Deutsche Lufthansa Ag Reg

And gentlemen, welcome to the Q2 2024 Results Analyst Conference Call and Live Webcast. I'm Moritz, 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 a question and answer session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may... With the question in the written field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's our pleasure to hand over to Marc-Dominik Nettersheim, Head of Investor Relations. Please go ahead.

Good morning here from Frankfurt. Welcome to all of you. Thanks for your interest. We need to give you an update on our future results on strategic outlook and milestones and on the business going forward for the rest of the year. Sitting with me today are our CEO, Carsten Spohr, and our board member, Michael Niggemann, who's also acting CFO. And as always, after the presentation, you have the chance to ask questions, but also, as always, we ask you to limit your questions to two so that everybody can participate. And with that, I hand over to you, Carsten.

Yeah, thank you very much, Marc, and warm welcome on my behalf as well. Ladies and gentlemen, Some of you I met many times before and you know I have said before that the pace of change in our industry is further accelerating and you only have to look at the last months to get a sense of the pace of economic change in aviation. In March this year, we were enjoying the third best financial guide in our company's history and just one month later, We need to adjust our full-year guidance due to the significant impact of the strikes, especially at Lufthansa Airlines. And then two weeks ago, we provided an ad hoc update on the quarter's key figures and again adjusted our outlook. And this time not for strikes, but for commercial reasons. And I don't want to sugarcoat this in any way. The first half of the year did not go as expected, as you well know, for the entire industry, and that surely includes us with the numbers we are presenting here today. But let me allow to begin by highlighting some positive aspects. There is a continued high level of interest in travel and demand for tickets of airlines around the world in basically all our markets. obviously shows that the most important trend for our industry after COVID does remain intact. And especially important for us at the Lufthansa Group is that this is more than true for the premium cabins in long range, which of course are at the core of the core of our commercial business. The first half of the year, our passenger airlines brought over 60 million passengers safely to the destinations. That represents a 10 percent increase compared to the previous year. This figure is very much in line with our capacity expansion of 11 percent in the first half of the year. At the end of June, this brought us back to nearly 93 percent ASKs compared, of course, as always, to the reference year 2019. This growth in capacity both for us and obviously for our competitors, increases supply in the market, which in turn puts some pressure on prices. And although these are still well above pre-crisis levels, yields are somewhat normalizing across the world. This obviously is felt by airlines around the world. And this is, by the way, why we have decided to reduce our planned capacity growth for the coming winter by a certain degree, and we'll come to that later on. Moreover, also no secret that some Asian markets and business travel in general continues to recover more slowly than planned, different parts of the world, but in general. And in addition to these market-wide, industry-wide organization of yields, the first half of the year did see some several special one-time effects for us in the Lufthansa Group. Most of all, of course, the strikes in the first quarter which had an adverse effect on our financial performance, performance more or less up to half a billion euros. Second, the ongoing delivery difficulties of basically all aircraft and engine manufacturers are affecting us at Lufthansa Group somewhat more than others because we are right in the critical phase of the largest fleet modernization in our history. And to illustrate this, this year alone, 24, we wanted to put 15 new 787 into service. In the end, none of them will enter service in 2024. Thirdly, the certification process for new seats, for new cabin interiors, is taking significantly longer than it did before the pandemic. This is also unfortunate timing for us as this coincides with the launch of our new Allegri's next year Swiss Census cabin reconfiguration, bad timing again. And these circumstances combined with indeed complex collective bargaining and operational regulations we have in the main line are leading to additional inefficiencies, especially in the main line itself and the Lufthansa City line feeding our hubs in Frankfurt and Munich. On top, here in Germany, our most important home market, we are affected by significant increases in taxes and fees, and all that combined These aforementioned factors means that the consolidated results for the first half of the year fell below our own expectations of last year and now we expect an adjusted EBIT of between 1.4 and 1.8 billion euros for the full year. This outlook is largely dependent on the traditionally important fourth quarter in Lufthansa Cargo and the earning performance at Lufthansa Airlines. And to achieve the balanced results for Lufthansa Airlines for the full year, at least hopefully, and to accelerate the overall modernization of Lufthansa Airlines, a comprehensive turnaround program has been launched. Michael will go into some more detail on this in a moment. Let's look at the results of the whole group in the second quarter for a moment. We increased the number of available seat kilometers by 9% compared to the previous year. Lufthansa Group reached 10 billion euros, by the way, for the first time in the second quarter, which represents a 7% increase compared to the previous year. And we were able to keep unit costs at a constant level, which was obviously at least the achievement we are a little bit proud of, because at the same time, with unit revenues falling by 5% compared to the previous year, this alone resulted in a 300 million euro earnings impact. The whole group achieved an adjusted EBIT of 700 million for the second quarter, as you know. And it's pleasing that apart from Lufthansa Airlines, which I already referred to, all the other passenger airlines in the group are more or less developing in line with the market developments in this very challenging environment. And the same applies to Lufthansa Cargo. For Lufthansa Technik, I would like to say that they probably outperformed expectations in our course for at least what they were, achieving another record result in the first half of the year. I think it's worth to say they will be finishing this in a very positive way this year, 24, as well. Nevertheless, it's evident that our combined half-year results are below expectations. However, we manage our group, as you well know, with a long-term perspective rather than focusing on one quarter after the other. Therefore, let me spend a few minutes on the important fact that we achieved four significant strategic milestones in this second quarter alone. First, the premium business, especially in the long haul, is doing extremely well, as I already mentioned. It's key for us Therefore, in April, we were finally able to present the first Airbus A350 with the new Lucas cabin. We now add one each month until the end of the year, including introducing our new first class. Starting next year, we even add two aircraft per month, one from Airbus or Boeing and one including Hurst. We have had now a triple number of flights with more than 50,000 guests, and I'm delighted to say that the feedback from the guests is even above the quite optimistic expectations we have had. And again, I mentioned for the third time, this is key for our business and therefore so important also that our crews come back with very positive feedback, so that makes me quite optimistic on going the right path here for years to come. As you know, by the end of the year already, we will expand the network to six destinations. It's Vancouver, Toronto, Montreal, Chicago, San Francisco, and Shanghai. Even more important, I think this will be installed on more than 100 aircraft in Lufthansa, and also the introduction of Swiss sensors, which is how we call the similar product in Swiss, will start next year. Second strategic milestone is that we continue our internationalization to be less dependent on the German market. And this is obviously demonstrated by our investment into ITER. After the United States, Italy is our second most important market outside our home markets. And with ITER, we're not just acquiring a company with a quite positive growth perspective being based on the startup culture and cost structure as they have been able to achieve, but we are also further developing this very important Italian market for us, as I just mentioned. And last but not least, I think this is sometimes getting lost in the discussion, we are getting access to adding Home Fiocino as hub number six to our multi-hub network. It's next to Munich, the only other five-star hub on the European continent. Both will be part of our system. And last but not least, it's one of the few hubs in Europe which has room for extension. might not be important for the next one, two, or three years, but surely for the strategic outlook, which is professional for this trend action. Our customers will have access to more destinations, more connections, especially to southern destinations. Think about Latin America, North Africa, the Middle East. And already today, 90% of our connecting passengers have the option to use at least one alternative hub in our network. That number by math will increase with an acquisition of the sixth hub. And 10% of our customers today can reach their connecting destination by using all of the Lufthansa group hubs. Also, that, of course, is the logic which another hub will further enhance. So that brings me to the third strategic milestone, the launch of Lufthansa City Airlines, which is our very cost efficient answer to the need to feed our growth on long range, which we have decided to invest in. Being based on rather small European catchments compared to London and Paris, you all well know for us speed is even more important than for many of our competitors. Therefore, cost-efficient speed is key. We will lose the option to do that with city line and we will continue even in an enhanced way to do that with the city airlines and the first airplane is flying while we speed. And last but not least, we announced to our shareholders and the public some time ago that we want to focus more on the core of our business, which is the airline business and Lufthansa Technik. After selling our catering business last year, we're happy to announce that we'll be closing the sale of AirPlus actually at midnight tonight. And we'll have not only half a billion euro earnings coming from that, but also we'll be able to focus even more on what we believe is the strategic core of Lufthansa. And I will now hand over to Michael for some more details on our key financial figures and some details on the mentioned turnaround program of Lufthansa Airlines.

