Deutsche Lufthansa Ag · XETR:LHA
Deutsche Lufthansa — Commerzbank German Investment Seminar 2020
65 slides from Deutsche Lufthansa's conference presentation, Jan 13, 2020
Slide 1: Commerzbank German Investment Seminar 2020
Commerzbank German Investment Seminar 2020 Ulrik Svensson, Chief Financial Officer, Dennis Weber, Vice President IR January 13/14, 2020
Slide 2: Disclaimer
Disclaimer The information herein is based on publicly available information. It This presentation contains statements that express the Company‘s has been prepared by the Company solely for use in this opinions, expectations, beliefs, plans, objectives, assumptions or presentation and has not been v
Slide 3: Agenda
Agenda 01 Strategy update 02 Q3 2019 Results 03 Outlook 04 Appendix Page 3
Slide 4: Unique investment case to create value for our shareholders
Unique investment case to create value for our shareholders Best positioned to Brand and product strength drive sustainably high yields at Network Airlines leverage brand, product and market strength Focus on profitable growth: capacity up c.2% p.a. at Network Airlines, c.1% at Eurowings Comme
Slide 5: Stakeholders: Group strategy balances the interests
Shareholders Stakeholders: Customers #1 Employees Group strategy balances the interests of all stakeholders Cost Focus & Operational Quality Page 5
Slide 6: Balanced approach creates value for all stakeholders
Balanced approach creates value for all stakeholders allows Strong financial performance & Investments in own employees & shareholder return best product Shareholders generates #1 improves Customers Employees Customer loyalty & strong revenues Customer experience drives Page 6
Slide 7: Network Airlines and Eurowings: Two leading airline groups
Shareholders Network Airlines Customers #1 Employees and Eurowings: Two leading airline groups Cost Focus & Operational Quality Page 7
Slide 8: Lufthansa Group is clear market leader in its home markets
Lufthansa Group is clear market leader in its home markets 2018 market shares [by number of passengers] Intra DACHB DACHB – EU DACHB – World 1 Unrivalled brand strength and yield premium 80% 36% 34% 2 Maximum connectivity due to largest destination network and portfolio of attractive slots 3 Strong
Slide 9: Lufthansa Group holds attractive market positions in its hubs
Lufthansa Group holds attractive market positions in its hubs Slot allocation at group hubs Slot share other airlines Slot share Lufthansa Group 67% 68% 63% 59% Frankfurt Munich Zurich Vienna Expected average growth of runway capacity until 2024: 0-1% Page 9
Slide 10: Three strongly positioned brands
Three strongly positioned brands Multi-Brand Strong Brands Strong Positioning Network Airlines Customer recognition Best Airline in Europe Best Business Class in Europe #1 most trusted brand (Germany) Aligned Business Model #5 strongest brand value growth (Airlines) Common Governance Recent Awar
Slide 11: Multi-Hub strategy generates benefits for customers and flexibility for production
Multi-Hub strategy generates benefits for customers and flexibility for production Multi-Hub Network Airlines Multi-Hub System Commercial Benefits 549 aircraft Customer 19,000 Maximum connectivity weekly flights Broad range of choices 273 Strong identification with local brand Long-haul 74 Sho
Slide 12: Joint Ventures expand the Multi-Hub system to a global network
Joint Ventures expand the Multi-Hub system to a global network Multi-Hub Multi-Hub + JVs form Network of Networks Joint Ventures Joint capacity management Joint pricing Joint product strategy A++ Mutual market access J+ Revenue sharing C+ JV share of long-haul revenues S+ 70% EUR 28 airlin
