KLM Reports Third Quarter Profit

KLM Group today reported an
operating profit of EUR 29 million for the third quarter, ended December 31, 2003. This
compares to an operating loss of EUR 63 million last year. Third quarter net profit amounted to
EUR 8 million, or EUR 0.17 per common share. This compares to a net loss of EUR 66 million,
or EUR 1.45 per common share last year.
In a continuing challenging operating environment, KLM delivered an operating profit for its third
quarter, which is a significant improvement compared to last year. This achievement is largely
the result of the Group’s persistent focus on reducing costs.
In the third quarter, Group operating revenues of EUR 1,464 million were down 7 percent year-on-
year. This decline, which was less pronounced than in the first two quarters of the fiscal year,
is in part traffic related and in part currency related. As a result, the yield continued to be under
pressure, albeit that the overall manageable yield improved year-on-year.
Group operating expenses of EUR 1,435 million were 12 percent below last year. This reflects
the excellent progress made in implementing KLM’s structural cost reduction program, the
impact of a lower USD exchange rate and the effective alignment of our cost base with the lower
capacity levels (minus 4 percent on last year).
Group operating margin and EBITDAR margin in the third quarter significantly improved year-on-year
to 2.0 percent (last year: minus 4.0 percent) and 12.5 percent (last year: 7.0 percent)
The Group’s liquidity position improved compared to September 30, 2003 to EUR 1,002 million
as at December 31, 2003.
Leo van Wijk, President and CEO of KLM, said: ‘In the third quarter, we continued to
implement our structural cost reduction measures. In combination with strict capacity
management, we managed our costs down effectively and were successful in offsetting the
decrease in traffic revenues, while improving our margins. In today’s operating environment a
strong focus on costs remains essential to improve financial performance and we remain
committed to deliver on our structural cost reduction program.’
Operating profit for the nine-months period ended December 31, 2003 was EUR 94 million,
which compares to an operating profit of EUR 119 million last year. Net profit for this period
amounts to EUR 44 million, or EUR 0.97 per common share, and compares to a net profit of
EUR 31 million, or EUR 0.67 per common share last year.
Third quarter passenger operating revenues of EUR 1,051 million were down 2 percent on last
year. Traffic revenues decreased by 3 percent year-on-year, which is the combined effect of flat
yields year-on-year and lower passenger traffic (down 2 percent on last year). As capacity was
down 6 percent (resulting from the early retirement of the Boeing 747-300), passenger load
factor improved by 2.8 percentage points to 80.0 percent. Consequently, unit revenue increased
4 percent year-on-year, whereas, excluding currency effects, unit revenue increased by a strong
8 percent. Manageable yields (excluding currency effects) were up 4 percent compared to last
year. The positive trend in manageable yields was most visible on the intercontinental routes,
whereas yields on the European routes continued to be under pressure.
Operating expenses were EUR 990 million, down 10 percent on last year. Unit cost in the third
quarter declined by 4 percent. Passenger business successfully managed its cost base down to
reflect lower capacity levels. Simultaneously, the positive impact of structural cost reductions
becomes increasingly visible in its cost base. While capacity was 6 percent lower than last year,
manageable unit cost (without currency effects) was up 2 percent.
Passenger Business operating profit in the third quarter was EUR 61 million. This compares to
an operating loss of EUR 22 million last year.
In the third quarter, cargo operating revenues amounted to EUR 264 million, a decrease of 10
percent compared to last year. The revenue decrease is mainly driven by less capacity and
lower yields. Yields were down 11 percent year-on-year (4 percent without currency effects). A 2
percent increase in cargo traffic in part compensated for the lower yield. Pressure on yields is
primarily caused by increased competition, especially ex Europe, where traffic demand
continued to be under pressure. Traffic ex Asia performed well-above last year, reflecting the
potential of particularly the Chinese market, of which KLM Cargo benefits through the successful
deployment of the two new freighters and the cooperation with China Southern.
Cargo operating expenses of EUR 240 million were 8 percent lower than last year, reflecting
continuous productivity improvements and the implementation of the structural cost measures.
Unit cost was down 4 percent year-on-year. Manageable unit cost was down 2 percent on a
capacity decrease of 1 percent.
Cargo Business reported an operating profit of EUR 24 million, which is EUR 8 million lower
than last year.
In the third quarter, operating revenues of Transavia amounted to EUR 79 million, 18 percent
below last year. Both in the charter segment and the low cost segment (BASIQ AIR), load
factors improved year-on-year, while yields continued to be under pressure. Lower traffic
revenues were in part compensated by an increase in other revenues, mainly higher income
from dry and wet leases.
The decrease in operating revenues was more than off-set by a decrease in operating expenses
to EUR 83 million. The reduction in operating expenses (19 percent year-on-year) is the
combined effect of lower capacity levels (minus 20 percent year-on-year) and structural cost
saving measures. Transavia’s unit cost were reduced by 7 percent year-on-year.
Transavia’s third quarter operating loss amounted to EUR 4 million, which compares to an
operating loss of EUR 6 million last year. MORE at www.klm.com