Deutsche Lufthansa Ag Reg

A very warm welcome, ladies and gentlemen, to the presentation of our first quarter results 2025 on this sunny Tuesday here in Frankfurt. With me are today our CEO, Carsten Spohr, and our CFO, Till Streichert. They will present both our results for the last quarter and discuss our commercial outlook for the remaining nine months of this year. And afterwards, you will have the opportunity to ask questions. And like always, I want to ask you to limit yourselves to two questions per person. so that everybody has a chance to participate in the Q&A session. Thanks a lot in advance, and with that, Carsten, I hand over to you.

Yeah, thank you, Mark, and a warm welcome from my side as well to our end of this conference. Obviously, reporting on our first quarter results, which, as you all know, in our industry are the weakest of the year. However, for this year, I think we have started quite strongly with record sales for the first time going above 8 billion with a 10% growth in the first quarter. But what truly matters for us more than the volatility of the year is the significant progress we are making in our key strategic initiatives, which in the end position us for the future. And there, without doubt, the turnaround of our core brand Lufthansa remains our highest priority. We are fully committed to reestablish Lufthansa Airlines as the proud flagship of our group, and we are really moving in that direction. At the heart of this transformation is and remains operational excellence. Knowing that in our industry, strong operational performance is the key to also sustainable financial success. And with the Easter wave now successfully behind us, managed smoothly and efficiently, our confidence heading into the summer season continues to build. While underscoring our determination to deliver best-in-class performance, we successfully invested in recruiting, training, and qualifying additional operational staff, even further expanding our reserve capabilities on the fleet side, and maybe that's most important, further intensifying our cooperation and coordination with our system partners at the airports mainly, and also at least we're trying to do the same with air traffic control. These efforts are delivering results. Lufthansa Airlines operational performance, which we measure in regularity and punctuality, is now not only stable, but on the highest levels of the last 10 years, and at the same time, Obviously, as we have stabilized operations, we are witnessing less and less stable or more volatile global political environments. And it's always in turbulent times. The question is, how will these developments impact our industry? And for us at the Lufthansa Group, at least, our structural setup and the various strategic initiatives of the last years have significantly enhanced our resilience, providing us with valuable buffers when it comes to the volatility of the current environment. And there are indeed several good news. In the first quarter, we continue to benefit from robust, sustained demand. Our airlines increased capacity by 5% compared to the same quarter last year, and we successfully recovered. translated that growth into higher yields while even increasing our load factors as well. And that momentum has carried into the second quarter. Pre-booking levels across all traffic regions are at least in line and in some cases above last year's already strong figures. And as a result, we expect the positive trend to continue at least throughout the first half of the year. That said, we're beginning to see early signs of some softness in the third quarter, though. Bookings have slightly softened in the U.S. destinations to and from, however, mainly in the lower fair classes. But, however, we have often observed in the past that customers' booking windows become shorter in volatile times. So I think we will see some of these bookings probably surfacing over the next weeks rather than disappearing for good. Moreover, we are seeing continued growth in demand from the United States, driving a further shift of booking towards the point of sales U.S. This is also positive development for us given the higher yields by selling tickets on the other side of the Atlantic compared to Europe, even though the weak dollar is somewhat reducing this effect but not making it disappear. And in this context, our combined sales force with our longstanding joint venture partners, United and Canada, are once again proving to be key to that strategy. And don't forget, we expect strong demand also from the short and medium haul leisure travel this summer, which is as strong as expected. Nevertheless, we remain optimistic. regarding our geopolitical and macroeconomic environment. Airlines have always been exposed to unforeseen developments, sometimes more than other industries. But I think it's also fair to say that this time we are, after all the crises we have passed in the last years, well prepared in terms of increasing our flexibility. In case of a potential further slowdown of the global economy, we would be able to react quickly. We have, for example, already reduced our growth for the winter by reducing it from six to 3%, and we would be able to reduce that growth further if needed by retiring all the aircraft. Nevertheless, let's not forget that these current developments also bring advantages for our business. The combination of lower oil prices, lower fuel prices, and the effect of investment packages and the stimulus in the military and infrastructure announced by the incoming German government plus the intended tax relief for our airline industry in Germany should result in clear positive effects for us. So even in this very intense time of daily news flows, you find myself fairly confident without, of course, being