Slide 13: Product improvements and innovations in the coming years
Product improvements and innovations in the coming years 2020 Individual customer service and 2021 efficient digital solutions along all Launch of new future long-haul experience with B777-9 2021 touch points Boundless digital onboard experience with new Inflight Entertainment 2020 Contact- and pape
Slide 14: Our airlines' premium positioning generates industry-leading yields
Our airlines’ premium positioning generates industry-leading yields Long term unit revenue development Revenue share of premium classes 110 17% 52% 105 +8pts. 100 Short- Long- haul haul 95 -8pts. 90 85 RASK [in EUR Cent] 80 -23pts. 75 8.1 7.5 6.6 70 2012 2013 2014 2015 2016 2017 2018 Network Airline
Slide 15: Austrian und Brussels with key measures to improve profits
Austrian und Brussels with key measures to improve profits Target: further 90m EUR cost reduction p. a. as of 2021 Target: Operating margin of 8% by 2022 1 Process efficiency and organization (EUR 60m) 1 Network and commercial embedding • Strengthening digitalization and centralization • Refocused n
Slide 16: Further development of touristic long-haul business
Further development of touristic long-haul business Operationally and commercially managed out of one hand Pooling of touristic long-haul offer • First flights out of FRA and MUC successfully started • Merging of current fragmented operative units into one AOC until 2022 • Target: high flexibility a
Slide 17: Network Airlines and Eurowings: Two leading airline groups
Shareholders Network Airlines Customers #1 Employees and Eurowings: Two leading airline groups Cost Focus & Operational Quality Page 17
Slide 18: Eurowings at a glance: Leading point-to-point airline in home markets
Eurowings at a glance: Leading point-to-point airline in home markets Key facts Eurowings short-haul 2019 Our ambition 442 13 Focus on point-to-point short-haul Routes Bases Strengthen number one position in home markets and achieve a sustainably 140 139 Destinations Aircraft positive EBIT margin Co
Slide 19: Clear number one in prime European point-to-point markets
Clear number one in prime European point-to-point markets Market Share 2019 Eurowings operative fleet EW LHG U2 FR Other DUS HAM 38% 31% 37 14 Market leader in core home bases 14% 26% High-value CGN STR catchments, e.g. 47% 41% purchasing power, corporate accounts 19 20 9% 10% PMI P RN Note: Capacit
Slide 20: Focus on simplicity: How we manage the turnaround
Focus on simplicity: How we manage the turnaround Our focus 2019-2022 Business model adjustment Structural cost improvement Digital and ancillary push and dimensioning Exit long-haul business and Reduce to one AOC in Germany Eurowings Digital focus on short-haul only Increase productivity Enhance an
Slide 21: Eurowings Turnaround shows first signs of success
Eurowings Turnaround shows first signs of success Status Targets Next Steps Realigning long-haul • Commercial responsibility for 7 aircraft • Further capacity adjustments in transferred to Network Airlines 1) Break-Even in 2021 2020 • Four aircraft in Düsseldorf to follow • Reduction of operational
Slide 22: Logistics & Aviation Services: Every business must contribute
Shareholders Logistics & Customers #1 Employees Aviation Services: Every business must contribute to sustainable and profitable growth Cost Focus & Operational Quality Page 22
Slide 23: Non-passenger businesses must offer high level of synergies
