Deutsche Lufthansa Ag · XETR:LHA
Deutsche Lufthansa — HSBC ESG Conference (February 2020)
56 slides from Deutsche Lufthansa's conference presentation, Feb 5, 2020
Slide 1: Lufthansa Group @HSBC ESG Conference
Lufthansa Group @HSBC ESG Conference Claudia Hügel, Senior Director Group Strategy Dennis Weber, Head of Investor Relations February 5, 2020 lufthansagroup.com
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 Focus on ESG 03 Q3 2019 Results 04 Outlook 05 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: 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 5
Slide 6: 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 6
Slide 7: 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 8: 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 8
Slide 9: 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 10: 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 11: 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 12: 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 13: 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 14: 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 15: 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 16: 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 17: 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 18: 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 19: 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 20: 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 20
Slide 21: 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 21
Slide 22: 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 23: 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 23
Slide 24: 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 25: 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 26: 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 27: 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 28: Agenda
Agenda 01 Strategy update 02 Focus on ESG 03 Q3 2019 Results 04 Outlook 05 Appendix Page 28
Slide 29: Corporate Responsibility is an integral part of Lufthansa Group's strategy and management
Corporate Responsibility is an integral part of Lufthansa Group’s strategy and management • Supervisory Board regularly debates sustainability matters, three members have specific sustainability expertise • Christina Foerster holds direct responsibility for Corporate Responsibility on Executive Boar
Slide 30: Dimensions of Corporate Responsibility
Dimensions of Corporate Responsibility Aspects, Issues and Performance Indicators Page 30
Slide 31: Examples of large-scale sustainability initiatives
Examples of large-scale sustainability initiatives Fleet CO2 Reduction • Continuous investments in modern • Sole use of green electricity in home fleet markets • 25% CO2 reduction per new • CO2-neutral ground operations by 2030 aircraft generation in DACHB Alternative Fuel CO2 Compensation • Coopera
Slide 32: Investment in new technology is a major lever to reduce CO2 emissions
Investment in new technology is a major lever to reduce CO2 emissions Projected LHG CO2 emissions Fleet modernization Four pillars for climate protection [CO2 in million tons] Additional efficiency gains SES Remaining CO2 Technological progress 42 • Innovation in aircraft and engine technologies • A
Slide 33: Lufthansa Group has always strived to minimize climate impact
Lufthansa Group has always strived to minimize climate impact NON-EXHAUSTIVE CO2 New technology Operational efficiency Sustainable Fuel CO2 compensation Intermodal shift EUR 3bn fleet 30% reduction in fuel Worlds first airline to Since 2008 cooper- Lufthansa Express Rail investment per year, consump
Slide 34: Operational excellence measures will further improve punctuality in 2020
Operational excellence measures will further improve punctuality in 2020 +15 compared to 2018 200 37 reserve A/C additional mechanics 1 More than 400 measures initiated to improve operations quality +20k Improved customer information 2 Departure punctuality improves by 4.8pts. to 74.8% YTD Sept 19 m
Slide 35: Product quality and safety highly recognized by customers
Product quality and safety highly recognized by customers Initiatives along Customer Journey Strong Positioning Customer recognition Best Airline in Europe Best Business Class in Europe #1 most trusted brand (Germany) #5 strongest brand value growth (Airlines) Recent Awards Page 35
Slide 36: Fostering labor aspects is self-evident for LHG
Fostering labor aspects is self-evident for LHG - benefitting employees, society and the company alike All employees should be offered the opportunity to work with their talents for the economic success of the LH Group Promoting diversity LHG has signed the Charta of Diversity – committed to in th
Slide 37: Respecting human rights and compliance is a matter of course
Respecting human rights and compliance is a matter of course and has been an integral part of doing business in a global environment ▪ Amendments in labor contracts for managers in high- / extreme risk countries to uphold and ensure human rights ▪ Group wide strategy and processes defined to fulfill
Slide 38: help alliance has been the backbone of our social commitment for over 20 years
has been the backbone of our social commitment for over 20 years Lufthansa Group is committed to these areas Goal of commitment Impact achieved Education/ Enabling In addition to the emphasis on education and training, the help alliance also supports business Make a measurable contribution to 49 app
Slide 39: Lufthansa Group outperforms peers in relevant sustainability rankings
Lufthansa Group outperforms peers in relevant sustainability rankings • Robust carbon reduction efforts • Labor disputes pose operational risk • Punctuality below best-in-class levels despite improvements • Emissions: strong in pollution prevention, climate protection, transport safety and biodivers
Slide 40: Lufthansa Group takes on its environmental and social responsibility
Lufthansa Group takes on its environmental and social responsibility Carbon Offsetting Flight attendants Invest into our fleet -30% fuel as environmental consumption per ambassadors 30 Mrd. € 100 pkm* 100% compensation in the next of LHG duty travels 10 years 100% 10M miles green electricity 5,2l 3,
Slide 41: Agenda
Agenda 01 Strategy update 02 Focus on ESG 03 Q3 2019 Results 04 Outlook 05 Appendix Page 41
Slide 42: 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 43: 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 44: 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 45: 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 46: 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 47: 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 48: 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 49: Agenda
Agenda 01 Strategy update 02 Focus on ESG 03 Q3 2019 Results 04 Outlook 05 Appendix Page 49
Slide 50: Group Adjusted EBIT margin expected to reach 5.5% to 6.5% in 2019
Group Adjusted EBIT margin expected 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 (y
Slide 51: 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 52: Agenda
Agenda 01 Strategy update 02 Focus on ESG 03 Q3 2019 Results 04 Outlook 05 Appendix Page 52
Slide 53: 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 54: 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 55: 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 56: Multi-Year financial overview
Multi-Year financial overview Lufthansa Group (in m EUR, as reported) 2014 2015 2016 2017 20181 Operating KPIs RASK ex currency -2.5% -3.0% -5.9% +1.9% -0.5% CASK ex currency, ex fuel 2 -2.6% +2.4% -2.5% -1.8% -1.7% Profit & Loss Revenues 30,011 32,056 31,660 35,579 35,844 Fuel Cost 6,751 5,784 4,88
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