WEBVTT - Air France-KLM CEO Talks Gulf Flights

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news, Well.

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<v Speaker 2>List morning, the World Airport Transportation Summit is underway in

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<v Speaker 2>Rio de Janeiro.

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<v Speaker 3>Let's go live to our colleague Guy Johnson.

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<v Speaker 1>He is co anchor of the opening trade and standing

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<v Speaker 1>by with the CEO of Air France Kalm Hie said M.

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<v Speaker 2>Good morning guys, thank you very much. Indeed, yet I'm

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<v Speaker 2>here with a group. CEO of Air France KLM. Ben

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<v Speaker 2>Smith good morning. Okay, nice see. So the news overnight

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<v Speaker 2>is that you have just announced that you're flying back

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<v Speaker 2>in to Read. You're flying back into the Gulf. Is

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<v Speaker 2>this the first of many steps or is this the

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<v Speaker 2>first step you are taking? And then you're going to

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<v Speaker 2>assess the situation and then you're going to look at

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<v Speaker 2>what the rest of the golf is going to be

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<v Speaker 2>looking like. What is the situation in the Gulf for

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<v Speaker 2>an airline like you.

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<v Speaker 1>Well, today we're very cautious in returning the cities which

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<v Speaker 1>we've pulled out of. So we've gone back into read

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<v Speaker 1>closer cooperation with the French state from a security perspective,

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<v Speaker 1>with our cabin staff, with our pilots. We have not

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<v Speaker 1>reopened to BAI as of yet. Tell them the Bay

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<v Speaker 1>route are still closed, Gamma is still closed for us.

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<v Speaker 2>So any what would get you back into those into

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<v Speaker 2>those routes. What do you need to see in terms

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<v Speaker 2>of the situation on the ground, What did you see

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<v Speaker 2>and read? What do you need to see elsewhere?

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<v Speaker 1>Well? I think we need as as just said, we

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<v Speaker 1>need to have all of our stakeholders aligned to put

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<v Speaker 1>us in a comfort position to go and right now

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<v Speaker 1>we're not. We're not there on the destinations that we have.

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<v Speaker 3>But does it need a peace deal?

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<v Speaker 2>Does it need does it need a full cessation of hostilities?

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<v Speaker 3>Does it need?

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<v Speaker 1>Like?

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<v Speaker 3>What kind of boxes do you need to tick here?

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<v Speaker 1>I mean peace steel, no peace deal. As long as

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<v Speaker 1>we're confident that it's not going to have an impact

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<v Speaker 1>on safety at the particular airport, it doesn't necessarily need

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<v Speaker 1>to be a peace deal. But we need to have

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<v Speaker 1>confidence that we're not going to see any danger around

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<v Speaker 1>those airports. Okay, so read there never was and there

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<v Speaker 1>doesn't seem to be any today, So we don't have

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<v Speaker 1>as a precaution. And we pulled out when the fighting started,

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<v Speaker 1>but now we're comfortable to go back in.

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<v Speaker 2>Let's talk about the situation when it comes to fuel.

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<v Speaker 2>I think you updated the market a couple of days ago.

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<v Speaker 2>You talked about the idea, you've definitely got enough fuel

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<v Speaker 2>for the summer. What happens after the summer kind of

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<v Speaker 2>you get the summer and then.

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<v Speaker 1>What So, we've we've secured fuel through the end of August.

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<v Speaker 1>We've got our full capacity in place. We've not we

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<v Speaker 1>have not pulled any of our capacity. It's a little

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<v Speaker 1>unfortunate that a lot of customers are still not confident

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<v Speaker 1>the probably enough fuel. So we're seeing a late booking

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<v Speaker 1>environment a little. You know, people are booking a little

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<v Speaker 1>closer than we've seen in the past as far as

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<v Speaker 1>the fall goes or the winter goes. A bit too

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<v Speaker 1>early for us to have made a decision on how

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<v Speaker 1>much capacity we keep in the market.

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<v Speaker 2>Okay, just in terms of that messaging you've had to deliver.

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<v Speaker 2>At the beginning of the war, there was this fear

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<v Speaker 2>that there wouldn't be enough jet fuel, and the industry

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<v Speaker 2>came out very quickly and said, we've got enough fuel.

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<v Speaker 3>The summer's going to be fine.

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<v Speaker 2>If fuel went up to sgnificantly from here, So in

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<v Speaker 2>July or August you see a big spike in fuel

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<v Speaker 2>are you effectively guaranteeing that all the routes that you're

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<v Speaker 2>committing to.

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<v Speaker 3>Now you are going to fly. I'm going to get

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<v Speaker 3>there and I'm going to get home.

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<v Speaker 1>Well, first off, if the fuel significantly spikes, we're going

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<v Speaker 1>to have to raise ticket prices to compensate for that.