Michael, over to you. Thank you, Carsten, and welcome to all of you all from my side. Let me come straight to the heartache. I'm pleased to report that our revenues in the second quarter have exceeded €10 billion, showing a 7% increase compared to the prior year. This growth was driven by a strong capacity increase of 11%. On the other hand, operating expenses increased by 10% due to the higher level of production and general cost inflation. Hence, our operating result stands at €686 million, which is a decrease of €400 million compared to the prior year. Looking at the reasons. Approximately 300 million euros thereof can be explained by a decrease in unit revenues, including approximately 100 million euro strike impacts. Looking at our different business units, the decrease is mainly driven by the passenger airline, particularly by Lufthansa Airlines. Hence, the results confirm what we had foreshadowed in our profit warning earlier this month. A market-driven decline in unit revenues and inefficiencies in our core business have affected us in the past quarter. Let me give you an insight into these two effects and how we intend to address them in the future. Let's discuss the macro level first. One can observe a tremendous capacity increase in all traffic regions, leading to an overall capacity growth of 12% in the second quarter. both our own capacity grew by 11% compared to the prior year. We now stand at 92% of office capacity in terms of 2019 levels, while many of our competitors have already surpassed pre-crisis levels. For us, this growth has two positive implications. Number one, the market is still growing. The demand for air travel is still strong. Number two, Even in spite of a strong 11% capacity growth, we managed our revenues well and could avoid an overall excessive yield decrease. However, additional capacity supply has, of course, an impact on ticket prices. Although our yields have been resilient to a certain extent, there was a year-on-year decline of almost 4%. This decline varies significantly between the traffic regions. In Asia, we have seen the highest industry capacity growth with almost 28% driven by the big Chinese carriers. Our yields to Asia have dropped almost 10%. Another region to highlight is North America, where we deployed 27% of our capacity. In the second quarter, we were able to grow our capacity over the North Atlantic by more than 15%, while yields were relatively stable with minus 2.6% compared to last year. Apart from the supply side, also the demand structure has changed over the past years. The leather segment has recovered faster than corporate travel. According to the other forecast, corporate travel will not fully recover to pre-crisis levels within the next years, whereas private travel has already crossed this threshold this year. After talking about the market environment, let's now have a closer look at our passenger airline segment. The operating results amounted to 581 million euros compared to 965 million euros last year. A large part of the decrease relates to 5.3% lower unit revenues. The last decline was larger than the yield decline since the seed loss factor was around one percentage point lower than last year. Total expenses have been burdened by personal cost increases and cost inflation of spare parts and increased in total by 10 percent on a year-on-year basis. On the other hand, total income grew by 5 percent and was thus outweighed by the increased expenses. Thanks to the strong capacity increase of 11 percent, unit costs remained flat. In terms of capacity ramp-up, the passenger airlines in total were in line with expectations. The adjusted EBIT margin of the whole passenger airline segment was at 7.2% in the second quarter and therefore more than 5% pitch points below previous years. When analyzing the figures more than this, next to the broader strike impact and the overall rust decline, one main driver for the downward trend cannot be overlooked. Lufthansa Airlines is clearly falling behind. Despite an 11% capacity increase and a 5% revenue increase, we have not been able to utilize a fixed cost leverage and CAF was up by 3%. In the second quarter, Lufthansa Airlines has achieved less than half of its adjusted EBIT compared to last year, and the passenger airline's EBIT margin of over 7% compared to only 4.7% at Lufthansa Airlines. In order to effectively fight the reasons for these shortfalls, a profound turnaround program was initiated. Given the structural changes, we need to reposition Lufthansa Airlines for long-term success in a competitive market environment, which is not an easy task, not a shortened task. Compared to other airlines in our portfolio, Lufthansa Airlines has been most exposed to current market difficulties. Apart from the market challenges, the cost structure needs to be analyzed as well. In particular, due to the delayed aircraft delivery, productivity is the lowest within our passenger airline segment. We will come to the multiple effects of the delayed aircraft deliveries in more detail later. But there are also inefficiencies, such as buffers and reserves in the system. Additionally, the disproportionately high location costs in Germany, in Frankfurt and Munich particularly, and collective wage agreements have a negative impact on earnings. With these findings in mind, Lufthansa Airlines still has high productivity and efficiency reserves at its disposal. The identified modernization initiatives within the Lufthansa Airlines turnaround program seek to realize this potential. First of all, we want to increase revenue quality by consistently implementing the premium promise we stand for. Next, the further optimization of the network will make increased seasonality of demand more manageable. And most importantly, productivity enhancement, for example, by optimizing crew planning, will bring an upside potential. Be in mind that our personal cost for Lufthansa Airlines amounts to approximately 3 billion euros each year, and we still have a productivity gap of more than 15% compared to pre-COVID levels, so there's a lot of potential to be realized. Alongside that, we are striving for the full potential of our leisure carrier Discover Airlines. And the new carrier for feeder traffic, Lufthansa City Airlines, is utilized to further expand their services at our hubs in Frankfurt and Munich at more competitive cost basis. Besides the shift of A330 aircraft from the Lufthansa Classic Airlines to Discover Airlines, also the A320 fleet of Discover Airlines and City Airlines will grow, while the A320 fleet of Lufthansa Classic will shrink. Partnerships with wet-lease partners will also be beneficial in this regard, in particular to reflect the increased seasonalization. And last but not least, fleet harmonization will be key in reducing complexity, reducing the number of long-haul aircraft types and thus phasing out the Airbus with 3,300, with 4,300, with 4,600, and Boeing 747-400 in total four subleads with around 50 aircraft. By 2028, the latest will bring our productivity to a new level. Also, aside from all these efficiency measures, we will review all other opportunities to strengthen our business model and create value for shareholders. This includes also our current cooperation with our competitor, Condor, and the cooperation agreements which they have with us. We terminated this agreement already in 2020. However, the termination became not effective due to a decision of the authorities. Consequently, we welcome the recent decision of the Dusseldorf Higher Regional Court, which confirms that we are no longer obliged to grant Condor special conditions in the form of discounted feeder flights. While