Air France KLM Strategy

The year 2006-07 took place in an economic context favorable to the air transport.

It was marked by:

v a growth of the world economy which amounts to 4,9 %;

v a better discipline of airline companies in capacity;

v steady exchanges which generated an increase of 6 % traffic

This economic dynamism should go on in the years to come.

In this environment, the group Air(Sight) France KLM realized again a very good exercise with:

v a turnover in increase of 7,6 % in 23,07 billion euro,

v an operating profit in increase of 32,5 % in 1,24 billion euro,

v a clear(net) 891 million euro result.

It knew how to take advantage of the world growth for:

v develop on all the big markets,

v strengthen its profitability by the control of the costs,

v and continue to invest to prepare the future.

This exercise also encloses the first stage in the merger of both companies AIR FRANCE and KLM. Today, a new step opens aiming at an integration strengthened by the strategic functions for the group. It will allow the group to improve still its profitability.

All the activities generated a 23,07 billion euro turnover, in 7,6 % growth. This result places the group in the first world rank of airline companies.

The group loosens one of the best margins among the classic companies. These results were able to be obtained grace to the control of the costs and a significant decline of the financial debts.

	Fiscal year (M€)	Accumulation on March 31st
		2007	Variation
	Turnover current Operating expenses	23 073 (21 833)		+7,6 % +6,4 %
	Operating profit Sets the margins operational adjusted *	1 240 6,3%		+32,5% +0,9 pt
	Result of the operational activities	1 233		ns
	Cost of the net financial endettemet	(140)		(37,5%)
	Net Result leaves the group Net Result leaves the group (except exceptional operation Amadeus)	891 891		(2,4%) +80,4%

*Current operating profit adjusted on behalf of the interest charges of the operational rents (34 %).

Distribution of the turnover by activity.

With the exception of the cargo boat which knew a difficult environment, all the activities strongly progressed.. The activity passage believed in a steady rhythm as well as the external activity of the maintenance; the activity "Other" concerns, among others, transavia.com and to servair.

A progress continues of the profitability

Since the merger with KLM, the operating profit was multiplied by more than 3 and the margin by more than 2

A financial structure was strengthened

Since the merger, the financial debt regularly decreased and the indebtedness ratio was divided by 3.

III) Sky Team Alliance: «Miles» your flight

Skyteam : Mile's your flight !

SkyTeam is the second largest airline alliance (an alliance is an agreement between airlines to cooperate on commercial, operational and technical aspects of their activity, including cross-participation in capital) in the world, behind Star Alliance, partnering fourteen carriers from four continents.

Why an alliance between Airlines, which are competitors? We can answer to this question with: «Partners as creators of value».

The stated benefits and goals of the alliance are:

v Easy frequent flyer mile collection and redemption across carriers

v Reciprocal airport lounge access between carriers

v Guaranteed reservations for Elite Plus customers

v More available flights and easier connections between carriers

v More fare options

v Unified check-in for all carriers

v Consistent quality standards across carriers

v One reservation network for all members

v SkyTeam calls itself the "first alliance built around customer needs. In 2005 and 2006, SkyTeam was the world's best airline alliance, according to the readers of Global Traveler Magazine. The Alliance is run by a Board and a Steering Committee. Decisions are taken on a consensus basis, except in a few specific cases. Each member takes an equal part in all discussions and decision-making.

Leo van Wijk, chairman of skyteam

Membership history

v 2000 -- Aeroméxico, Air France, Delta Air Lines, and Korean Air launch the SkyTeam alliance on June 22.

v 2001 -- CSA Czech Airlines (in March) and Alitalia (on July 27) join.

v 2004 -- Continental Airlines, KLM Royal Dutch Airlines and Northwest Airlines join on September 13. Their simultaneous entry has been the largest expansion event in airline alliance history. As a result of the three new members, SkyTeam passes Oneworld to become the second largest alliance.

v 2005 -- Even though current member CSA pledged to help Malév Hungarian Airlines become an associate member of the alliance (as opposed to a full member, an associate has no voting rights), Malév opts to join the Oneworld alliance, signing a Memorandum Of Understanding late in May. A few days later SkyTeam announces four new associate members due to join by 2006, each one being "sponsored" by an existing member: Madrid-based Air Europa (sponsored by Air France), Panama-based Copa Airlines (sponsored and partly owned by Continental Airlines), Kenya Airways (sponsored and partly owned by KLM) and Romania's Tarom (sponsored by Alitalia). Every associate will adopt a frequent flyer program of a full member: Copa Airlines already uses Continental's OnePass while Kenya Airways and Air Europa use Air France- KLM's Flying Blue.

v 2006 -- Aeroflot joins on April 14. Middle East Airlines is invited to become an associate member.

v 2007 -- Air Europa, Copa Airlines, Kenya Airways become associate members of the alliance on September 1. China Southern Airlines joined SkyTeam on November 15 to become the 11th full member and the first carrier from Mainland China to join a global airline alliance.

Matching capabilities and resources

For the customer

SkyTeam has two premium levels, Elite and Elite Plus, based on a customer's tier status in a member carrier's frequent flyer program. Each of the member and associate airlines recognizes the elite statuses, with a few exceptions. The statuses have no specific requirements of their own; membership is based solely on the frequent flyer programs of individual member airlines

Benefits of being an Elite member of SkyTeam:

v Priority reservations waitlisting

v Priority airport standby

v Priority boarding

v Priority airport check-in Preferred seating

v Priority baggage handling

v Additional checked luggage allowance

v Airport lounge access

v Guaranteed reservations on sold-out flights

For the airlines :

v An extended and optimised network: This is often realised through code sharing agreements. Many alliances started as only a code sharing network:

v Cost reduction: This can include sharing of:

o Sales offices

o Maintenance facilities

o Operational facilities, for example catering or computer systems.

o Operational staff, for example ground handling personnel, at check-in and boarding desks.

o Investments and purchases, e.g. in order to negotiate extra volume discounts

v Traveler benefits: Benefits for the traveler can be:

o Lower prices due to lowered operational costs for a given route.

o More departure times to choose from on a given route.

o More destinations within easy reach.

o Shorter travel times as a result of optimized transfers.

o Faster mileage rewards by earning miles for a single account on several different carriers.

o Round-the-world tickets, enabling travelers to fly over the world for a relatively low price.