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<v Speaker 1>And when you raise ticket prices, you'll be less demand.

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<v Speaker 1>So the need for the full capacity that we had

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<v Speaker 1>planned is probably not going to be going to be

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<v Speaker 1>the case. So how we balance that out with the

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<v Speaker 1>available the fuel, the price of fuel that you know,

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<v Speaker 1>the willingness for customers to pay. We'll see how thats.

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<v Speaker 3>So you might consolidate some routes with that.

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<v Speaker 2>Is there a plan if you went up further to

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<v Speaker 2>you would change maybe some of the current routes, the

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<v Speaker 2>frequencies kind of where you fly, maybe the overlap between

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<v Speaker 2>France and KLM changes. Is there a plan in place

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<v Speaker 2>if fuel goes sharply high from here to kind of

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<v Speaker 2>consolidate within the group.

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<v Speaker 1>Sure, I mean, we've our our companies are old, are

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<v Speaker 1>our global, our global brands and you know a lot

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<v Speaker 1>of experience in adapting or last minute, medium term, long term.

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<v Speaker 1>COVID was probably the most challenging for us to manage

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<v Speaker 1>capacity and frequencies. So yes, depending on you know, how

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<v Speaker 1>the availability and price of fuel does evolve over the

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<v Speaker 1>next few months. Will adaptive it means or removing frequencies,

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<v Speaker 1>consolidating frequencies, and we'll we'll we'll make do whatever comes

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<v Speaker 1>with us.

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<v Speaker 2>But that's not a plan you've got ready to go.

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<v Speaker 2>That's something that you will do effectively kind of on

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<v Speaker 2>the fly.

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<v Speaker 1>Correct, you know, we're not I mean, the supply of fuel,

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<v Speaker 1>price of fuel could be different in different parts of

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<v Speaker 1>the world, So to guess what's going to happen, it's

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<v Speaker 1>it's pretty pretty difficult to do that. But you know,

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<v Speaker 1>airplanes can move around relatively easy and quickly. You know,

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<v Speaker 1>we've we've managed to do that over the last the

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<v Speaker 1>last few weeks where we've taken some capacity other parts

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<v Speaker 1>of the region in our network and started use it

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<v Speaker 1>on roots overflying the Gulf where there was there's been

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<v Speaker 1>a lack of capacity, so to Southeast Asia as an example,

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<v Speaker 1>where a big part of the European traffic what's going

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<v Speaker 1>via the Gulf, and now we've been able to offer

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<v Speaker 1>something that you know, it's important.

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<v Speaker 2>Let's just talk about that for a minute, how sticky

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<v Speaker 2>do you think that demand is to go over the Gulf?

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<v Speaker 3>I e.

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<v Speaker 2>Do you think people want to will want to fly

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<v Speaker 2>through the Gulf after this, once there is a peace deal,

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<v Speaker 2>do you think you may retain some of that traffic

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<v Speaker 2>going out to Asia.

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<v Speaker 1>Well, I think it's a It's another example of how

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<v Speaker 1>dependent Europe is and European customers are on flying over

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<v Speaker 1>the Gulf to destinations that I think could support more

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<v Speaker 1>NonStop service. You know, with an unleveled playing field, You've

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<v Speaker 1>got companies that are based in the Gulf that have

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<v Speaker 1>been able to attract a big portion of the European

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<v Speaker 1>demand via the Gulf. So when full capacity comes back

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<v Speaker 1>in the Gulf, I would expect some you know, as

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<v Speaker 1>if five of customers that you know in the past

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<v Speaker 1>would have flown over the Gulf to prefer to fly NonStop.

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<v Speaker 1>But the golf carriers are going to be Our expectation

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<v Speaker 1>is is they're going to want to get their full

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<v Speaker 1>capacity in plays.

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<v Speaker 2>Either talk is possible, the talk is it's going to

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<v Speaker 2>be a massive price wall once they come back.

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<v Speaker 3>Tim Clark's gonna want his capacity.

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<v Speaker 1>Back at Everard's for sure, for sure.

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<v Speaker 3>So you ready for that. What does that look like.

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<v Speaker 1>Look, they're the three golf carriers plus Turkish. They're extremely aggressive.

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<v Speaker 1>That's not new for us. As I said, without a

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<v Speaker 1>without a level playing field, we're not flying NonStop to

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<v Speaker 1>many of the routes that under a normal scenario where

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<v Speaker 1>there would be a level playing field that would be

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<v Speaker 1>able to support. So this is not it's not going

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<v Speaker 1>to be a surprise to us. Okay, just back into

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<v Speaker 1>the issue of pricing and demand. Well, the consumer take

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<v Speaker 1>much more.

