Deutsche Lufthansa Ag Reg

Thank you very much, and also from my side, a very warm welcome, ladies and gentlemen, to the presentation of our full year results 2024. With me on the call today are our CEO, Carsten Spohr, and our CFO, Till Streichert. They will both present our results for last year and discuss our commercial outlook for this year. Afterwards, you will have the opportunity to ask your questions, and like always, I want to ask you to limit your questions to two so that everybody has a chance to participate in the Q&A session. Thanks in advance, and now hand over, Carsten, to you.

Yeah, thank you, Mark, and it's a warm welcome from my side to our Endless Conference 424, a year which you know and surely will discuss over the next hour is a year filled with ups and downs. And it was a year ago when we presented the third best financial result ever in our history to you, and nevertheless, already at that time, though, we were facing significant labor issues, disputes, infrastructure issues in Germany, and it's not surprising probably to all of you that the economic consequences of these impacts did change or have a significant impact on the course of 24, especially on our core brand, Lufthansa Airline. By contrast, though, the other airlines within the group and Lufthansa Technik were able to continue their positive development into 24 out of 23. Some of them even finished with new record results. Ultimately, due to the disappointing performance of our core brand, we did fall short of our targets. We had set ourselves for 24. Nevertheless, I'm talking with some confidence and optimism today because we have initiated a turnaround in multiple ways, which already led to significant improvements also on the financial side in the fourth quarter of last year. It was by far the strongest quarter in the reporting period. For the first time in 2024, with an adjusted EBIT reaching €468 million, we were able to improve our previous year's results in Q4 by €66 million. Therefore, we look back today on a year of two distinctive halves, which is particularly evident in our earnings performance. While we had a decline of 974 million euros in adjusted EBIT in the first half of the year, 450 million euros by strikes alone, the trend improved significantly in the second half. As a result, we were able to carry the momentum from the fourth quarter of 24 into a very strong start of 25. In mid-January, We finally completed, let's start with that, the acquisition of initially 41% stake in ITER Airways. This is the largest airline acquisition in our history and indeed a real milestone in the further development of our group. It's also another important step towards our further internationalization, which is the key strategic target. Secondly, we have significantly improved our operational stability. Last year, for various reasons, we were not always at the quality level we strive to offer our customers, particularly in Munich and Zurich, partly also in Frankfurt. However, this situation has already improved significantly in the fourth quarter of the reporting year. And now, in January and February, our teams, especially our operational teams, had their best operational start since the last 10 years. At the start of the year, we made significant progress in customer satisfaction thanks to this strong operational performance, and maybe even more importantly, we see the increasing impact of our significant investments in premium quality. There's no question, beyond the progress made in the fourth quarter of 24 and the strong start into 25, For our core brand, though, which, as you know, is our largest and most vital revenue driver, we urgently need an economic turnaround. And of the group's €1 billion decline in adjusted EBIT, more or less 95%, €950 million, were driven by Lufthansa Airline, our core brand, that highlights what I just said, the urgent need for decisive action. We quickly recognized the challenges at the Lufthansa Airline during the spring of 24 and therefore took decisive action with an upbeat turnaround program in the middle of the year to realign the course of and for our core brand. Details of that turnaround program will be presented by Till in just a moment. The conditions for the program's success are highly favorable. The global aviation industry continues to be on a strong growth path, According to forecasts from the International Air Transport Association, as you know, IATA, more than 5 billion passengers will travel by air for the first time ever this year, and industry revenues are also expected to surpass the $1 trillion mark for the first time. Our passenger airlines leveraged this strong demand for air travel also last year, and expanded their capacity by 9% compared to the previous year. And nevertheless, of this quite significant growth, we were able to sell all that growth and had a record-breaking summer even with load factor peak values reaching up to above 90%. Our revenues increased by 6% to 37.6 billion euros. That marks a new record. For the first time ever, we generated revenues extending €10 billion in two consecutive quarters in Q3 and Q4 of last year. Bottom line, we closed the past year with an adjusted group EBIT of somewhat more than €1.6 billion. Swiss exceeded the adjusted EBIT mark of €800 million for the second time. Eurowings repeated its good results from the previous year again and achieved an adjusted EBIT of above 200 million euros. Brussels Airlines even achieved the highest profit in their history with 60 million euros, and Austrian achieved an adjusted EBIT slightly above that of 76 million euros. Lufthansa Technik increased their EBIT once again to a new high of 635 million euros. 