Non-passenger businesses must offer high level of synergies 1 Leading market position 2 Structurally growing market 3 High level of synergies with core business 2018 Revenues (in bn EUR) 2.7 5.9 3.2 2018 Adj. EBIT margin 9.9% 7.2% 3.6% Page 23
Slide 24: Modernization and further development of Lufthansa Cargo und LSG
Modernization and further development of Lufthansa Cargo und LSG Fleet Further build-up of market leadership • Accelerated Roll-over: Phase-out of all MD11 • Continued positive development until end of 2020; homogenous, smaller and • 10% increase in results (9 months) more modern fleet of 9 Boeing 7
Slide 25: Cost Focus & Operational Quality: The foundation of value creation
Shareholders Cost Focus & Customers #1 Employees Operational Quality: The foundation of value creation Cost Focus & Operational Quality Page 25
Slide 26: Lufthansa Group is reducing unit costs for the fourth year in a row
Lufthansa Group is reducing unit costs for the fourth year in a row Labor Agreements Fleet modernization CASK Reductions [Group airlines CASK excl. fuel, at constant currency; yoy] Productivity and cost Fleet roll-over 2016 2017 2018 2019 improvements in cockpit and cabin Re-Organization Infrast
Slide 27: Full pipeline of measures to further improve unit costs
Full pipeline of measures to further improve unit costs Eurowings Turnaround Fleet and Standardization Staff Productivity Gains Reduction of operational Harmonization of long-haul fleet More efficient crew staffing complexity and rotation planning Group-wide standardization of Improvement
Slide 28: Operational performance has improved considerably in 2019
Operational performance has improved considerably in 2019 Comments 2019 YTD Sep vs. PY Investments in operational stability are paying off, supporting customer satisfaction Close cooperation with system partners 74.8% Departure +4.8pts. Air Traffic Control capacity shortages Punctuality remain
Slide 29: We will reach a new level of operational excellence by digitizing and harmonizing operations
We will reach a new level of operational excellence by digitizing and harmonizing operations steering & planning processes Operative Decision Support Use of Artificial Intelligence to enhance planning processes and implement predictive steering New levels of productivity, higher customer State-of-th
Slide 30: Lufthansa Group with comprehensive sustainability initiatives
Lufthansa Group with comprehensive sustainability initiatives Fleet CO2 Reduction • Continuous investments in modern • Eco-power on ground in 2020 fleet • CO2-neutral ground traffic until 2030 • 25% CO2 reduction per new in DACH aircraft generation Alternative Fuel CO2 Compensation • Cooperation wit
Slide 31: Agenda
Agenda 01 Strategy update 02 Q3 2019 Results 03 Outlook 04 Appendix Page 31
Slide 32: Lufthansa Group achieves an Adjusted EBIT of EUR 1.3 billion in Q3
Lufthansa Group achieves an Adjusted EBIT of EUR 1.3 billion in Q3 Q3 result slightly Passenger growth below previous year +3% EUR 1.3bn 2019 guidance Unit costs Adj. EBIT (-8%) confirmed reduced Q3 revenues increased 5.5%-6.5% -2.1% to more than EUR 10bn Adj. EBIT margin Q3 CASK Network Airlines EU
Slide 33: Network Airlines: Transatlantic performance continues to be strong
Network Airlines: Transatlantic performance continues to be strong Q3 9M +4.5% +5.0% Comments Europe 41% -0.2pts. -0.5pts. -4.3% -4.7% Yields in Europe remain under ASK SLF Yield 1 ASK SLF Yield 1 pressure from price-sensitive demand Yield NA: Yield NA: +2.1% +3.0% North America performs strongl
Slide 34: Network Airlines: Step up of unit cost reductions in the third quarter
