1. Pricing presentation Paris, February, 14th, 2011

2. Pricing is a powerful lever to boost earnings 2 1560 100% 1233 309 Revenues Fixed costs Variable costs Operating profits 16 18 Air France KLM cargo Financial Figures in millions euros 1% improvement in pricing would increase profits by 87% Source: Air France corporate website – Half year results 2010-2011 for the cargo division (6 months until september 2010)  With equal volume of sales, a 1% increase in price would yield 15,6 million euros additional revenues 1 % increase in price 87% increase in profits A slight improvement in pricing can generate a huge increase in profit in low margin businesses This improvement will both derive from enhanced price setting and better control of price execution How to achieve price increase ? 1 Enhanced price setting  A clear process and complete data to find the appropriate price levels and capture customer value 2 Strict and controlled price execution  Set rules to regulate discounts, incentives and other price decreases and monitor price implementation

3. Right pricing Customer value perception Market & competition Corporate strategy Costs Improvement in pricing can be achieved by a better, more comprehensive price setting process and stricter, more controlled pricing execution 3 A better, more comprehensive price setting process Stricter and more controlled price execution 3 4 90 0 100 60 70 80 53,9 2 3 1 9 7 10 100,0 1 List priceInvoice pricePocket price 1 2 3 4 5 6 7 8 9 What customers really pay 1 Standard distributor discount 2 Special distributor discount 3 End customer discount 4 On-invoice promotion 5 Cash discount 6 Cost of carrying receivables 7 Cooperative advertising 8 Off invoice specail promotion 9 Annual volume rebate Source : price waterfall of an electrical appliances supplier 12  It is crucial to have a clear process and clear responsibility to collect and analyze all the key elements needed to set the price levels  Clear rules and strict monitoring are needed to avoid uncontrolled price degradation 70,1 Better control through well defined and monitored rules List price CSOSalesManager 80% List price Price We propose to evaluate Air France KLM pricing process maturity with regards to these two key elements to identify improvement opportunities

4. The proposed approach is to first assess as-is compared to pricing best practices before suggesting pricing improvement for price setting or price execution 1.As-is assessment compared to pricing best practices  Assessment of strategic pricing based on interview with Product VPs and industry  Assessment of tactical pricing based on workshops with market managers and local pricing coordinators  Assessment of pricing execution with RM, CSO and sales teams interviews plus data analysis on quotes  Comparison of existing pricing processes against best practices 2.Recommendations on price setting processes improvements  Based on the gap analysis between as-is and best practices, identify improvement areas  Redesign pricing processes and organization 3.Recommendations on pricing execution  Based on the gap analysis between as-is and best practices, identify improvement areas  Redesign pricing execution rules and monitoring tools 4 The approach

5. Price setting processes assessment Understanding customer value 5 Key areas to investigate Leadtime Price Traceability Comunication Network Reliability Quality On a scale of 10 how would you rank the importance of the following attributes ? 1 Define the key determinants of our value to the customers 2 Understand how demand evolve with price Price % total demand on the market captured Based on past pricing actions sucess we can determine our customer willingness to pay Right pricing Customer value perception Market & competition Corporate strategy Costs Action Interview with product VPs and industry - Analysis of existing customer surveys (ex: BCG survey) Interview with product VPs and local price coordinators

6. Price setting processes assessment Understanding market drivers and competition 6 2 Build a solid base to compare our products with our main competitors Price level Dangerous Fast Live Standard Air France KLM products Luftansa products Britisharways products CourierTd. Flash Equation Care / td Variation DGR Live animalsLive / td Variation Live Perform Td. Pro Dimension 3 Understand our unique value proposition Network Communication Price Quality of service Customer perception of our strengths & weaknesses versus competition Strenghts Weaknesses 1 Understand key market trends 45% Air France KLM 22% Emirates 19% Lufthansa 14% Others 2008200920112010 Key areas to investigateAction Right pricing Customer value perception Market & competition Corporate strategy Costs See how current analysis are used See existing analysis with Product VPs See existing analysis with Product VPs and industry

7. Tonnage and margin targets Price setting processes assessment Linking pricing strategy to corporate objectives 7 Sales VP Market manager Sales Field view of market potential High level business vision Product and sales VP Market manager Sales Pricing objectives Per O&D x product  Prices to increase  Prices to keep constant  Prices to decrease Right pricing Customer value perception Market & competition Corporate strategy Costs Key areas to investigateAction Analyze link between corporate objectives and pricing strategy with Product VPs 1 Define pricing strategy in link with corporate strategy