we agreed with Condor on an interim period until the end of the current summer flight schedule, the termination of 2020 becomes effective at the end of October. We will need to see whether we find common commercial grounds with Condor on a potential cooperation beyond that point in time. As you can see, we take a look at all mid- and long-term leaders at Lufthansa Airlines. The turnaround program at Lufthansa Airlines also comprises immediate actions, which will have a short-term effect on our results, such as immediate variable cost reductions and admin hiring increases. Other measures include capacity reduction in the winter compared with originally envisaged growth. Among all the challenges, we have identified the one main pain point can easily be singled out, our fleet. Right now, our fleet is heterogeneous and outdated with different aircraft types, ages, sizes, and capabilities. Needless to say that this causes significant inefficiencies across the entire system, like higher fuel consumption, unreliable operations, increased maintenance efforts, operational inflexibility, and the multitude of different necessary crew training. To give you a concrete example, let's talk about comparing old and new technology long-haul aircraft. Operating one modern aircraft like a 777-9 or 787-9 instead of an old aircraft like 747-400 or A340-300 would produce a double-digit million-euro amount of higher profit each year. Where does that come from? Let's start with the product. A modern aircraft with a more sophisticated board product offers a clearly higher potential for generating ancillary revenues and revenues as such. Then, think about the belly. Be in mind that the belly capacity of most new aircraft is significantly larger Hence, higher cargo revenues can be achieved. Now let's discuss the cost side. New aircraft means less maintenance, which is a significant item in our P&L. Finally, the clearly biggest difference, fuel consumption. New technology aircraft have a 20% to 30% higher fuel efficiency than old aircraft. Across the entire portfolio of missing long-haul aircrafts, This adds up to a three-digit million earning impact each year just because the aircraft which we order do not arrive on time. But this figure, even though already big, represents only a fraction of the dilemma. Since they are further, much more difficult to quantify effects. Think about an increased aircraft reserve quota, higher irregularity costs, or the need to provide our customers with a state-of-the-art premium offer, which are all directly linked to the age of the fleet and delivery delays. Apart from that, the recurrent postponement in delivery schedules leads to a mismatch in the training status of our crews. We currently have more than 100 pilots trained on 787s, cannot be deployed as we have not received a single 787 at Lufthansa Airlines this year. Now we have covered our airlines extensively, I would like to turn your attention to two other equally important areas, Lufthansa Technik and Lufthansa Cargo. Lufthansa Technik has achieved record results, reaffirming a strong demand in the company's outstanding market position in the MRO sector. The 15% revenue increase we had seen in the first quarter continued with another 16% in the second quarter, driven by the aircraft component services and the engine services signals. Although Lufthansa Technik is facing continuing challenges like the recruiting of qualified employees or bottlenecks in the supply chain, the company achieved an adjusted EBIT above last year's result. For 2024, in total, we expect an adjusted EBIT at previous year's level since inflation is a counter effect to the continued growth of the MRO market. Our cargo profits have remained on par with the prior year, reflecting the expected normalization in air freight. Yields remain extremely high compared to pre-crisis times, and volumes are ticking up again thanks to the eventual global destocking. For the full year 2024, we expect a significant increase in revenues in the logistics segment. Based on our assumption that inflation-related costs increases, are likely to be partially offset by structural savings and efficiency improvements. We therefore forecast the adjusted EBIT of Lufthansa Cardo to be roughly at previous year's level. Let's look at the group as a whole again. In the first half of this year, the generation of free cash flow was significantly better than the operating results suggested, driven by a robust booking intake for the summer season. Other working capital items remain flat despite the still significant year-on-year growth. Again, the majority of the investments related to fleet modernization and the roll-off of new seats. However, the shift of capex due to delayed aircraft delivery supported the free cash flow. Available liquidity is still above our target range with 10.6 billion euros supported by a strong adjusted free cash flow, which was also positive positively affected by capital expenditure shifts. Compared to the beginning of the year, net debt declined slightly because of the generation of free cash flow and also the net pension liability decreased due to a 0.2 percentage point higher discount rate. These reductions have severely impacted our leverage ratio, which was kept at the level of 2.0, including pensions. In order to protect ourselves Against fluctuations in our pension obligations and loss in net debt, we have implemented a liability-driven investment strategy, so-called LDI, to the allocation of pension assets. Our fuel cost expectations remain roughly unchanged. A slight decrease in the price of rent in the past couple of weeks leads to an expected tailwind of 200 million euros regarding our fuel bill in 2024. The hedge ratio of 82% for 2024 and about 60% for 2025, with a bit more than half of the hedges relating to jet fuel and the rest to crude oil, we are well protected against the risk of rising prices, including the effects of possible escalation of conflict in the Middle East and its possible impact on the oil prices. Coming to the outlook. For the full year, we expect an adjusted EBIT of 1.4 to 1.8 billion euros. If you compare the midpoint of this range to our previous guidance of 2.2 billion euros, this implies a rough development, which is a low single-digit figure lower than originally expected. As for capacity, we stick to a full year outlook of 92% relative to 2019. 96% in the third quarter. This implies that capacity stays at a similar level also in the fourth quarter. The delivery schedule of Boeing does not impact our capacity planning in 2024 since we did not assume to operationally deploy any of the Dreamliners this year. Unit revenues are expected to decline in the low to mid single digit percentage range for the full year. and low single-digit in the third quarter. This reflects the somewhat weaker market environment compared to last year. In this context, we might have a further look at capacity planning throughout the rest of the year in order to support the yield development. Tusk is expected to increase in the low single-digit percentage range next quarter, primarily due to ongoing cost inflation. Our cask guidance for the full year is unchanged. We believe in a flat cask, excluding strike effects, and a low single-digit increase when including strike effects. Even the reduced adjusted EBIT guidance or adjusted free cash flow for the full year is expected to be significantly below €1 billion, dependent on aircraft deliveries and capital inflows from sale and lease back. To achieve those targets, the most important thing is, of course, satisfied customer. To dig deeper into this topic, I hand over to you, Carsten, again.

