Annual Report 2019 - KLM

Annual Report2019

HeadofficeAmsterdamseweg 551182 GP Amstelveenthe NetherlandsPostal addressP.O. Box 77001117 ZL Schipholthe NetherlandsTelephone:Internet: 31 20 649 9123www.klm.comRegistered under number 33014286 in the Trade Registerof the Chamber of Commerce and Industry Amsterdam,the Netherlands.2

Table of contentsReport of theBoard of ManagingDirectors04101216202668Letter fromthe PresidentKey figuresThe world weoperate inBoard andGovernance92100104Report of theSupervisory BoardOther InformationMiscellaneousRemunerationPolicy and ReportSupervisory Boardand Board ofManaging DirectorsReview 2019:Celebrating the futureFinancial resultsFlight plan 2019Risk Managementand ControlFinancialStatements 2019110188Consolidated financialstatementsCompany financialstatements3

Letterfrom thePresidentPrefaceThis annual report on the 2019 resultsIt goes without saying that under normalcannot be read without considering thecircumstances it would have been a greatsubsequent events after year-end closing.pleasure to take the opportunity to shareThe worldwide spreading of COVID-19 hasan overview of our ambitions and focus forcaused a global crisis in terms of health, a2020. Unfortunately, at the closing of theglobal crisis in terms of business and severeannual report, the crisis is still evolving,crises in many societies. As an airline we arebringing many uncertainties, which makesamongst the earliest to be faced directlyit impossible to predict the scale of impactwith the impact of this crisis. During theof the COVID-19 crisis on KLM and its future.course of the first three months of 2020, theKLM’s ambitions and objectives for 2020 willoutbreak of COVID-19 has developed intobe refocused with the utmost urgency ona pandemic on an unprecedented scale,resiliently overcoming the COVID-19 crisisstriking an equally unprecedented blow toand on emerging in a position that willthe airline industry on a global level. As aenable us to resume the intended pursuitconsequence, the KLM Group is facing oneof our strategic goals.of the largest crisis in its entire history.4KLM 2019 Annual ReportReport of the Board of Managing Directors

Pieter ElbersCEOWhen we formulated our ambition with the new KLMExecutive Team in 2014, our goal was to ensure that KLMwould be “healthy and fit for the next 100 years” when itwould reach its centenary in 2019. After defining our ambitionto become Europe’s most customer centric, innovative andefficient network carrier, we re-determined our purpose inthe KLM Compass and strengthened the execution of ourstrategy through our annual KLM Flight Plan from 2015 until2019. I am proud to say that on the 7th of October 2019,the day KLM became the first airline in the industry to turn100 years old, it is clear that because of the hard work ofall KLM employees we have turned this ambition into reality.Because of the robust and mature state of our company, thetheme of our KLM 100 celebrations “Celebrating the future”,rings true. KLM is ready for its next century. Proud of itshistory, committed to its future!The year 2019 marks the last year of our Perform 2020 program.Back in 2013 and 2014, our financial results were down,investments were laging behind and a general sense ofdiscomfort was felt internally. Hence, from the third quarterof 2014, with a new Board of Managing Directors, we were atthe crossroads of winning or losing. At the start of Perform2020, in 2015, we did a strategic review and defined a clearset of strategic objectives, which are still valid today. Theoverall aim of creating structure and direction, was fourfold:(i) we needed to fund our investment agenda by loweringcosts, (ii) our customer experience and appreciation neededto improve drastically, (iii) we needed to invest in ouremployees and organisation, to modernise the workforce,work processes and working tools and (iv) the overallfinancial position of the company needed to improve.In order to achieve these objectives, we captured ourstrategic choices in our Perform 2020 transformationprogram and ensured structural progress monitoring.These past few years have been an incredible journey foreveryone at KLM. We have made impressive progress onall of our objectives. Our investment levels have gone up,our customer appreciation has improved from mid-30’s toabove 40 (Network Promotor Score, NPS), productivity hasincreased, our employees are more satisfied than five yearsago (Employee Promotor Score, EPS above 70) and workingprocesses and -tools have been simplified and digitised. Allof which has resulted in an increase of profit, a reduction ofour debt and a strengthening our equity position. Becauseour financial position has improved we are able to betterface economic headwinds and to share the profit amongall KLM staff via a profit sharing scheme. We have achievedthese changes over the course of five years because wehave been persistent and not afraid to challenge ourselves.This fits with our history as aviation pioneers.KLM 2019 Annual ReportReport of the Board of Managing Directors5

