1. Air France - KLM “how to survive the global battle” Presentation for TU-Delft International Seminar on Airport Planning ‘Airport of the Future’ Thursday, 30 March 2006 Athar Husain Khan Director Government & Industry Affairs

2. “Make flexible adjustment of tactics according to changing circumstances of the battlefield” (Sunzi’s Art of War, around 250 BC)

3. 3presentation aotf 300306 ahk Contents... Brief history Our strategy Where do we stand External world Opportunities Challenges What do we need

4. 4presentation aotf 300306 ahk June 1989 May 2004 1993 ? ? June 1989: KLM investment in NW September 1997: Global JV Begin 2002 : informal discussions Spring 2003: discussions intensify September 2003: public announcement May 04 : entry into force September 2004; Joint holding Air France - KLM ? 1992 1999 2000 … quest for economies of scale and scope...

5. 5presentation aotf 300306 ahk … our strategy... Committed to play a frontrunner role as a truly European airline Operating under a bi-national structure, from a dual-hub system Aiming for profitable growth / fit to compete Managing the transition to a global free market Creating favourable conditions: costs, infrastructure Securing Europe’s global competitiveness Demonstrating good citizenship: environment/social

6. 6presentation aotf 300306 ahk.. market size segmentation for a dual hub... Number of O&D passengers Stations Tertiary stations  KRS, PSA, TRD, VGO,... Secondary stations  MRS, GOT, TRN, BGO... Primary stations  MAD, BCN, FCO,... Super stations  LHR, CDG,... Dual hub service (CDG & AMS) Dual or single hub service Single hub service (CDG or AMS)

7. 7presentation aotf 300306 ahk … KLM + Air France + SkyTeam... 645 destinations

8. 8presentation aotf 300306 ahk North America Latin America Africa Asia Middle East Europe AF-KL: ~12% 1 st European carrier AF-KL: ~10% 2 nd European carrier AF-KL: ~8% 1 st European carrier AF-KL: ~16% 1 st European carrier AF-KL: ~24% 1 st European carrier Capacity share on Europe- Long-haul routes Source: OAG data week 37 (Summer 2005) – non stop operating flights … European leader on main global markets... Long Haul AF-KL: 13.2% BA: 8.8% LH: 8.0%

9. 9presentation aotf 300306 ahk … and the largest in turnover… in bln US$

10. 10presentation aotf 300306 ahk … need for transfer traffic at Schiphol...

11. 11presentation aotf 300306 ahk 80-ies : USA 90-ies : Europe 1980 Atlanta 1986 Washington hub model USA medium-haul – medium- haul Atlanta, Chicago, Dallas… hub model Europe long-haul – medium -haul Paris, Frankfurt, Schiphol,... hub model Orient long-haul – long-haul Dubai Schiphol Frankfurt 1996 Paris 1981 Dallas 2000~ Gulf 2000-01 Dubai 1992 … hub development...

12. 12presentation aotf 300306 ahk … and the external turmoil continues... Iraq crisis, Bird Flu, Iran-IAEA, what more? Still increasing external costs: fuel, airports, Air Traffic Control Increasing regulatory costs: security, environment United States Chapter 11, bankruptcies Inevitable consolidation between airlines Ongoing liberalisation (EU-US and others) Low cost / no frills carriers, more differentiation and competition Ambitious developments in the Middle East (Dubai et al)

13. 13presentation aotf 300306 ahk Rising fuel costs Air France-KLM (04/05 + 33.3% to € 2.65 bln, Q1 05/06 y-o-y + 32.2% to € 809 mln) … somewhat lower but still high oil prices...

14. 14presentation aotf 300306 ahk … the operating charges we pay...

15. 15presentation aotf 300306 ahk Oneworld hubs SkyTeam hubs Star alliance hubs CPH FRA MUC VIE MXP CDG MAD LHR AMS … and the battle for Europe... ZRH

16. 16presentation aotf 300306 ahk … in a growing European passenger market... Source: AEA, incl.domestic, excl. charters Average annual growth rate 1988-2003: 6.0 % (passenger traffic within and to/from Europe) Expected growth rate of 4-5 % per year until 2012 3

17. 17presentation aotf 300306 ahk … an opportunity : China... - Traffic growth perspectives - Very strong growth between China and Europe +18% p.a. Until today (last 10 years) 4,3 million passengers in 2004 Emerging Chinese middle class Tourism and VFR traffic potential (both inbound and outbound) Increasing presence of foreign firms in this huge market Chinese firms developing their presence in the Rest of the World Crisis of the financial system Implosion of the single party Potential hitches in Chinese development : corruption, violation of intellectual property, increasing social inequalities Chinese tourism development slowed by measures to counter illegal immigration Exposure to major epidemics (SARS …) Opportunities China Domestic +15% p.a. China - Europe  12% p.a. Risks

18. 18presentation aotf 300306 ahk … the passenger market... Transfer potential 158 Mln. Worldwide passenger market 1.600 mln European passenger market (intra - EUR) 558 mln Relevant market for Schiphol 185 mln Rest of the world 1033 Mln. Europe related market 554 Mln. Rest of Europe related 373 Mln. SPL relevant market 185 Mln. Local traffic SPL 24 mln (89% share of NL market) Transfer at SPL 18 mln (11 % share of transfer traffic) Traffic at Schiphol 42 mln Local potential 27 mln Transfer potential 158 mln

19. 19presentation aotf 300306 ahk … lcc/nfc fast growth over the last 3 years... 2002 easyJet: 44 routes 1.840 flts/week Ryanair: 76 routes 2.220 flts/week KL Eur.: 2.530 flts/week 2005 easyJet: 92 routes 4.738 flts/week Ryanair: 222 routes 4.477 flts/week KL Eur.: 3.200 flts/week

20. 20presentation aotf 300306 ahk … growth of the lcc fleet... Sources : Airclaims, press releases, OAG

21. 21presentation aotf 300306 ahk UK - India Australia - UK/Eur Asia - Africa USA-more Europe … also the Middle East has ambitions... ‘90~ ‘95~ ‘00~ ‘05~

22. 22presentation aotf 300306 ahk Sources : Airclaims, press releases, Global Insight A380-800 A340-600 B777-300ER A340-300 A340-500 B777-300 A330-200 Seats (04-10) : +15,7%Seats (95-04) : +20,5% Emirates fleet plan … with their fleet plan...

23. 23presentation aotf 300306 ahk … what do we need on national level... Capacity at Schiphol > mainport requirements -infrastructure -environment Low costs and high quality from our service providers > Schiphol and ATC-LVNL A government with a vision and integrated policy regarding the long term development of aviation in NL

24. 24presentation aotf 300306 ahk … and what do we need at European level... An integrated European aviation policy to enhance: -Reduction of costs (security) -Addressing the imbalance (airline-airport relationship) -A level playing field both intra and outside the EU (market access, environment) -Innovation (ETS, SESAR)

25. 25presentation aotf 300306 ahk … thank you. athar.husain-khan@klm.com