Thanks. And next to the mentioned strategic milestones, which we believe are foundation for future success, indeed improved customer focus, which the whole industry, I think, is trying to get back to after COVID is the other element of success. And therefore, I think it's worth to say that Allegri is surely one key part, but only one part of our large-scale premium offensive. This goes from intercontinental catering and business class to more staff at the airports to improve digital services. We are constantly working to provide our guests with a significantly enhanced service experience along the whole journey. Compared to last year, for example, we have increased the number of our own staff at our hub airports by more than 10%. To further improve service quality, we have done intensive trainings of our more than 3,000 service center call center agents. And we will also, and that obviously is becoming more and more important in our industry, continue to improve our app, which finally was just recently nominated at the World Aviation Festival as the best airline app of the year. In June this year, it was used by an average of almost 600,000 guests per day, which is more than we have passengers per day, an increase of more than 40% over the previous year, and as much as difficult to calculate, we are more or less generating approximately 1 billion euros in annual revenue through the app by now. Key to the app usage is, of course, to have it able to serve in the case of irregularities, which unfortunately, for our industry, are not completely avoidable. But nowadays, we do more than half or more or less half of our refunds via the app. We do up to 80,000 rebooking every month. And I think there's no end in sight to improve the service element the app provides for the overall customer experience. B2C, business with customers, let's spend a few minutes on our B2B business, and there let's focus on Technic. I think it's worth to say that Technic remains to be a jewel in our portfolio. The company remains on a successful course, and we are very convinced that it will continue to expand its leading global position with the growth program, Vision 2030. The program provides for extensive investments in the expansion of the core business of nuclear technology and in locations in Europe, America, and Asia. For example, we are planning to build an additional repair facility for engines and aircraft components in Portugal very soon, alternatively, another location in Southwest Europe to expand our own production capacities and, of course, to recruit additional specialists when the German labor market is more and more difficult to make that happen. The expansion of the digital business will be another important focus, but the technique will also make for sure an even greater contribution to security and defense in Europe with additional partnerships and activities in the defense sector. And in that regard, we would like to take this opportunity today to draw your attention to a Capital Markets Day for looks at the Technik towards the end of the year. As soon as my new colleague, Till Streicher, is on board, the two of us, together with the management of Technik, will prepare that for you and looking forward to host those of you who are interested to join us. Ladies and gentlemen, there is no question that the first half of the year was not as financially successful as we would have liked. However, and hopefully you could feel and hear that, we are optimistic about the future. We expect the positive results for the year as a whole, driven by sustained demand, especially in the premium classes, and the mentioned continued strong performance of Rusta Technik. The multi-hub, multi-airline, multi-brand trilogy is unique, the way we optimize this for in the future six hubs. It remains our key formula for success and obviously will evolve further with the integration of ITER in Rome. Therefore, we are confident that by continuing this strategy being implemented, we will further consolidate and also expand our position as Europe's most successful airline group. Thank you very much for your attention so far. And now Michael and I and Marc look forward to your questions and providing you the best answers As we can. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Please limit yourself to two questions only. Anyone who has a question may press star and one at this time. One moment for the first question, please. And the first question comes from Alex Irving from Bernstein. Please go ahead.