naive. We're fully prepared to adjust if the global situation requires us to do so. So with that in mind, let's look at the first quarter figures. Our passenger airlines carried 34 million passengers, which is matching last year's figures, even though Easter moved, as you know, from the first quarter to the second. We improved our adjusted EBIT by 127 million to minus 722 million, having in mind that the Q1 result was negatively impacted by the Easter effect, which amounts to roughly 80 million euros. Our significantly improved operating performance led us to less so-called irregularity events and also allowing us to reduce the financial impact of these irregularities by 40%. In the first quarter, the group's revenue increased by 735 million euros, rising for the first time to over 8 billion euros in Q1, and this positive development primarily driven by the strong performance of Lufthansa Technik and Lufthansa Cargo, on top, of course, of the growth of the passenger airlines. We have seen strong demands for tickets in the new Allegis cabin, with targeted bookings and a high readiness to pay for the differentiated business class seats we offer. And until this day, over 500,000 passengers have enjoyed a trip in the Allegis seat on more than 2,200 flights. At the same time, we have further developed our digital sales channels to allow additional services, and that's why we are seeing a pleasing overall trend in flight-related additional revenues, which has risen 18% year over year. Ladies and gentlemen, for the North Atlantic traffic region, our booking outlook remains strong. In the first quarter alone, the number of passengers on flights to and from North America increased by over 7%. At the same time, we were able to improve our high load factors further and create a 7% rise in average yields. Given this, we remain confident for our planned 6% growth for the North Atlantic for this summer. However, as mentioned, we are prepared to reduce that growth already before the winter if market developments require it, which we don't see at the time. In Asia, we remain cautious due to the longer detours we must fly not using the Russian airspace. So we keep on focusing on protecting our earning quality there rather than growing. But of course, also there in the other direction, we are ready to adjust and grow our network if geopolitical conditions improve, slash if the Russian airspace opens up. In our core market of Europe, we have planned a capacity increase of over 5% for this summer. And we, as mentioned, expecting another strong European summer travel season, especially to the Mediterranean, but also to new cooler destinations in the Scandinavians. And obviously, as Europe's largest aviation group will take advantage of that healthy travel environment in Europe. Also, Eurowings in this context grew disproportionately in the first quarter, increase of capacity by around 12%. You will see the financial upside of that, of course, mainly in Q2 and Q3. All these figures I mentioned today are not including ITER Airways, which, of course, adds more or less capacity volume of double digit 10 to 11 to 12 percent depending on the traffic region to the Lufthansa group as it exists today and that will volume will probably grow beyond what we see in other parts of the group due to the fact that Italy enjoys the so-called holy year 25 which creates additional travel especially to Italy which we will then see in our numbers later on but for now let's look at the financial details heading over to Taylor Thank you.

Thank you, Carsten, and hello also from my side. Thank you for joining us today to discuss our Q1 2025 results in more detail and, of course, also the financial outlook for the rest of the year. I'm pleased to present you a first quarter that reflects progress in a challenging environment. For Q1, we can see a notable top-line improvement since revenues increased by 9.9%, compared to the previous year. This was mainly driven by a healthy demand environment and a 4.6% increase in production. Revenues have also been positively influenced by rising ancillary sales that mainly originate from an enhanced digital customer experience, leading to additional online purchases. At the same time, we faced some counter effects with impact on our bottom line. Among those were the lacking Easter business in Q1, accounting for lower earnings of around 80 million euro, which we expect to see in the second quarter. Disruptions such as strikes by Verdi at German airports resulting in approximately 30 million euro of extra cost, as well as general cost inflation amounting to about 280 million euro of additional cost. This increase in expenses, while largely anticipated, represented a headwind in Q1. While fuel prices have been quite favorable, the remaining material cost increased by almost 16%. This increase was also driven by fees and charges, which rose by 14% compared to the previous year. Personnel expenses grew by 5%. just like depreciation did, mainly due to new incoming aircraft. We will have a closer look at cost increases in a moment. All in all, we report an adjusted EBIT of minus €722 million in the first quarter, and this represents a 15% improvement compared to last year. At the same time, Our net income was below last year's level, and the reason is the temporary tax accounting effect in relation to loss carry forward this year. Adjusted free cash flow amounted to 835 million euro, significantly above last year's level. Main reasons were the improved earnings situation as well as lower net investments. As we have said during our full year results presentation in March, we see the year 2025 as a year of transition. The main reason is that the measures we have initiated to improve productivity and efficiency will build up gradually and thus only