8. Pricing setting processes assesment Managing the cost structure 8 Variation Pharma Variation Safe Dimension Equation Variation Fresh Variation Live 1 Understand cost structure per market and geography Variable costs 20 Fixed costs 80 Revenues 100 2 Screen product profitability Price Variation Pharma Variation Live Equation Variation Safe Dimension Reprice or drop Cost Breakeven line Key areas to investigateAction See with Finance and Product VPs how product costs are evaluated Right pricing Customer value perception Market & competition Corporate strategy Costs

9. Price setting processes assessment Deriving price levels from gathered data 9 1 Strategic pricing : setting the stage Profit model CostsCompetitionValue Strategy Optimum priceProfits Price Target price band Based on high level business analysis, the pricing commitee sets the price band for each route x product 2 Tactical pricing : refining the targets and setting the rules adjustments Evolution of competition at market level Evolution of customer needs Price Strategic pricing output Price List price CSO discount Sales discount Manager discount 80% List price Key areas to investigateAction See how strategic pricing committee are organized with Product VPs and RM See how market prices are set with market managers - See rules implemented by RM (MPC and CIM) Right pricing Customer value perception Market & competition Corporate strategy Costs

10. A solid organization must serve the pricing process and ensure the link between price setting and price execution 10 MPC Sales / CSO Market level Adapt according to destination/client/product within a bandwidth Customer € / kg Competition Pricing Local Commercial Strategy Pricing coordinator Market Level In line with pricing guidelines, defines target rate levels per market and allowed bandwidth MPC Market level RRM Set Entry Conditions per flight – i.e minimum acceptable level of Shipment Contribution Area PCC Deputy VP Manages pricing team and ensures tight pricing monitoring Area level Area Management Ensure central pricing guidelines are applied at area level Set processes / grid and guidelines S&D Central Pricing Committee Controls integrity of Pricing at all levels (tool & processes compliancy /completeness/…) S&D Central REVENUE INTEGRITY Central

11. Setting the right price levels and clear rules is only half the way through the efficient pricing journey 11 95 90 85 80 75 70 60 55 100 0 100,0 10 7 9 1 1 65 3 2 4 3 53,9 List priceInvoice pricePocket price 1 2 3 4 5 6 7 8 9 1 Standard distributor discount 2 Special distributor discount 3 End customer discount 4 On-invoice promotion 5 Cash discount 6 Cost of carrying receivables 7 Cooperative advertising 8 Off invoice specail promotion 9 Annual volume rebate What customers really pay Source : price waterfall of an electrical appliances supplier Despite clear rules, many aspects of price may remain out of control… … resulting in wide variation in effective price paid by our customers 50 - 60%70 - 80% 20% 40 - 50% 15% < 40% 10% 20% 60 - 70%>80% 5% 30% Price waterfallDistribution of price paid by customers as percentage of list price Price paid as % of list price

12. Pricing execution assessment We must evaluate how price implementation is followed up and what corrective actions are already taken 12 List all revenue leakage sources Set measurements and a consolidated price database Review pocket prices & margin per customer segment & geography Set corrective actions to reshape the price distribution  Review prices, discounts, rebates, payment terms, incentives, …  Quantify revenue leakage  Store measurements in a price database Price database Average pocket Price Key Account Medium Partners Small Cost to serve Breakeven line >80% 5% 70 - 80% 10% 60 - 70% 20% 50 - 60% 30% 40 - 50% 20% < 40% 15% Increase prices or drop Increase volume through reinforced sales actions See what corrective actions are already implemented with sales See how customer profitability is followed-up See which revenues leakage sources are currently tracked See how price and discount data are consolidated

13. From theory to action : B2B pricing best practices Succesful companies deliberately build a strong & structured pricing organization to sustain long term profitability 13 Key drivers High-caliber organizational elements Performance management systems Well-defined pricing processes Best practices 1 2 3 Pricing systems & tools 4  Processes whose steps, owners, inputs and outputs are clearly defined should govern decision making & core pricing activities  Companies must first determine which specific pricing decisions are critical to their sucess and then build robust processes around those decisions  Process to address vital pricing decisions add value only if these processes function smoothly by conferring clear ownership & accountability [avoid ad-hoc and management-by-committee approach with no clear owner]  There should be a specific team & specific metrics dedicated to pricing  Pricing unit should be clearly separated from price negotiators (sales,...)  Performance management for pricing regularly measures its impact on business, using rewards and consequences to reinforce or correct behavior and refine direction  Pricing excellence demands an investment in systems to collect accurate, current pricing data, as well as tools to turn data into information  System complexity should be suited to your capabilities : best systems are those that are reliable and understood by all key contributors in the company