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<v Speaker 2>The storry post post pandemic has been that I'm going anywhere,

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<v Speaker 2>I don't care what the price is. I'm going. I'm

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<v Speaker 2>going to apply up the front of the plane. Demand

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<v Speaker 2>has been very strong. If prices get pushed much higher

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<v Speaker 2>from here, does that still apply? Are you confident that

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<v Speaker 2>the pricing way to defect demand? What are you what

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<v Speaker 2>are you expecting to have?

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<v Speaker 1>Well, we're pleasantly surprised that demand is holding. Paris are

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<v Speaker 1>still a very attractive destination, Amsterdam is still a very

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<v Speaker 1>attractive hub to flow over. So what we're seeing on

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<v Speaker 1>the bulk of our network is a strong, strong demand,

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<v Speaker 1>predominantly in the premium cabins, and we're not seeing customers

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<v Speaker 1>avoid the trip sometimes. As I said, they're booking a

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<v Speaker 1>little closer in. Yeah, but demand is very strong. That's

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<v Speaker 1>all about M and A. Okay, that's the way easy Jet.

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<v Speaker 2>So easy Jet those that know is a is a

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<v Speaker 2>low cost carrier based in Europe. Castle Lake, we understand

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<v Speaker 2>has made an approach. The details of it remain sort

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<v Speaker 2>of failure opake. At this point in time, you have

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<v Speaker 2>some experience in working with them. We've obviously seen what

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<v Speaker 2>the SAS deal did and how you and how you

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<v Speaker 2>manage that process. Air France was the first name that

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<v Speaker 2>came to mind when I heard that they were involved.

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<v Speaker 2>Came to mind any conversations with Castle Lake. Any interest

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<v Speaker 2>you in any way involved in this process?

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<v Speaker 3>What's happening?

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<v Speaker 1>No, so we're not involved. Is there any interest? It's

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<v Speaker 1>not something we've been given much thought. I mean easy

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<v Speaker 1>Jed is a you know, it's a it's a very

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<v Speaker 1>impressive airline. They've had a fantastic i would say history

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<v Speaker 1>in how they've developed. They've got some great positions you

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<v Speaker 1>know in Geneva, London, Gatwick, et cetera. So it's very attractive.

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<v Speaker 1>In their market cap is low, so it's not surprised

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<v Speaker 1>to us that there's there's a party or there's a

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<v Speaker 1>group that's looking at you know and buying them or

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<v Speaker 1>buying aforshrom them. Not as surprise to us. Your Castle

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<v Speaker 1>Lake is an excellent private equity firm as well. We've had,

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<v Speaker 1>we had and still have a great experience with them

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<v Speaker 1>in sas as you've just said, So it's not surprising

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<v Speaker 1>to us. But we're not involved in this transaction.

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<v Speaker 2>But your sense would be that the market is undervaluing

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<v Speaker 2>that business right now, undervaluing the slots in Geneva and

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<v Speaker 2>places like that, undervaluing the slots that they have for

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<v Speaker 2>airbus aircraft and to lose Your sense is that that

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<v Speaker 2>is being undervalued at the moment.

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<v Speaker 3>Hence why I was saying the interest.

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<v Speaker 1>Well, the slot portfolio is quite impressive. Yeah, the number

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<v Speaker 1>of slots they have at gat Work. I mean they've

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<v Speaker 1>got some new slots at le Nate that they gained

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<v Speaker 1>through you know, the remedy slots that Lufthansa had to

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<v Speaker 1>give up the coaches of it t A and you

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<v Speaker 1>know even what they have at Orley in Paris is

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<v Speaker 1>we're all uncomfortable with the position they have in Orally.

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<v Speaker 1>So it is impressive.

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<v Speaker 2>So so if cultle A came to you your you're

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<v Speaker 2>sounding like you would be.

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<v Speaker 3>Do you think this is this?

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<v Speaker 2>This could be an interesting opportunity if they came and

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<v Speaker 2>wanted to talk to you, you pick up the phone.

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<v Speaker 1>Oh yeah, for sure. Yeah, and I would expect OLI

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<v Speaker 1>our competitors to do the same.

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<v Speaker 2>Okay, but but yeah, I don't think i G would

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<v Speaker 2>work very well.

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<v Speaker 3>But I could see from sweat be working. Do you

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<v Speaker 3>expect the call? Do you think they're going to come

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<v Speaker 3>to you?

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<v Speaker 1>I pick, I don't know. I mean, have to get

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<v Speaker 1>that led to that question to because.

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<v Speaker 3>Of a fairly early stage in the process.

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<v Speaker 1>I think so okay, so but it's great to catch up.

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<v Speaker 3>Yeah, thanks guy, really appreciate it. Thanks you very much

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<v Speaker 3>and deep spending some time with us today.

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<v Speaker 2>Ben Smith, the group CEO at Air France KLM, thank

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<v Speaker 2>you very much