24 was also a very strong year for cargo, at least at the end of the year, with adjusted earnings of 251 million, of which 199 were generated in the mentioned fourth quarter alone. Lufthansa Airlines closed the year with a loss of 94 million euros, and in contrast to Lufthansa, the other passenger airlines, sorry, who performed quite well. This is obviously a very disappointing result. But it also allows me to make a comment, because sometimes we had discussions in the last years, if we need other airlines in the group, if we need other hubs outside of Germany, other brands, nothing works. It's quite impressive with all the disappointment we have on Lufthansa Airlines. And we'll be talking about how we turn this around quickly, that we are now able to make 1.6 billion euro for the group without a single euro contribution from the core airline. I think also for us 10 years ago, this would have been unconceivable. The success of the necessary turnaround will be driven by our ability to allocate capacity even more strategically, focusing on areas where we can deploy it profitably and expect stable returns. We do that in two dimensions. One is geographically. The other one is according to the competitiveness of the AOC, which I will come to in a minute. Let's start with geographics. We continue to see very strong demand on the North Atlantic. with a robust and sustained market there. As a result, we experienced disproportionate and profitable growth on these routes last year. At the same time, we faced a significant disadvantage to competitors on the long-range sides towards the east, who, unlike us, can use the Russian airspace, saving money, fuel, and travel time for their passengers. As a result of that, we saw a reduction in our capacity for Asia. We will continue to adjust our capacity according to those challenges to make sure we optimize our profits. Within Europe, we have further expanded our leading position. In our home continent, we achieved above average growth and once again benefited from our increased focus on the leisure travel segment. We also see further potential in the southern hemisphere. The expansion of our multi-hub system by ITER or by Xiom Shino, if I might say, will be particularly beneficial there in the southern hemisphere for two of the largest economies in Latin America, Brazil and Argentina. Also, our offerings will double by the integration of ITER. However, the allocation of capacities is not only based on market conditions. The cost structure of our airlines, as mentioned before, are also decisive in determining where we utilize capacities profitably. Over the past year, with the city airlines, we have made the feed and defeed system more competitive again. And this year, and also the following years, the fleet will be expanded. And we do this actually this year by one airplane per month. A real success story is also Discover Airlines, which is continuing to expand. Just four years old, Discover will have already 30 aircraft this year, eight of which will be based in Munich. It's growing to 2,000 employees and flies to 80 destinations already in 26 countries. Lufthansa City Airlines and Discover, they are both key drivers for the turnaround in our hub operations in Munich and Frankfurt. and obviously therefore important for the turnaround of our core breadth. With that, I'll hand over to Till, who will take you through the details of these figures, and later on I'll be back to you before we then look forward to your questions.

Thank you, Carsten, and hello as well from my side. Thank you for joining us today to discuss our full year results and the financial outlook for 2025. So in 2024, revenue developed positively and grew by 6%, driven by high demand in all of our business segments. Our operating cost increased by around 9% at the same time, driven by high cost inflation in most categories. Despite a higher production, we had 150 million euro less fuel cost due to a lower average fuel price. However, our total material cost grew by 10%. The increase was driven by higher MRO cost and an increase in fees and charges of around 12%. Staff cost increased by around 8%, driven by higher tariff agreements and an increase in headcount. The applied measures for operational stabilization additionally impacted productivity levels, especially at Lufthansa Airlines. Irregularity costs increased substantially, driven by the severe strikes in the first quarter and the general operational instability caused by the need to operate an older fleet, as well as capacity limitations at system partners. In summary, they amounted to more than €840 million last year, an increase of around 70%. In total, our adjusted EBIT in the full year amounted to €1.6 billion, a decline of around 40% to prior year. We clearly cannot be happy with this development, but one positive aspect to note, after the difficult start into 2024, we experienced a significant improvement in the second half of the year, where Swiss, Austrian, Brussels Airlines and Eurowings all achieved a better result than previous year. In total, the result of these four airlines was over 20% higher than 2023. In the fourth quarter, revenue growth outpaced cost growth, operations stabilized, and Lufthansa Cargo recorded a fantastic Q4, resulting in a group-adjusted EBIT, which exceeded the prior year by €66 million. Our net income for the full year amounted to €1.4 billion, And we want our shareholders to participate in this result and will therefore propose dividend payment of €30 per share at our annual general meeting in May in line with our dividend policy. This results in a payout ratio of 26% compared to 21% last year and represents a dividend yield of almost 5% based on our year-end share price. Let us now take a closer look at our passenger airlines business. In 2024, we grew our capacity by 8.5%, still a substantial figure, but significantly below the 2023 capacity growth of around 16%. The overall growth rate was mainly driven by the first two quarters, in which we grew by more than 10%. Growth was significantly reduced in the second half of the year, with a clear focus on stabilizing yields and increasing operational stability. These adjustments quickly paid off, and in the fourth quarter, we achieved stable yields compared to previous year's level, and for the full year, the yield decreased by 2.6%. Seed load factor was stable on a full year basis and above prior year in the second half of the year. RASC declined by around 4.3%, driven by a high EREC impact as EU 261 compensation is booked as negative revenue. In addition, the prior year Q4 included a significantly positive one-off effect due to the released due to the release of ticket provisions still related to the COVID years. Our stable load factor clearly demonstrates that we are in a healthy demand environment, especially when it comes to leisure travel. You can also see this at our point-to-point carrier Eurowings, which already operated at 112% capacity