FIRST QUARTER
Strong rise in unit revenues, especially in cargo
Ongoing control of unit costs
Significant improvement in operating result
Free cash flow of 285 million euros, and 164 million euro reduction in net debt
Net income of 736 million euros


Activity in the First Quarter saw a strong recovery in both passenger and cargo, in spite of the five day closure of European air space following the Icelandic volcano eruption.

Revenues grew 10.7% to 5.72 billion euros; without the impact of the air space closure they would have risen by 15.9%. The operating result recovered considerably, from -496 million euros to -132 million euros, a 364 million euro reduction in losses. Excluding the impact of the air space closure (estimated at 158 million euros), the group generated a positive result of 26 million euros, an improvement of 522 million euros.

Key data
Quarter to 30th June
In euro millions, except per share data in euros 2010 2009 Change
Revenues 5,721 5,169 +10.7%
EBITDAR* 484 112 +372
Operating income / (loss) (132) (496) +364
Operating income / (loss) - excluding air space closure 26 (496) +522
Income / (loss) from operating activities 878 (496) +1,374
Pre-tax income / (loss) of fully consolidated activities 669 (612) +1,281
Net income / (loss), Group share 736 (426) +1,162
Income / (loss) per share 2.50 (1.45) nm
Fully diluted income / (loss) per share 2.00 (1.45) nm
*EBITDAR: Operating result before amortization and depreciation, provisions and aircraft operating lease costs.

Activity

Strong rise in unit revenues

The closure of European air space in April masked the recovery in passenger air traffic. For the First Quarter as a whole, traffic declined by 2.3%, but was up by over 4% in May and June. Capacity was reduced by 4.9% leading to a 2.2 point gain in the load factor to 81.5%. This pick up in traffic was accompanied by a recovery in unit revenues to levels close to those of 2007-08. As a result, unit revenues per available seat kilometer (RASK) were up 14.8%. Revenues progressed by 8.8% to 4.37 billion euros. The operating result of the passenger business improved markedly, from -338 millions euros at 30th June 2009 to -142 million euros at 30th June 2010. Without the impact of the air space closure, it would have been at break-even (3 million euros).

Cargo was affected to a lesser degree by the air space closure. Traffic increased by 2.6% for capacity down by 6.8%. The load factor gained 6.4 points to 69.6%. Unit revenue per available tonne kilometer (RATK) rose sharply (+54.1%). Revenues were up by 42.3% to 774 million euros. The cargo business generated operating income of 11 million euros versus a loss of 197 million euros a year earlier. Without the impact of the air space closure, it would have generated income of 14 million euros.


Unit costs contained

For production measured in equivalent available seat kilometers (EASK) down by 4.9%, unit costs per EASK rose by 9.2%, but by only 1.3% on a constant fuel price and currency basis. The impact of the closure of European air space is estimated at 2.4 points. Operating costs rose 3.3%, affected by higher fuel costs. Excluding fuel, they declined by 2.6%. The group realized 131 million euros in savings from 'Challenge 12'. The objective of this savings plan for Full Year 2010-11 has been revised up from 510 to 540 million euros.

The main change in operating costs related to fuel, up 26.8%, or 305 million euros, under the combined effect of a 4% decline in volumes, a negative currency effect of 3% and a rise in fuel prices after hedging of 28%. The loss on pre-2009 fuel hedges amounted to 160 million euros. Labor costs amounted to 1,867 million euros, down 1.4%.

The operating loss amounted to 132 million euros after a loss of 496 million euros a year earlier. The adjusted* operating loss stood at 64 million euros. Income from operating activities amounted to 878 million euros after a 1.03 billion euro capital gain on Amadeus.

Net financial charges rose from 56 million to 96 million euros, while other financial income and costs amounted to -113 million euros, of which 100 million euros relating to foreign exchange.

Net income, group share stood at 736 million euros after the proceeds from Amadeus (compared with a loss of 426 million euros at 30th June 2009). Net loss, group share, restated** for non-recurrent and non-cash items linked to the fair value of hedging instruments stood at -252 million euros (-431 million euros at 30th June 2009).

Earnings per share stood at 2.50 euros and fully diluted earnings per share at 2.00 euros, against a loss and fully diluted loss of 1.45 euros at 30th June 2009.

* Adjusted for the portion of financial costs in operating leases (34%)
** Definition in the 2009-10 'Reference Document', p 127 and 128. Reconciliation tables in the results presentation

Free cash flow of 285 million euros
Investments amounted to 639 million euros at 30th June 2010 (649 million euros at 30th June 2009). Aircraft disposals generated 161 million euros (507 million euros a year earlier). Operating cash flow amounted to 570 million euros, thanks notably to an improvement in working capital of 482 million euros. Free cash flow was 285 million euros including the proceeds from the Amadeus operation (193 million euros). The group's financial position remained solid, with 4.68 billion euros in cash as well as available credit facilities of 1.1 billion euros.

At 30th June 2010, shareholders' funds stood at 6.21 billion euros, up 795 million euros compared with 31st March 2010, on the back of the net profit, the market value of the holding in Amadeus and the change in the fair value of hedging instruments. Net debt stood at 6.06 billion euros (6.22 billion euros at 31st March 2010). The gearing ratio** stood at 0.98 versus 1.15 at 31st March 2010.

Outlook for the full year
The First Quarter saw an acceleration in the recovery in activity levels, particularly in business travel and cargo. Forward bookings for the second quarter are solid, but uncertainty surrounding the economic environment and the fuel price leads us to remain prudent for the second half of the year.

Nevertheless, in view of the positive indications from the medium-haul transformation and the quicker than expected turnaround of the cargo business, our objective for Full Year 2010-11 is of operating break-even, excluding the impact of the air space closure in April.

Agenda
A teleconference will be organized for financial analysts on Wednesday 28 July 2010. Any journalists who wish to listen in to the conference - however without asking questions