Hi, good morning. Two from me, please. First, on your transformation plan, do you have any financial targets that come with this? You talk about an 8% margin. Is that still the goal? And second, very good performance in Technic this quarter. Really impressive. I think it's the first time with more than 200 million EBITs. But are you over-earning here, especially given the GTF problems and delivery delays at the major OEMs? Where should we think about earnings normalizing for Technic, please?

Thank you. Alex, thank you for your question. Good morning. Mike speaking. 8% is the margin we are aiming for. That is the overall target. And we think that a number we have to achieve to have a viable financial status in the future. However, we can only say as soon as possible, so there's a delay. No doubt about that. You know where we are right now. With respect to LHT, we are benefiting from the market. No doubt about that. There are also some headwinds, like finding the right people. So it's a dried labor market in Germany. We have to use many suppliers. And this first half-year result was also a bit fueled by one-time effects out of older contracts. So it's not meant that we are overshooting last year in our overall result of Lufthansa techniques.

So then the next question comes from Jared Castle from UBS. Please go ahead.

Good morning. Maybe just a follow-on to Alex's question. I mean, what are the costs of restructuring and the profile in terms of getting the restructuring done? I mean, is it months, years? And how should we think about that ramp-up? And then secondly, good to see AirPlus kind of being getting the proceeds, I guess. Any plans for that half a billion that you care to share with us?

Thanks. This is Carsten, Gerrit. I think it's important we don't talk about restructuring. We have done restructuring, so we know what restructuring means. But here, I think we really talk about the modernization. And we shouldn't, I think Michel pointed that out, there are some one-time struggles we have which will be overcome later by 26. Think about the airplane. think about delays in the cabin configuration, think about panel weakening, and so on. And then there is some structural elements which we want to optimize. Think about the city airlines for the feed. Think about Discover, which is a successful answer to this growth in leisure traffic. Think about termination finally allowed of our main competitor in Frankfurt in providing him with feed. So these things, of course, will have effects And that, I think, is a better, in my view, English term for what we are planning to do with Lufthansa Airlines than restructuring. Second question, timeline, well, I think two years, taking us into 26, will give us the answers or will give us the results of most of the topics we are describing today, but also, as Michael pointed out, for the last, Let's call it old generation airplane to leave. We're probably looking at the end of 27 or the winter 27, 28 even. But I will bring this turnaround program to be described in terms of the modernization I just drafted. It's a two-year program taking us into the summer of 26.

Great, thanks. And the AirPlus process?

AirPlus. Maybe not tonight. Over the timeline or maybe before it's here. Acoustics are not perfect. We are planning to close midnight. If you're talking about $450 million.

I'm sorry, any plans for that money except just to kind of reduce the net debt?

It needs a book gain of $130 million, and you know our investment plans for aircraft, so I promise you we have a place to put money. We won't be sitting around, but I think it's more a strategic move than it's about the 130 million book game while we have done this. We want to focus on our core business. There are major investments needed on the IT in AirPlus, which the new owner will be happy to do. In our case, it would have been distracting from the key investments we want to do for our passengers and Lufthansa Technik in airplanes, facilities for Lufthansa Technik.

Great. Thanks very much.

And the next question comes from Stephen Furlong from Davey. Please go ahead.

Yeah, good morning, Carsten, Michael and Mark. Yeah, two for me. You mentioned about maybe too much capacity. Are you surprised with the kind of supply chain issues that the level of capacity that have come back in markets this year? That's the first one. And then I was just wondering about Asia with China. kind of competitor kind of growth plans and stuff like that. Do you think that Asia for the Lufthansa Group is going to be as big a business proportionally as it has been pre-COVID or could it be smaller? I mean, for example, the Americas is a very important part of the group as well. Just was wondering about that. Thank you.

Yes, Stephen, thanks. You and I had this conversation before. You know my, and I never meant this to be a short-term view, you know my long-term view, that those airplanes, Airbus and Boeing, are not producing, will never be made up for. It's not like the German car industry, when they have to cancel a shift, be it a strike or some parts missing, they do an extra shift at night or at the weekend and the cars are coming back. In aircraft, we all know that doesn't happen. So these aircraft will be missing in the integral of supply of the industry, let's say, forever. So I do still stick with my view that this reduction of capacity, of production capacity, both in Seattle and Toulouse and other facilities, will have a positive impact on the industry going forward for years. Is that now applying to this summer of 24 in the sense we were thinking? No, but this is never what I said. I think the effect is more long-term. Asia. We were number one out of the European competitors to Asia in 2014. The times before COVID, we're only at 57% capacity currently for what we use to fly to China, and German investments in China are at a record high. So I think our weakness in Asia, which we presented today in years, is not coming from the economic opportunities. It comes from the overcapacity provided by Chinese carriers who are going in the triple-digit region, including flying aircraft. through the Russian airspace, which we don't do. So I would call this an abnormal situation for the Asian market. Also there, mid- and long-term, Asia, with its huge growth potential, will be with our also further northern hub structure, leaving Rome out for a second, the key pillar of our success also in the future. Right now, obviously, the money rather comes from the West, but I'm not that pessimistic for Asia in the mid-term, for sure.

Got it, Karsten. Thanks for your time.

