Deutsche Lufthansa Ag Reg

A wonderful good morning or good afternoon, ladies and gentlemen. Welcome to the Lufthansa Group Q1 2024 results analyst conference call. My name is Francie, the course call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by Q&A session. You can register for questions at any time by pressing star N1. In the interest of time, please limit yourself to two questions only. For operator assistant, please press star and zero. At this time, it is my pleasure to turn the conference over to Dennis Weber, Head of Investor Relations. Please go ahead, sir.

Yeah, thank you very much and good morning, ladies and gentlemen. Welcome to the presentation of our first quarter results 2024. With me on the call today are our CEO, Carsten Spohr, and our CFO, Remco Steenbergen. They will present you our results and discuss our commercial and strategic outlook for the year ahead. Afterwards, you'll have the opportunity to ask your questions, and as just mentioned by the operator, and similar to prior quarters, I would like to ask you to limit your questions to two so that everybody has a chance to participate in the Q&A session. Thank you very much, and over to you, Carsten.

Thank you, Dennis, and a warm welcome, everybody, from my side as well. As you all know, in our industry, the first quarter is the weakest due to seasonal factors, but nevertheless surprising, unfortunately, in a negative sense, is the size of our quarterly loss this year, which, though, is mainly due to strike effects. But before Remco and I get into the details of our numbers, let me take a quick look moment to broaden our perspective and look at the global aviation situation starting with geopolitical instability obviously unfortunately the war in ukraine continues the situation the middle east has recently even deteriorated to a certain degree and that has not only led to repeated cancellations of flights into the region but it has also driven up the price of oil second And unchanged, though, is people's desire to travel the world and the ongoing strength of demand, which I really think is impressive and an impressive proof of that change of behavior across the globe in various parts of society with a positive swing towards travel. However, also, as you all know, various bottlenecks continue to limit the supply side of our industry. Delayed aircraft, delayed seat, delayed engines, unplanned engine overhauls, ongoing training requirements, sometimes our bottleneck, and still, in some cases, staff shortages at our system partners, mainly at the airports and ground handling companies. As a result, also our growth in the Lufthansa Group is lower than originally planned. We'll come to that in a minute. Operations also continue to be not as efficient as planned. For example, because of the need to increase the number of reserve aircraft or crews which cannot fly, for example, being trained for aircraft not yet delivered. In addition, our key hubs, especially in Germany, are suffering from significant cost increases. Taxes, fees, charges in Germany, for example, have increased by more than 80% since 2019. And now, as of tomorrow, the air traffic tax will go up again by another 20%. Added to this are the cost of EU regulations, such as the sharp increase in expenses for emissions trading, and from Jan. 1, 2025, on the cost of SAF, sustainable aviation fuels, in terms of the blending quota. At the same time, the necessary consolidation of our industry in Europe is being at least somewhat hampered by the demand for quite comprehensive remedies. In short, the environment in which we operate out of Europe is and remains challenging. With this, let us now come to the actual purpose of our conference today and look at our results. The Lufthansa Group revenues reached 7.4 billion euros, an increase of 5% over the previous year. Demand for air travel, as mentioned, remains strong. we welcomed 24 million guests on board, 12% more than the previous year. Adjusted free cash flow was lower than the first quarter of 2023, but still clearly positive at 3 or 5 million euros. Nevertheless, on April 15, we had to announce a higher than expected quarterly loss of 849 million euros. 350 million of this was due to the direct and indirect effects from strikes, be it from our own staff or from personnel of our system partners, airport or security checks. In our group alone, the various calls by the unions added up to more than 550 hours of strike action. In addition, there were strike-related work stoppages by airport security personnel, as just mentioned. In total, 6% of all planned flights were affected and we disappointed hundreds of thousands of passengers whom we have not been able to offer the reliability they expect and deserve from us. In addition, many customers were hesitant to book vacation trips short notice because of the strikes and the uncertainty they created also going into the summer months. These are financial burdens and losses in demand that no company in our industry can simply compensate for. Accordingly, we had to adjust our full-year forecast by the strike-related cost loss of €350 million in the first quarter and a further €100 million in the second quarter. Due to the losses, our core brand Lufthansa German Airlines has initiated measures to support earnings in the short term this year. Among other things, it is planned to reduce non-personal costs cancel new projects, and we review the need to fill vacancies in the administrative area. We undoubtedly had a difficult quarter. However, the challenges we experienced did not stop us from pursuing ahead with our strategic priorities. The financially worst quarter of the year is behind us. This marks a turning point, and we can look forward to the rest of the year with confidence. our investments in the offer are finally coming to the market and we are greatly enhancing the experience for our customers. With the launch of Lufthansa City Airlines, we are improving the profitability of our short-haul feeder traffic. By securing long-term wage agreements, we have good visibility on key cost items and more stable operations, allowing us to take advantage of growth opportunities along the way. And in this context, we can exploit the regained strength of our home markets and very strong summer bookings. Ladies and gentlemen, last Thursday, we were finally able to present the first Airbus A350 with our new Allegis cabin. Tomorrow, it will start its scheduled service initially from Munich to Vancouver. Second destination will be Toronto, followed by Chicago and Montreal. With Allegis at Lufthansa Airlines and Swiss Census at Swiss, whose product launch is scheduled for the second quarter of 25, we are once again setting premium standards in the industry. Because every guest has his or her own understanding of premium, we very much focus on maximum individuality. With Allegis, our guests can choose from a dozen different seat types across all classes. In total, we will install more than 31,000 new seats in our group's long-haul