partially into financial improvements to fully absorb the existing cost increases this year. Let me now show you a breakdown of our operating expenses to shed some light on that matter. When leaving out fuel and emission cost, the material cost increase for the passenger airlines in Q1 was mainly driven by price and less by volume effects. For fees and charges, the year-on-year additional cost amounted to €136 million, of which more than €90 million can be attributed to price escalations of our service partners. Handling charges at airports as the biggest building block in this cost category rose by 12%, followed by ATC charges, which even grew by 19%. Further material cost increases were driven by maintenance and catering expenses, although partially mitigated by lower EREC-related costs. Personnel costs rose by 8%, of which around one-third was driven by headcount and two-thirds by wage increases. Depreciation increased based on the 30 new aircraft we have received since Q1 last year, and all these cost impacts combined led to a cost increase of 3.1% versus prior year. Apart from the passenger airlines, our other business segments also faced cost headwinds, but they were able to manage them effectively. Lufthansa Technik implemented further contractual guardrails to pass on price inflation to customers. Lufthansa Cargo was able to mitigate the cost pressure thanks to high volume growth. The other segment was roughly stable on a like-for-like basis. The apparent reduction stems from the non-adjustment for AirPlus in last year's figures. Ladies and gentlemen, the cost inflation, which we have anticipated and seen in Q1, will remain throughout the rest of the year. For Q2, we expect a higher year-on-year CASC increase compared to the one we've seen in Q1. The main driver for this are labor cost effects in the second quarter, as planned. As planned, tariff increases come into effect in the prior year comparison, which is lowered by one of savings also in 2024. In Q3 and Q4 of this year, we expect this to level off again, mainly due to lower EREC cost and the increasing contribution of the cost measures of the turnaround program towards the second half of 2025. Now let's walk through the results for our passenger airline business. In Q1, we grew our capacity by 4.6%, which was moderate enough to stabilize operations as well as yields. Our overall yield, or slightly above the previous year's level, with intra-European yields being most impacted by the Easter shift. Meanwhile, intercont yields were strong, mainly driven by a 6.7% increase on the transatlantic. The seed load factor declined by one percentage point versus prior year, which again mainly reflects the Easter shift. And RASC, on the other hand, increased by 2.7%, also driven by a soft comparison base given the impact of last year's strikes on revenue. As mentioned before, unit costs increased by 3.1% and thereby outweighed the increase in unit revenues. In total, the passenger airlines operating results amounted to minus 934 million euro in the first quarter, which is roughly on prior year's level. However, bear in mind, that the Easter shift effect of approximately 80 million euro distorted the year-on-year comparison. Looking at our individual airline's results, it becomes clear that Eurowings and Swiss have been impacted by the leisure carriers within their respective segments, namely SunExpress and Edelweiss, which have both been disproportionately affected by the Easter shift. Now let's shift our focus to our other business segments, Lufthansa Cargo and Lufthansa Technik. Starting with cargo in the logistics segment, the positive operating and financial performance already evident in the second half of last year continued in 2025. Lufthansa Cargo achieved an adjusted EBIT of €62 million, an increase of €84 million. This growth was driven by both volume and yield effect. Capacity increased by 7% year-on-year due to additional freighter capacity from a Boeing 777F and expanded passenger flight operations. On average, across all traffic regions, yields increased by 11.9% versus previous year. Despite the increase in capacity, the load factor increased by one percentage point versus prior year, indicating that Lufthansa cargo is well positioned to benefit from an overall strong demand environment. Demand in Q1 was still predominantly driven by Asian e-commerce and additionally by current buildup of inventories in the U.S. ahead of anticipated tariff escalations. Operational expenses rose by 7% to €787 billion, mainly due to higher charter costs, fees and charges, as well as personnel expenses. But effective cost management resulted in a slight reduction in unit cost compared to the previous year. The current global uncertainties provide both opportunities and risks for the air freight industry. Lufthansa Cargo's flexibility in capacity deployment capabilities due to its dedicated freighter fleet, will enable us to adapt relatively quickly to any shift in demand flows. Moving on now to Lufthansa Technik, I'm delighted to present an outstanding performance for the first year of 2025. Revenue reached an impressive €2 billion, reflecting an increase of €249 million compared to Q1 2024, which is a growth rate of 14%. Lufthansa Technics adjusted EBIT amounted to €161 million, marking an increase of €53 million from the previous year. And we continue the expansion part, including new Technic facilities in Portugal for components and engine parts, which will employ up to 700 people, and in Calgary, Canada, with up to 160 employees working in engine services. Additionally, Lufthansa Technik is growing in Malta with a new hangar for 787 modernizations, and also on our Hamburg site, this is also undergoing modernization to enhance our service offerings. Also on the product side, Lufthansa