Network Airlines: Step up of unit cost reductions in the third quarter Q3 9M Revenue KPIs Comments +3.6% +4.4% Strength in long haul partly offsets +0.5pts. +0.8pts. unit revenue weakness in short haul -2.2% Easing MRO cost pressures, lower -2.9% -3.4% -2.8% 1 1 irregularity costs and productivi
Slide 35: Network Airlines: Q3 profits down only moderately despite higher fuel costs
Network Airlines: Q3 profits down only moderately despite higher fuel costs Q3 9M Fuel cost Comments +174 / +13% +552 / +16% Fuel cost increase higher than anticipated because of the recent 1,315 1,489 3,477 4,029 appreciation of the US Dollar Strong cost performance largely Q3 18 Q3 19 9M 18 9M
Slide 36: Eurowings: Slight yield declines in short-haul - long-haul up strongly
Eurowings: Slight yield declines in short-haul - long-haul up strongly Q3 9M Comments Sequential yield improvement in Short-haul +0.8% +0.4pts. +1.5% +0.4pts. short-haul (Q1: -8.5%, Q2: -4.3%) 75% despite ongoing challenges in -2.6% domestic business -4.6% Long-haul performance benefits from ASK
Slide 37: Eurowings: RASK and CASK performance distorted by structural changes
Eurowings: RASK and CASK performance distorted by structural changes Q3 9M Revenue KPIs Comments 3.5% Segment RASK increases in the third 2.0% +0.5pts. +0.9% +0.6pts. quarter because of operational improvements in long-haul, positive -1.7% -1.8% -3.6% mix effect from long-haul capacity 1 1 1 1 dec
Slide 38: Eurowings: Profit growth reflects first signs of Eurowings turnaround
Eurowings: Profit growth reflects first signs of Eurowings turnaround Q3 9M Fuel cost Comments +15 / +5% +93 / +13% Fuel cost increase dampened by capacity declines 288 303 721 814 Strong profit increase in Q3 limits year-to-date decline Q3 18 Q3 19 9M 18 9M 19 Adjusted EBIT / Margin +39% -6% 13
Slide 39: MRO and Catering businesses increase profits in the third quarter
MRO and Catering businesses increase profits in the third quarter Adjusted EBIT / Margin Q3 9M nmf. nmf. Comments 35 -8.0% 162 -1.8% -48 -13.3pts. -33 -10.1pts. Logistics business continues to Q3 18 Q3 19 9M 18 9M 19 suffer from decline of air cargo market +16% +10% Profit increases in MRO busin
Slide 40: Net profit performance distorted by several one-off items
Net profit performance distorted by several one-off items Lufthansa Group (in EUR m) 9M ’19 vs. 9M ’18 Total operating income 29,448 +3% Impairments related to Thomas 1 Operating expenses 27,986 +7% Cook insolvency Of which fees & charges 3,431 +2% Of which fuel 5,095 +14% Reclassification of hedges
Slide 41: Net debt increase largely driven by accounting effects
Net debt increase largely driven by accounting effects Gross Investments1 Adjusted Free Cash Flow Net Debt -2% -42% 3,735 +74% 2,849 2,785 1,181 6,083 685 3,489 963 -278 685 -2,772 9M 18 9M 19 9M 18 9M 19 Op. CF Net Free CF IFRS 16 Adj. Dec 31, 2018 Sep 30, 2019 Investments effect2 Free CF Decreas
Slide 42: Increase of pension provisions has no impact on profits and cash flow
Increase of pension provisions has no impact on profits and cash flow Balance Sheet: Pension Provisions Profit & Loss: Service Costs Cash Flow: Pension payments Contribution to plan assets (operating cash flow) (change in funds /securities) Discount +35% Discount rate: rate: -9% -8% -21% 2.0% 7,914
Slide 43: Agenda
Agenda 01 Strategy update 02 Q3 2019 Results 03 Outlook 04 Appendix Page 43
Slide 44: Capacity growth moderates