We have also delivered on most of our parameters in2019. Due to Schiphol’s capacity limitations, we could onlygrow by a very limited number of flights, yet we grew ourdestination portfolio. We were able to improve the quality ofour operations and our product as well. We strengthenedour commitment to sustainability tremendously with thelaunch of our global Fly Responsibly initiative, with theannouncement of partnering in the development of a newsustainable aviation fuel plant in the Netherlands and withour support for the design of a radically different aircraft,Flying V. In parallel we maintained our position as a leaderin digital customer- and employee processes and optimisedour operational procedures with artificial intelligencesupported tools.Our four businesses have improved as well. We welcomedover 35 million customers on board of our KLM flights and44 million within the KLM Group. We managed to expandour global network with six new destinations, took deliveryof 10 new aircraft, improved our operational resilience ondisrupted days and grew the number of alliances. Transaviaand KLM Cityhopper have modernised their fleet andservices. Engineering & Maintenance has professionalisedwith an increase of its commercial work for third partiesand the KLM Cargo division ventured into new customersegments to create new opportunities for growth." KLM is ready for itsnext century. Proud ofits history, committedto its future!"Within AIR FRANCE KLM, progress was made in differentareas. Air France has made impressive steps both inoperational quality as well as customer appreciation and themanagement gained support of the unions, which will helpAir France in its ambitious turn-around program. With AIRFRANCE KLM we have expanded our existing Joint venturepartnerships to China with China Eastern and to NorthAmerica with Virgin Atlantic. These extended partnershipsstrengthen our AIR FRANCE KLM position in the global arena.From the start of the COVID-19 crisis, the KLM Group hasbeen monitoring its evolution by the hour and implementedmeasures to protect its passengers and staff, as well asto limit the impact of the virus on its profitability and to6KLM 2019 Annual ReportReport of the Board of Managing Directorspreserve its financial sustainability. In the course of thedevelopments, decisions were necessary to reduce ourflight schedule, currently by drastic proportions.The KLM Group has already taken a number of strongmeasures to secure cash, save cost and postpone paymentsas well as all kind of other measures in order to meetongoing commitments during the COVID-19 crisis. The initialinvestment plan has strongly been reduced and additionalfinancing with bank institutions is arranged for. In addition,the KLM Group announced to cease the operation of itsentire Boeing 747 passenger fleet as per end March 2020, inorder to reduce capacity and achieve operational savings.The KLM Group is in close contact with its stakeholdersto secure continuation of its operations. The KLM Groupis working together with AIR FRANCE KLM and Air Francein conferring with the governments in the Netherlandsand France to temporarily expand legal opportunities foradditional financing, saving cash and postponing payments.Within the Netherlands, the government is demonstratingstrong support and commitment to help KLM and othercompanies face the challenges. KLM is gratefully makinguse of the Dutch government’s financial package that wasannounced mid-March.It goes without saying that KLM follows all governmentalguidance and instructions with regard to people interactionsand meticulously adheres to the actual guidance andinstructions.At the end of a year we sometimes say: it has beenan eventful year. This year has been a turbulent, yetspectacular year indeed. First of all I would like to expressmy gratitude towards our customers. It is the loyalty of thecustomers in our businesses, Passenger network, Cargo,our industrial customers at Engineering & Maintenanceand Transavia passengers that has made KLM reach itscentennial in sound health. Together with them we willnavigate our flourishing company into a challenging future.In October we had the pleasure of celebrating KLM’s 100thanniversary together in a fantastic way. In the hangar atSchiphol Oost, but essentially across the entire world. Iwould like to thank all KLM staff: for their commitment, theirenergy, for their blue heart and for everything that wehave done together to make us healthy and fit for our 100thbirthday, to be able to celebrate this exceptional milestoneand to prepare KLM for its next 100 years.

Photo: LVNLKLM 2019 Annual ReportReport of the Board of Managing Directors7

“ 100 years Flying Dutchman.1919, October 71920, May 171924The Koninklijke LuchtvaartKLM operates its first flightWith the transportation of theMaatschappij voor Nederland enfrom London to Amsterdam, carryingyoung stud bull Nico V, KLM marksKoloniën (KLM, the Royal Airline fortwo journalists and a stack ofthe start of its long history inThe Netherlands and Colonies)newspapers. KLM welcomesanimal transport.is founded.345 passengers in 1920.1971, January 311967, April 281960, March 25KLM’s first Boeing 747,KLM’s newly designed home baseKLM enters the Jet Age with thePH-BUA Mississippi, touches downSchiphol Airport is takenarrival of the Douglas DC-8, PH-DCAat Schiphol. The new arrival markesinto operation.Albert Plesman. Jet-powered aircraftthe start of the wide-body era. Thereduces flying time and the numberBoeing 747 carries 353 passengers.of intermediate landings required.1989, January19921993KLM and Northwest Airlines startsKLM becomes the first airline on theKLM carries more thanup cooperation to jointly create aEuropean continent to introduce a10 million passengers inglobe-spanning route network.loyalty program for frequent flyers,one single year.under the name Flying Dutchman.2008, June 282008, March 302005, SeptemberKLM issues its last paper ticket.The Open Skies Treaty makes itAIR FRANCE KLM introduces its jointFrom now on only e-ticketspossible to fly to any destination inloyalty program for frequent flyers,are issued.the United States and vice versa.Flying Blue.2010, April 142011, June 302015, November 14KLM welcomes its first Boeing 787-9KLM introduces a new women’sKLM operates its first scheduleduniform, designed by Mart Visser.service, partly powered byDreamliner PH-BKA Sunflower, aDutch design marks KLM’ssustainable aviation fuel, to Paris.ground-breaking aircraft in terms ofDutch roots.KLM’s quest for alternatives todesign and materials used.KLM 2019 Annual ReportReport of the Board of Managing Directorsfossil fuel began in 2007.