And the next question comes from Muneba Karyani from Bank of America. Please go ahead.

Good morning. So you talked earlier about kind of the fact that your capacity ramp up has lagged peers. Just kind of how are you thinking about then capacity into 2025, are you still targeting to get to 100% of 2019 levels? And as you think about that capacity ramp up, how are you thinking about the tradeoff between kind of the unit cost benefit versus kind of yield, maybe headwinds as you add capacity, similar to what you saw this year? And then secondly, just in terms of dividends for this year, I know it's just a 1H result, but just what is your thinking right now with profitability down year on year? Should we be thinking about a payout ratio increasing to keep the absolute dividend flat or kind of the dividend coming down with profitability? Thank you.

Well, first of all, profitability coming down year over year is not what I'm paid for in my new CFO neither. So we have explained what the challenges are in the year 24, hopefully in a transparent way, but Our path leads us to 8%. That's a clear conviction of this management led by me, and we will get there. Probably one or two years later than we were hoping, sure, but it's not talking about probability going down. We're doing huge, as you know, activities, investments, some of them described today, which will bring us there. Capacity ramp up for next year, I don't think we'll be heading at 100%. I mentioned the winter. We are even currently discussing to reduce our planned growth for the winter. That, of course, has a mathematical effect for the full year. So I don't think we'll see 100 next year. We'll be somewhere between 95, 96, 97, 98. We'll see. For us, yield is more important than growth, especially to bring up our profitability, as I answered to your other question just a second ago. And that, I think, is what, in that regard, also the structure of fleet aircraft coming in, with the many aircraft we are able to take out, that's the advantage of having quite a huge share of old aircraft. They're very flexible to adapt our growth, even though we have record number of airplanes coming in. Unit cost benefit versus headwinds, unit cost will keep flat. We will, as I said before, quite proud to keep them flat this first half, which probably not too many other competitors did. And if you take the strike effect out, we are also optimistic to keep unit cost flat for the whole year. And that, again, shows our focus on cost, and we will continue to do that. On dividend, we have this clear policy of 20% to 40%. of our net income, and there's no reason to touch that. Obviously, with the new CFO coming in, he and I will discuss that, but I would be surprised to see a radical change on that. So we are, as you know, a long-term investment, hopefully, for all of you, being a trustworthy partner, so no sharp edges on Lufthansa and Dell's topics.

If I can clarify on the dividend, then, would you look to then pay out at the higher end to maintain the absolute dividend?

And when time will come, I promise I'll tell you first.

Thank you.

And the next question comes from Satish Sivakumar from Citi. Please go ahead.

Yeah, thank you. I got two questions here. So first on the booking commentary that you said in the press release where you said up until end of October, it's up 10% versus last year. Can you share some color, like where is this strength is coming from, like based on point of sale? And then what is the pricing that this is coming at? Are you still seeing prices being down in line with your guidance or is it slightly coming in slightly better? And then the second one is around your 8% EBIT margin target. So if I had to understand the building blocks, right, how much of it would come from the modernization slash turnaround program that you launched today? versus a capacity ramp up versus pricing. Thank you.

On the 10% on the bookings, I think we gave you a little chart just a few minutes ago which shows our growth in the various parts of the world and how the youth reacted to that growth. Again, Asia probably being the most problematic, but if you look at the U.S., we outgrew the market on the North Atlantic and only lost 2.3%. percent on yield, so we were able to sell that additional capacity at very good prices. By the way, with the shift of point of sales somewhat from the U.S. to Europe, which back here was extremely towards the U.S., now we have a more balanced approach on that. Even margin, they looked at the airline, I think, in a normalized way is more or less half of our business, less. I expect all my business units to be part of the 8% target. So their turnaround is a big part of reaching 8%, and there is no bypassing of their success to reach the 8%. And this is why Michel pointed out why we are so focused on the turnaround program. Some of the issues solving themselves, and some will be solved by answers from management, which I think we have given some indications to date.

So like that 8% bridge, like say this is somewhere around 4, 5% this year, how much of it would be driven by this modernization program?

I'll do the math now. As soon as Lufthansa Airlines would be at 8%, we would be there. If you look at our margins in the other business, We are there already. So it's Lufthansa Airline which is lagging behind due to its size that has a significant impact and we need to fix that. I think that was for good reason the biggest part of today's presentation by my colleague Michael Niggemann. Already SWIFT is a double digit, technique is above 8% so it is basically the missing key element is Lufthansa Airlines and we will get there with the measures mentioned today. Got it, thank you. Let's also be honest, of course, there is a market out there. So I think the fact that all airlines disappointed a little bit this year, we are not an exception of that. We're probably on the positive side of lowering market expectations. But there, of course, in our industry, it's always the question of market demand towards market supply. And there I come back to my answer to Stephen a few minutes ago. I believe the next few years, with the lack of airplane production capabilities, we probably see rather better years than worse years.

Got it, thank you. Just a quick clarification. You said that point of sale has shifted more towards Europe as you go into quarter three, yeah?

Well, I mentioned 24 compared to 23. 23 was a very strong year of point of sale in the U.S. We somehow balanced that better or more this year 24. That was not season, but season was 24 to 23. Okay, got it, thank you.

And the next question comes from Conor Dwyer from Morgan Stanley. Please go ahead.

Hi, good morning, guys. Two question areas. First one, just around the regional performance. The Middle East development looks very weak with unit revenues only up about a percent on 8% capacity reduction. But wondering why your capacity growth is so much different here to the market, and you think the actual market rate of revenue growth is positive here. And then on the Atlantic area, Is the pricing weakness here just a result of elevated capacity growth, or are you seeing any weakness in demand in any pasture segments, such as economy? And the second question is, thinking about your unit cost development in the next few years, obviously you've locked in pay deals at mid-single-digit inflation. So I'm wondering how predicated offsetting this is on aircraft gauge, so the aircraft coming in, or are there more other meaningful productivity gains to pursue for staff? Thank you very much.