Capacity growth moderates Europe -1% Seat growth WI 19/20 Americas Asia / Pacific +/- 0% +1% Seat growth WI 19/20 Seat growth WI 19/20 Middle East / Africa +4% Based on published flight plans as of 2 Jan 2020 Seat growth WI 19/20 Definition of relevant Market: Short Haul: DACHB to all of Europe Long
Slide 45: LCCs start to reduce their capacities in all Group hubs except Vienna
LCCs start to reduce their capacities in all Group hubs except Vienna Offered LCC capacity (ASK) in Lufthansa Group hubs vs. prior year FRA MUC 7% -10% -31% -20% S 19 W 19/20 S 19 W 19/20 ZRH VIE 105% 27% -13% -30% S 19 W 19/20 S 19 W 19/20 Page 45
Slide 46: Group Adjusted EBIT margin to reach 5.5% to 6.5% in 2019
Group Adjusted EBIT margin to reach 5.5% to 6.5% in 2019 Passenger Airlines Network Airlines Eurowings Capacity (ASK) c. +4% c. -1% Unit Revenue (RASK, at constant currency) Down low single-digit Down low single-digit Unit Cost (CASK, at c. currency, excl. fuel) 0% to -1% -4% to -5% Fuel (year-on-ye
Slide 47: Fuel cost outlook 2020
Fuel cost outlook 2020 Fuel cost Sensitivity to Brent and currency +200 FY 20 vs. FY 19 80 Average Brent rest of year 75 1,500 1,350 1,200 1,050 900 800 650 Full Year 19 / 20 1,250 1,100 950 800 700 550 400 6.7 6.9 6.1 70 950 800 650 500 400 250 150 65 (USD/bbl) 600 450 300 200 50 -50 -200 60 FY 19e
Slide 48: Targeted investments will drive structural improvement of Group profitability
Targeted investments will drive structural improvement of Group profitability Investments by area 2018 Investments 2014 – 2018 [in bn EUR] [in bn EUR] 0.5 3.8 Other 3.5 (incl. digital) Step up of investments partly 2.8 due to accounting change 2.6 3.8 2.2 Investments expected to amount to c. 3.6
Slide 49: Group targets to increase free cash flow
Group targets to increase free cash flow Free Cash Flow [in m EUR] Group generated average FCF 2,117 of more than 800m EUR in the past five years 1,138 ROCE-accretive investments 834 will improve Group profitability and cash flow going forward 250 -297 Group confident to achieve > 1bn EUR 2014 2
Slide 50: We are committed to generate attractive shareholder returns
We are committed to generate attractive shareholder returns Dividend per share / dividend payout [in EUR] Dividend payout as a percentage of net income 18 % New dividend policy lifts payout 16 % to between 20% and 40% of net income* 14% 13 % 0.80 0.80 Replaces previous policy of payout of 10% to
Slide 51: Agenda
Agenda 01 Strategy update 02 Q3 2019 Results 03 Outlook 04 Appendix Page 51
Slide 52: Group P&L
Group P&L Lufthansa Group (in m EUR) Q3 ’19 vs. Q3 ’18 9M ’19 vs. 9M ’18 Total revenue 10,177 +2% 27,700 +3% Other operating income 634 +19% 1,748 +8% Total operating income 10,811 +3% 29,448 +3% Operating expenses 9,678 +5% 27,986 +7% Non-fuel operating expenses 7,808 +4% 22,891 +5% Cost of materia
Slide 53: Group revenue bridge
Group revenue bridge in m EUR Volume: +4% Currency: +2% 868 -835 403 Price: -4% 21,581 21,145 Traffic revenue (+2%) 6,119 Other revenue (+6%) 5,752 9M 2018 9M 2019 ∑ 26,897 ∑ Group revenue (+3%) ∑ 27,700 Page 53
Slide 54: Fuel cost bridge
Fuel cost bridge Hedging result by quarter (in m EUR) Q1 Q2 Q3 Q4 FY (YTD) 2018 107 229 245 581 2019 17 35 -46 6 Change versus previous year in m EUR +620 Currency 5,095 Hedging +289 Volume 4,475 +118 +575 -362 Price 9M 2018 9M 2019 Page 54
Slide 55: Operating KPIs of Network Airlines by region
Operating KPIs of Network Airlines by region Total Q3 ’19 9M ’19 Europe Q3 ’19 9M ‘19 Asia / Pacific Q3 ’19 9M ‘19 Number of flights +2.3% +3.1% ASK +4.5% +5.0% ASK +4.4% +4.1% ASK +3.6% +4.4% RPK +4.4% +4.3% RPK +4.3% +4.9% RPK +4.2% +5.4% SLF -0.2pts. -0.5pts. SLF -0.1pts. +0.7pts. SLF +0.5pts. +0