aircraft. Every new intercontinental aircraft will be equipped with either Allegis or Swiss X-Factory. Sorry, Swiss X-Sensus at X-Factory. And in our existing fleet, without Allegis cabins, aircraft which are being phased out, except for the 380 and the 330, for which we are also refitting the cabins with new state-of-the-art all-aisle access seats. the Boeing 747-8, and the Swiss 777s will also be retrofitted with Allegra's and Swiss 6 sensors in all classes. By 2028, Lufthansa and Swiss wide-body fleet will be equipped with a new product, basically across the whole fleet, and that is either including Allegra's or the mentioned all-aisle Xs, at least for business class, of course. We'll be investing around 4.5 billion euros in upgrading our offer this year. In addition to the modernization of our fleet and the renewal of our intercontinental cabins, we're also focusing on upgrading customer communication. Let me give you some examples for this. Communication heavily affects customer satisfaction, especially when things do not go according to plan. That's why we are expanding baggage tracking and enabling customers to rebook flights and request refunds themselves without the support of customer service personnel via our app. As part of the closer integration of our loyalty program into the offer, customers will be able to redeem points for award flights directly in the Lufthansa app going forward. These examples are only some of many other measures we are currently implementing using both the power of digital and the strength of our team. In network management, the launch of Lufthansa City Airlines marks a major step forward. Lufthansa City Airlines will start flying at the end of June. The airline will initially operate flights from Munich to domestic German and European destinations. In line with Lufthansa's product offering, passengers onboard Lufthansa City Airlines can expect Lufthansa's product range and customer experience for short and medium-haul flights. Lufthansa City Airlines will play an increasingly important role in the feeder network of our hubs. This will strengthen our short-haul network and, with competitive feeder services, secure our planned growth on the long-haul routes, which is obviously key to us. With the order of 40 Airbus 220-300 and a further 20 purchase options, we have set a clear signal for the future of this new airline. The first two of our four Airbus 319, which will also be operated at Lufthansa City Airlines, will be delivered this year, and they already have been painted in the new Lufthansa City Airlines livery. In view of the innovative products and services that will be launched in the coming month, it's good news that the risk of strikes has decreased significantly. We were able to reach long-term wage agreements for both our ground staff and our colleagues in the cabin and cockpit of Lufthansa Airlines, giving our guests and ourselves planning security in this regard. We achieved now the same for the flying personnel at Austrian Airlines only last week, and only this morning we concluded a new agreement for the pilots of Eurowings. As a result, most, by far the most of our workforce is now covered by new, long-lasting collective agreements. Our employees have achieved a great deal through their hard work in the recent years. We also want their salaries to develop appropriately and well. We offer them the best conditions in the industry and the agreements we have now reached are the best proof of this. However, it is also clear that the high and now rising personal costs represent a major economic challenge for us to which we must find answers. And this will not be possible without significant productivity gains in the coming years. Ladies and gentlemen, our capacity expansion in the second quarter is likely to be somewhat lower than originally planned, partly due to continuous delays in delivery of new aircraft. For the full year, we have moderated our capacity plans to now 92% which is two percentage points less than originally planned. Nevertheless, we are growing strongly. We are confident that we have another very good summer ahead of us. At this stage, bookings for the summer period are up another 16% on the previous already record year. So demand is outstripping our capacity growth. The drop in demand that we experienced during the strikes has been overcome. even if we cannot fully make up for the booking losses in April or for April and for May. Encouragingly, momentum in our home markets has picked up markedly in the past couple of months, catching up with the existing strength of the US market, which has been visible for quite some time. As a result, we expect both in summer a strong performance in the inter-European travel as well as as a continuing strength on the transatlantic, now driven by good demand from both ends. The recovery in Asia-Pacific, however, is progressing a little bit more slowly, at least when it comes to China. In comparison to China, India and Japan are doing much better. The latter two also contribute to the recovery of corporate travel, which continues to finally progress, especially on long-haul routes, where again, the transatlantic continues to be leading. Overall, we are pleased to see that demand remains solid and good, which also benefits Lufthansa Technik very much, as the need for maintenance, overhaul, and repair services around the world continues to grow. The disproportionately high growth on Asian routes and the increase in European demand will lead to some yield normalization. However, we continue They have good pricing power and to record double-digit growth in volumes even after a very strong year 23. Ladies and gentlemen, I begin by talking about a turning point. Yes, the environment in our industry remains challenging, but we have every reason to be optimistic. First, as mentioned, Allegri is finally here. This year, we will receive a new long-haul aircraft with a new cabin every month. Next year, it will go up to two. aircraft per month. We are constantly improving our product while modernizing our fleet. We have long-term agreements with our social partners, and we continue to recruit around 1,300 new colleagues every month, for which we get 20 applications each. And not only do we have the best team in the industry, but we also have the right strategy to continue to be successful. We are accelerating our transformation, from an aviation group to a global airline group with our multi-hub, multi-airline, multi-brand business model at the very heart of our strategy. And on top of that, as you know, the world-leading MRO provider, Lufthansa Technik, among other companies. And this strategy is paying off by making us more international, more flexible, quite more resilient, and surely more customer-focused. Thanks for your attention. I will now hand it over to Remco, who will take you, as always, to our financial highlights, provide you with some more specific information on the financial outlook before we look forward to the Q&A session. Thank you.