Now, regional performance, it's obvious that we have a challenge on the Middle East. We speak, you know, developments are evolving, so that has been difficult now with various crises over the last months. We have suspended Tel Aviv, Beirut, and so on. On the North Atlantic, we don't see weakness in demand at all, especially on the premium side. Things are very strong, which, again, is very big part of our business, as you know. There has been quite some capacity growth, which maybe was the reason why yields came down a little bit in the North Atlantic, but it was always key between United and us that we want to maintain our leading position on the North Atlantic and only losing 2.6%. I think I said 2.3% before. It's 2.6% in Q2 with growth, which I just showed you, with more than 10% on the North Atlantic. is showing the strength of their market and the strength of our market position in their market. Unit cost developments, I mean, we always have to take, I think, inflation on both sides of the equation. There's inflation of all cost elements in the world, put it that way, surely in our industry, and there's inflation elements on ticket prices. I just came back from an IATA board meeting. More or less the last year, ticket prices have developed in line with inflation. I think we should expect that to go on with, I repeat myself, a rather positive twitch by the fact that supply will be restricted the next year, which gives me confidence that we may maybe cost better in revenues and increase probability for the next years. Was that your question, more or less?

Pretty much, but basically just in terms of the unit cost improvements, is it more going to be basically driven by the new aircraft coming in, the benefits of gauge, Or are there other things that can be done with staff, such as basically working more efficiently, anything specifically on that?

As you pointed out, we are now currently at 15, 1.5% efficiency behind our efficiency of 2019 due to the reasons mentioned. Aircraft staff but not available, aircraft on the ground, blah, blah, blah. So beyond the efficiency of the aircraft itself replacing older aircraft, we see a 1.5, 15% efficiency gap, which of course our teams are now working on to recover. with higher crew productivity, aircraft productivity, you name it. So we see some room for improvement there due to the unique situation Michael and I tried to describe today.

And part of it, and maybe just to add, don't forget there was a pretty steep ramp up, pretty steep growth in capacity. So then to make it and be as productive as we should be, It's more difficult, particularly in Lufthansa Airlines for various reasons. So they're still really kind of a buffer, or I call it a reserve in the system, which we are keen now to release.

Great. Thank you very much.

And the next question comes from Huairi Kulinana from RBC Capitals. Please go ahead.

Hi, good morning. The first question is a follow up on the Asian route. So I understand you're optimistic about the opportunity longer term, but was wondering if you had any more immediate plans to amend capacity plans in response to the yield decline there. And then secondly, does the comment that ex-fuel unit costs could be flat without strikes in client moderation in ex-fuel unit cost inflation in Q4. Thank you.

Maybe just once again a remark regarding Asia-Pacific. First of all, it's a huge region, and so India is clearly different than China or Japan. And given now China, I think there's the biggest deviation from our plans. On a full year basis, we are aiming to almost grow by 70%. However, the Chinese carriers, the other airlines, are growing over 80% due to our numbers. And so there was such a deep growth on those routes, and we have, of course, a disadvantage that we have to fly around Russia, that that was overproportionately hit by the market, and we have seen those rough effects there. But like in many regions of the world, it's also important to be there long-term. And for that reason, we are looking into the capacity, future capacity. That's right. But we have to bear in mind that there will also be a kind of normalization. We will not see such a growth, what we have seen this quarter, also in the future. And with respect to CASC, and I think you mentioned it, for the fourth quarter, we are assuming a decline. Thank you.

And the next question comes from from HSBC. Please go ahead.

Yes, hello, good afternoon. First, you mentioned the one-off in the MRO business in H1. Could you please quantify this one-off and was it in Q1 or Q2? And how shall we expect the Q3 and Q4 performance in MRO relative to Q2? Second, considering your year-to-date performance in the Q3 guidance, I conclude you need an improvement in Q4 adjusted EBIT to reach at least a midpoint of your full year adjusted EBIT guidance range. Considering current trends, do you think an improvement in Q4 adjusted EBIT is likely, and is it fair to assume the midpoint of your full year adjusted EBIT guidance as a base case? Third, do you see potential to receive compensation from Boeing for the delays of the 787? And finally, some European airlines announced that they expect to receive only 40% to 50% of the scheduled Airbus airplanes next year. What is the feedback you currently receive from Airbus on deliveries next year? Thanks.

Maybe just starting with the question regarding the one-off. In MRO we are talking about some old customer contracts and really a couple of one-offs which had a positive effect there. So in a two-digit million range. When you said do we expect an adjusted EBIT improvement in the fourth quarter and whether or not it will be better than Last year, we had one key driver, that's Lufthansa Cargo business, where we think this will make quite a difference, while on the negative side, Lufthansa Airlines is maybe the most difficult business unit to predict it. For that reason, we have given the range and we have asked whether we should go to the mid of the range. We really mean it, that's the range, and very much dependent on those two elements, Cargo in the fourth quarter and Lufthansa Airlines recovery turnaround already this year to make at least the Black Zero we are aiming for. And then you ask for the release of the Airbus aircraft as well as for the Boeing aircraft. We are not commenting or compensation for the delays. And we are in constant exchange with Airbus and Boeing and discussing when aircraft will be delivered. Unfortunately, this year, almost no aircraft was precisely delivered in time. For that reason, it's very hard to give a clear answer to that question.

Thank you very much. Thanks.

And the next question comes from Johannes Braun from Stiefel. Please go ahead.