Slide 56: Operating KPIs of Eurowings by region
Operating KPIs of Eurowings by region Total Q3 ’19 9M ‘19 Short-haul Q3 ’19 9M ‘19 Number of flights +0.1% +0.4% ASK +0.8% +1.5% ASK -3.6% +0.9% RPK +1.3% +2.0% RPK -3.1% +1.7% SLF +0.4pts. +0.4pts. SLF +0.5pts. +0.6pts. Yield -2.2% -4.1% Yield ex currency -2.6% -4.6% Yield +2.4% -1.3% Long-haul Q3
Slide 57: 2019 regional yield development by quarter
2019 regional yield1 development by quarter Network Airlines Q1 Q2 Q3 Q4 H1 9M FY Europe -6.5% -3,8% 2 -4.3% -5,0% 2 -4.7% Americas -6.1% -2,2% 2 -2.3% -3,9% 2 -3.3% Thereof North America -1.9% +1,8% 2 +1.2% +0,2% 2 +0.6% Thereof South America -18.7% -20,4% 2 -18.3% -19,6% 2 -19.2% Asia Pacific +1.9
Slide 58: Lufthansa Group has access to attractive financing options
Lufthansa Group has access to attractive financing options Sustainable free cash flow & high liquidity Financial strength Free cash flow generation in bn EUR Full Investment Grade Rating Standard & Poor’s (BBB, stable outlook) – Apr. 19 5.4 Moody’s (Baa3, stable outlook) – Aug. 19 4.1 Scope (B
Slide 59: Pension system change to reduce pension deficit and volatility
Pension system change to reduce pension deficit and volatility Pension obligations Pension systematic Development of discount rate and pension deficit Flexible funding model Discount rate1 no mandatory funding 6.0% 5.5% 5.5% Change of accounting standard (IAS19R) and 4.3% 4.5% 5.0% 4.5% 3.8% dec
Slide 60: Lufthansa pension accounting
Lufthansa pension accounting Schematic overview of cash flows (Example for FY 2018) Lufthansa Group Cash Flow Statement Proceeds from asset divestitures Cash Flow from operating activities 3 1 to finance payments to non- German Retirees EUR 126m Lufthansa Pension Group Fund Net Cash from / used in i
Slide 61: Cash flow statement
Cash flow statement Lufthansa Group (in m EUR) 9M ’19 vs. 9M ’18 1 Largely due to IFRS 16 EBT (earnings before income taxes) 1,633 -729 Depreciation & amortization (incl. non-current assets) 2,113 +469 1 Net proceeds from disposal of non-current assets 16 +17 “Correction” of EBT for non-cash effect
Slide 62: Multi-Year financial overview
Multi-Year financial overview Lufthansa Group (in m EUR, as reported) 2014 2015 2016 2017 2018 Operating KPIs RASK ex currency -2.5% -3.0% -5.9% +1.9% -0.5% CASK ex currency, ex fuel -2.6% +2.4% -6.1% -0.4% -1.7% Profit & Loss Revenues 30,011 32,056 31,660 35,579 35,844 Fuel Cost 6,751 5,784 4,885 5
Slide 63: Effect on Lufthansa Group: Adoption of IFRS 16
Adoption of IFRS 16 • New accounting standard IFRS 16 is applicable from 2019 onwards Context • Lease liabilities must be recognized in the financial accounts at the present value of the contractually agreed lease payments for leases with a term of more than twelve months Effect on Profit & Loss: Ef
Slide 64: Exemplary calculation of operational airline KPIs RASK CASK
Exemplary calculation of operational airline KPIs Quarterly Data.xls 1 Network Airlines, FY 2018 Traffic Figures 1 (1) Traffic revenues 20,877 Yield (2) RPK 2 231,952 FY 2018 (restated) NETWORK AIRLINES EUROWINGS LOGISTICS MRO CATERING OTHER CONSOLDIATON LH GROUP Yield: (1) / (2) * 100 9.0 Profit an
Slide 65: Lufthansa Investor Relations Contact
Lufthansa Investor Relations Contact Deutsche Lufthansa AG Dennis Weber Head of Investor Relations Investor Relations / FRA CW Lufthansa Aviation Center Phone: +49 (0) 69 696 28000 E-mail: dennis.weber@dlh.de Airportring D-60546 Frankfurt Frédéric Depeille Phone: +49 (0) 69 696 28000 Investor Relati
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