there are no Air France flights from Orly Airport into Scandinavia.

So not to say that other things may be requested, but I think we're in a reasonably good position relative to, let's say, Lufthansa, where Linate is completely saturated. So from a slot perspective, I think we're in a better situation when it comes to getting these deals hopefully approved in a straightforward manner. The fact that we're only at 19.9% also should be -- should have the regulatory bodies in Europe look at this deal in a different way than being in a majority situation where that's what we're seeing at ITA. And of course, in Spain, we're looking at a market dominance position that is not going to be the case for us with SAS.

Andrew Lobbenberg

Can I ask you how you would think or how you would expect to battle the prospects of a TAP regulatory inquiry?

Benjamin Smith

Well, we're not there yet. I think we're very interested to see what the -- what the next official view is on a new airport or a reliever airport in Lisbon. And based on that, I would probably be able to better answer your question. And I think that will be part of the, something that all three potential bidders that we know of would insist on having. I think that would really, that would play a major role in I think how the regulatory bodies would look at such a transaction.

Andrew Lobbenberg

Makes sense. Thank you.

Operator

Thank you. It appears there are no further questions. Gentlemen, I give the floor back to you for the conclusion. Please, go ahead.

Benjamin Smith

Okay, well, thank you. Thank you all for taking the time to listen to our report this morning and for all of your great questions and to all of you that have improved your recommendations on our stock, we greatly appreciate it. And, of course, our team here in Paris, we can take your questions, obviously, offline and we hope to see all of you at our Investor Day in December. It's been a while since we've held one of these. Paris is great. Great to come visit anytime, and we'll be sure, hopefully, to give you a great presentation. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call. Thank you all for your for participation. You may now disconnect.

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Air France-KLM SA (AFRAF) Q3 2023 Earnings Call Transcript