compared to the pre-pandemic levels, the highest figure in the group. Regarding profitability, Swiss clearly stands out, delivering a strong 12.4% margin in 2024. As mentioned before, in the second half of the year, the adjusted EBIT of all passenger airlines increased compared to the previous year, with one exception, and this is Lufthansa Airlines, our largest group airline. Lufthansa Airlines did not deliver a positive margin in 2024, And we've commented on the causes for this decline before, inefficiencies and complexity, operational instability, also due to capacity shortages at service partners, a high rate of technical cancellations due to older aircraft and strikes. All of this increased the irregularity cost and burdened productivity. Given such low productivity, also the increase from tariff agreements is weighing or has been weighing on our results. as well as the high location cost in Germany. This shows that both the Lufthansa turnaround plan and the fleet renewal, which Carsten will talk about later, are critical for returning Lufthansa Airlines to a successful path. But let me first comment on our turnaround program. Our approach to the turnaround program has a clear logic. First, we focus on stabilizing our operations. And once this has been achieved, we can increase efficiency to then realize the full financial potential of the program. Looking at the progress we made, we are well on track. We have identified all necessary measures. There are two-thirds relating to cost improvements, the rest to revenue enhancements. And by 2026, we anticipate a gross adjusted EBIT effect of approximately €1.5 billion with a further increase to €2.5 billion in 2028. Let us now have a look on what has been achieved and what lies ahead of us. First, we already see tangible progress in the stabilization of our operations. The measures we have taken triggered an improvement of our punctuality rate and we achieved a regularity rate of 99% in the first two months of 2025. This is a significant improvement compared to last year, even after excluding the strike effect. To achieve this, we adjusted processes, staff levels, and schedules. We continue in our efforts to stabilize the system, for example, by insourcing ground services at Munich Airport and thus enhancing control over a critical part of the value chain. Stable operations means less irregularity cost. And for 2025, we expect a reduction of 100 to 200 million euro from that. Secondly, we are shifting capacity growth to the more efficient AOCs. In 2025, we are adding 15 aircraft to City Airlines and Discover, which are significantly more cost-efficient than our main airlines. For example, crew unit cost of these platforms is about 30% lower. And to realize the benefits from our multi-hub strategy, we are not only shifting aircraft, but also shifting routes. Connecting our hubs is increasingly being done by more cost-efficient airlines, such as ITER operating in Munich, Milan, or Austrian operating in Frankfurt, Vienna. And thirdly, there's a broad range of measures to improve efficiency and increase revenue. We expect double-digit million-euro savings in 2025 from higher fuel efficiency, an increase in digitalization, and the renegotiation of contracts. On the revenue side, we will operate eight routes from Munich with a new Allegra's cabin in 2025, and this number will only go up as new aircraft get delivered resulting in higher yields and an increase in ancillary revenue. All of these measures are designed to further enhance our operational efficiency, improve quality, and reduce complexity. They're not only about cutting costs. They aim to create a more resilient and agile organization, which will position Lufthansa Airlines for long-term success. Let's now turn to our other business segments, Lufthansa Cargo and Lufthansa Technik. Lufthansa Cargo is looking back at another very successful year. The adjusted EBIT of €251 million represents not only an increase of €32 million or almost 15% compared to last year, but also a slight increase in operating margins. The main driver of the positive trend is the strong Asian e-commerce business, which provides us with sustainable profits due to the long-term contracts we've concluded. Our large freighter fleet will allow us to react to demand shifts quickly, and we've increased our focus on Asia. Ten 777 freighter flights per week are allocated to the Asia-Pacific region, and we are now even connecting Asia and the U.S. market directly. In the fourth quarter, which is typically the strongest in air freight, we exceeded even our already ambitious expectations and cargo delivered an adjusted EBIT of 199 million euro, making a record result when excluding the COVID-related boom years of 2020 to 2022. Yields also increased, increased by 11% versus prior year, and the air freight market appears to have normalized at a higher than pre-crisis level, and Lufthansa is well positioned to benefit from this. Moving on to Lufthansa Technik, we see an adjusted EBIT of €635 million, a result slightly above prior year's level, and the demand for MRO services continues, driven by the general airline industry growth and ongoing delivery delays for new aircraft result in older aircraft flying longer, triggering higher maintenance needs. And as a result, Lufthansa Technik signed new customer contracts already with a volume of around €7.5 billion in 2024. In 2024, cost inflation also impacted margin growth at Lufthansa Technik, And with an increasing share of new or renegotiated customer contracts, the negative inflation impact on margins is expected to fade away. As part of our Ambition 2030 plan, we have launched several strategic initiatives, including the establishment of a new facility in Portugal and a 15-year multibillion-dollar agreement with WestJet. This agreement includes the expansion of Lufthansa Technics operations, by establishing a state-of-the-art engine maintenance and test facility in Calgary. Also on the recruitment side, we are making progress. We've recruited over 1,600 new employees, and once they are fully trained, we expect a significant ramp-up in productivity. Given these strategic pillars, we are confident that Lufthansa Technik is on track to grow and improve its profitability in the midterm, as we've shown to you in our capital markets day last year.