Yes, hello. Thanks for taking my question. The first one would be another one on the capacity growth. Can you quantify the reduction for the winter season? And also in relation to that, why are you actually compensating the 787 delays by operating the less efficient A340s for longer when there is overcapacity anyway? So why not just reducing capacity even more and phasing out the A340 as initially planned to the benefit of yields and efficiency. And then secondly, just a clarification, this gain for A-plus of 130 million that you mentioned, will that be included in your EBIT guidance for the full year?

On capacity growth, we are in the process of doing that. I would at this point estimate that we go from easily down 4% points for the winter compared to our trends, which is, in our view, not only a reaction to the market realities, but also answers part of your second question. This will allow us to put some 380s on the ground for the clean part of the winter, where they are surely the oversized part of our fleet. That also answers the third part of your question. The 343, we need them in the summer. until we are sure that the 787 is there and can be replaced. And also in the winter, I rather operate a 343 with a lower efficiency than the 380 when full, but it better yields because I can rather fill the 343 than I fill the 380 in the winter. So it's not just the efficiency only, it's also the size of the aircraft which drives our optimizations. But on top of that, maintenance schedules and requirements, and that is why we also announced, for example, last week, a significant reduction of capacity in Munich, where we are taking down capacity for the winter, including shutting down Munich, Hong Kong, for example, and others where we take down certain frequencies during the week to react to the market environment. But we cannot live without the 343, for example, completely yet for the summer of 2025, and that's why the aircraft, again, not only maintained, it's also operated in the winter rather than having the ultra-large aircraft in service.

Plus goes back to my CFO colleague. I would suspect that the effect of the book gain will be adjusted, so you won't see it in the adjusted EBIT guidance. You won't see it in the adjusted EBIT at all. Okay, thank you.

And the next question comes from Andrew Lobenberg from Barclays. Please go ahead. Hi there.

Can I ask a simple one first on the ETA process? When do you expect to have news about defining the remedy takers, which I think is a necessary condition for the deal to complete? And then the second one would be more about the Lufthansa Passage turnaround program. If I'm looking at page nine of the slide deck and looking at the modernization initiative, I'm not actually seeing anything that is new there. You were working towards being premium. You were working towards harmonizing the fleet. You were working towards growing the efficient AOCs. So what is there that's actually new that's coming in the turnaround programs, the modernization program for Lufti, because I'm not seeing anything new on this slide at the moment. And I guess the other sort of question I would pose is that, you know, Michael explained very well that, you know, the key challenge for Lufthansa Passagere at the moment comes from fleet. That's the biggest problem. And you articulate that very eloquently, but fixing it is not in your control. It's completely out of your control. So what are you doing that you can control to try and improve Lufty Passage? Sorry, it's a bit of a wide question, but anyway, what can you do with it?

Well, everyone, we maintain our optimism that we can close in Q4. So if we now take one or two weeks more or less to agree with the potential remedy takers and then move that forward to Brussels for approval, I think it's premature. But everybody in the process, including, by the way, the remedy takers, wants to be fast, take advantage of the new situation as quickly as we can. So let's focus on Q4 still being our target quarter for closing. What we surely did on the turnaround today, the management team of the Lufthansa Airlines announced to the staff while we speak number of airplanes to be moved, target numbers of not being done by the Lufthansa airline itself anymore, but by partners, which we have not been given to them or to the public so far. And I think, as always, this will now be the process of also talking to our partners. Frankfurt and Munich, as we both know, key hubs now reduce growth, so I think we're going to have some communication with them on where are optimizations of the cost structure in Frankfurt versus Munich make sure that we allocate the remaining load in the right way. That, as you know, has been the process we've been doing for some time. And also, of course, with our unions and social partners, we need to act into discussions of the management of the Lufthansa airline. How do we manage the cost pressures and the capacity optimization tools we now have in the best way for everybody? Of course, unions would rather see more jobs in the core of the airline, cost structure drives us in a different direction right now, so I think we're going to have constructive dialogue on that, where is the optimum of that process. In our control, think about, of course, CLAs, which we have in our control. You know, the overall estimates in our industry, 30% is fuel, 30% is charges, 40% is in our control. I think we pointed at some levers today which are significant. Think about the tools we have in optimization of our fleet, which airplane will stay in the main airline, which will go to Discover. We are in the process of deciding if also new technology aircraft will go to Discover, which either could be 787s or 350s. But I think we have quite a variety of tools to optimize our Frankfurt and Munich hub system, which we now apply. But I can tell you I'm not happy with them, but maybe I misunderstand your question. What else would you have in your hands any airline, but the things we have in our hands. I think we have rather wide areas of tools available to us in the current situation, rather than less. Due to incoming airplanes, due to creating the publicity airlines, due to the successful launch of Discover, We, as you all know, I've talked with AirBaltic about the long-term wet lease agreement. So I think compared to the years before, I've been doing this some time, as you know, I think the variety of options is rather increasing currently than decreasing.

Okay, that's interesting. If you're moving aircraft out of mainline, will you have to have redundancies potentially at Lufthansa Passage?

No, no, no. That's why I didn't like the term restructuring. We're still on the growth path of our hub system. Franklin and Munich is more about allocating the growth or maybe shrinking the short haul, as we already mentioned, but the long haul growth, which is where the Lufthansa airline mainly will continue to grow at, will not require us to have redundancies and restructuring. We do have a hiring freeze on admin. For sure we do that already for the whole system. airline and also for the overhead in the group from the group. But we still need pilots, flight attendants for sure in the next couple of years in most platforms which we operate. So we are talking about restructuring. That's why I kind of turned against that term.

Fair enough. Thanks so much, Carsten.

I think this was the last question. Yes. Thanks. All of you for your interest. Thanks to you, Carsten, Michael, for your answers. We from Investor Relations will, of course, continue the dialogue with all of you throughout this quarter. Looking very forward to this. And I'd like to close this call and wish you a good summer. Talk to you very soon.

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