Technik has set the course for a successful future. Lufthansa Technik is a digital powerhouse already today with a comprehensive digital ecosystem. And as a global leader, our platform Aviatar, which provides predictive maintenance, already covers over 4,000 aircraft worldwide, and its growth continues. Let's now discuss the cash flow development in Q1. The operating cash flow was supported by a significant increase in ticket prepayments, totaling €2.5 billion, surpassing last year's €2.3 billion. This growth is attributable to three key factors. Increased summer capacity, resulting in higher booking volumes at stable load factors and yields. The shift of Easter bookings to Q2 leading to the full Easter pre-bookings being reflected in liabilities at the end of Q1 and the negative impact of strike uncertainties in 2024 on pre-bookings which did not reoccur this year. At the same time, the trade working capital was limited due to counter-effects like an increase in trade receivables from airlines, lower trade payables due to seasonally low activity, and increased prepay expenses due to charter activities. Lower gross investment compared to last year, since we did not receive any long-haul aircraft in the first quarter of this year, reduced our net capex, respectively. In total, The improved operating result, combined with a higher operating cash flow and lower net investments, led to a materially improved adjusted free cash flow of 835 million euros in the first quarter of 2025. Driven by our strong adjusted free cash flow performance, which more than offsets the 325 million euro payment for ITER, our total liquidity increased by approximately 350 million euros. And during the first quarter of the year, we made use of the favorable market conditions and successfully placed a hybrid bond and several promissory notes, securing refinancing for about 1 billion euro maturities in Q1. In total, net debt decreased by 8% to 5.3 billion euro compared to the end of 2024. Our net pension liability reduced by roughly 400 million euro due to slightly higher interest rates. Overall, this resulted in a net debt to EBITDA leverage of 1.7 times at the end of March and improvement from the two times at the end of 2024. This clearly demonstrates the continued strength of our balance sheet, which is also reflected in the full set of investment grade ratings we currently hold. On fuel, I'm pleased to share the positive developments regarding our fuel cost expectations for 2025, driven by a favorable pricing momentum. So as of April 24th, so with the view forward as of April 24th, our fuel bill for the full year 2025 is now projected to be 7.3 billion euro. This is about 600 million euro below our previous guidance. which was based on calculations from end of February. At the same time, it is 500 million euro below last year's fuel cost, despite higher production capacity and additional soft cost. Of course, it goes without saying that this cost benefit will only fully materialize if fuel prices and exchange rates remain at the current level for the rest of the year. However, this reduction is a strong proof point for the success of our hedging strategy. Since our hedging strategy is option-based, we are always able to benefit from declining fuel prices while we are simultaneously hedged at a relatively high percentage against increasing fuel prices. For 2025, we have already hedged 81% of our fuel requirements with our passenger airline segment hedged at an even higher rate of 84%. This provides us with a robust field against fuel price volatility, ensuring greater financial stability and predictability. And additionally, the expected cost of sustainable aviation fuel remains stable at an additional €0.2 billion as per our full year guidance. Let me now talk about the outlook. We are reconfirming our full year 2025 guidance, which we communicated earlier this year. And let me explain our rationale. Clearly, the level of uncertainty has increased since we issued our guidance at the beginning of March, and the news flow on a daily basis remains dynamic. Nevertheless, I want to provide some comments on factors that could impact our financial outlook. In general, demand remains strong and we see a strong momentum for the second quarter. However, as Carsten has mentioned before, North Atlantic bookings for the third quarter have slowed down a bit. There's limited visibility if this is due to lower demand or a shortening booking window, which has been quite typical and seen before during uncertain times. On the other hand, We see favorable developments in fuel prices and foreign exchange rates. And while these factors are beneficial today, of course, it remains to be seen whether or to what extent these effects will persist. What does this combination of these risks and favorable factors mean? And just to illustrate, traffic revenues on transatlantic routes for the remaining nine months could decline by more than 10% compared to the previous year, and yet still be balanced by the favorable decline in fuel prices amounting to a tailwind of around 600 million euro. And please also keep in mind that other factors, such as the potential reopening of the Russian airspace, peace in the Middle East, and the financial stimulus resulting from the new German government could also present a tailwind for us towards the end of this year. With the increased uncertainties in mind and based on what we observe in our numbers at this point in time, we are reconfirming our guidance. As you can imagine, of course, we will continue to closely monitor the global macro developments and trends and make frequent assessments in case of changes. And with that, Let me hand back to Carsten, who will provide you now with some more thoughts on the strategic outlook for this year.