Deutsche Lufthansa Ag · XETR:LHA
Deutsche Lufthansa — Investor Day (June 2019)
103 slides from Deutsche Lufthansa's investor day presentation, Jun 24, 2019
Slide 1: Capital Markets Day 2019
Capital Markets Day 2019 24th June 2019 Frankfurt
Slide 2: Agenda Capital Markets Day 2019
Agenda Capital Markets Day 2019 11.00 am – 11.05 am 12.30 am – 01.30 pm 02.35 pm – 03.00 pm Welcome by Dennis Weber, Lunch Presentation Ulrik Svensson, Head of Investor Relations Chief Financial Officer 01.30 pm – 02.10 pm 11.05 am – 11.55 am Presentation Thorsten Dirks, 03.00 pm – 04.00 pm Presenta
Slide 3: Group Strategy
Capital Markets Day 2019 Group Strategy Carsten Spohr, Chairman of the Executive Board and CEO 24th June 2019 Frankfurt
Slide 4: #1 for all stakeholders – committed to drive sustainably higher returns
#1 for all stakeholders – committed to drive sustainably higher returns ROCE doubled since 2014; further improvement through the cycle Free Cash Flow to exceed EUR 1bn medium-term Shareholders Dividend payout increased to 20% to 40% of net income #1 #THEREISNOBETTER Customers Employees #THEREI
Slide 5: Lufthansa Group has become a structurally more profitable company
Lufthansa Group has become a structurally more profitable company 7to1 program Key achievements Adj. EBIT margin & Adj. ROCE started 2014 Customer centricity and quality focus Lufthansa: Europe’s first 5 Star Airline New concepts for growth Eurowings: #3 P2P carrier in Europe ~ x2 14.2% Effective an
Slide 6: We have further solidified our competitive advantages
We have further solidified our competitive advantages The strongest brands The best product The market leader The industry‘s in our home markets in Europe in key European hubs leading innovator #1 CMD 2019 Group Strategy Page 4
Slide 7: Lufthansa Group is increasingly focusing on its core airline business
Lufthansa Group is increasingly focusing on its core airline business Shareholders Airline share of group Adj. EBIT Customers #1 Employees 78% Network Airlines and Eurowings’ share of group profit Share vs. 2014 1 Airlines are primary investment focus 2 Portfolio review performed in 2018 3 Decision
Slide 8: Network Airlines and Eurowings: Two leading airline groups
Shareholders Network Airlines Customers #1 Employees and Eurowings: Two leading airline groups Cost Focus & Operational Quality CMD 2019 Group Strategy Page 6
Slide 9: In a fast growing industry, our airlines operate in Europe's most attractive markets
In a fast growing industry, our airlines operate in Europe’s most attractive markets GDP per capita in USD thousands Growth of European aviation industry vs. GDP [2018] [Average 2014-2018] CH 83 6.8% 7 NL 53 AT 52 6 DE 48 x3.6 5 BE 47 FR 43 4 UK 43 3 IT 34 1.9% ES 31 2 PT 23 1 CZ 23 EL 20 0 HU 16 GD
Slide 10: 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 11: Our airline strategy is tailored to the decentral structure of our home market
Our airline strategy is tailored to the decentral structure of our home market Regional distribution of GDP in Germany* HAM LON 1 Multiple smaller catchment areas BER require bundling of demand for intercontinental traffic DUS/CGN 2 Strong (also corporate) demand for FRA 40% decentralized point-to-p
Slide 12: Accelerated turnaround plan will turn Eurowings into a valuable asset
Accelerated turnaround plan will turn Eurowings into a valuable asset 1 2 3 Improving non-hub Driving consolidation From growth to profits profitability in home markets 2019 - 2014 - 2016 2017 - 2018 Refocus short-haul network Result European non-hub traffic Increase of productivity One AOC in
Slide 13: Our two airline groups complement each other
Our two airline groups complement each other Network Airlines Eurowings 1 Hub and spoke model 1 Point-to-Point model 2 Premium positioning & product innovator 2 Value positioning & lower cost 3 Moderate capacity growth 3 Focus on turnaround, renewed growth afterwards CMD 2019 Group Strategy Page 11
Slide 14: Integrated business model, individual setup where value-creating
Integrated business model, individual setup where value-creating Resources Capital allocation Full integration Fleet management, standardization & allocation Infrastructure, procurement, fuel Commercial Customer loyalty, product design Sales & distribution Network & revenue management Operations Ope
Slide 15: "Challenging monopolies": Competition maximizes quality and lowers costs
“Challenging monopolies”: Competition maximizes quality and lowers costs Purchasing Airport Infrastructure Operations Distribution Multi-Supplier Multi-Hub Multi-Platform Multi-Channel Airbus / Boeing Frankfurt Network Airlines / Eurowings GDS Distribution RR / GE / P&W Munich Lufthansa / Cityline D
Slide 16: 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% CMD 2019 Group Strategy Page 14
Slide 17: The German market has proven difficult for competitors
The German market has proven difficult for competitors fly dba / ? / 1980 1990 2000 2010 2020 and beyond CMD 2019 Group Strategy Page 15
Slide 18: Continued consolidation will increase industry profits in Europe
Continued consolidation will increase industry profits in Europe 2018 passenger share of top 5 airline groups in Europe and USA Average industry EBIT margin 6% 10% 86% Top 5 Top 5 50% Market share vs. 2008 +12pts. +19pts. CMD 2019 Group Strategy Page 16
Slide 19: M&A strategy is based on clear objectives and criteria
M&A strategy is based on clear objectives and criteria Complementary to regional footprint ROCE accretive Meaningful size Maintain investment grade rating Revenue and cost synergy potential Competitive cost base which can be further leveraged in other parts of the Group CMD 2019 Group Strategy Page
Slide 20: Consolidation is not limited to M&A
Consolidation is not limited to M&A Forms of integration 1 Full toolbox available to cooperate with other airlines Interline Codeshare JV M&A 2 Continuous optimization Low High of existing partnership models SPA Blocked Seat Wet Lease Agreement 3 Design of cooperation tailored to the specifics of ev
Slide 21: Logistics & Aviation Services: Every business must contribute to sustainable growth
Shareholders Logistics & Customers #1 Employees Aviation Services: Every business must contribute to sustainable and profitable growth Cost Focus & Operational Quality CMD 2019 Group Strategy Page 19
Slide 22: 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% CMD 2019 Group Strategy Page 20
Slide 23: Logistics is highly synergetic with passenger airlines
is highly synergetic with passenger airlines Market leader in air cargo, global market share around 10% 1 Leading market position Unrivalled network, based in the world third largest export nation Market growth of c. 3% p.a., more cyclical than other businesses 2 Structurally growing market
Slide 24: MRO will remain core to Lufthansa Group
will remain core to Lufthansa Group The world’s leading independent provider of MRO services, 1 Leading market position services one out of five commercially operated aircraft worldwide More sophisticated technology & digitalization requires specialized know-how 2 Structurally growing market M
Slide 25: Lufthansa Group has initiated a process to divest Catering
Lufthansa Group has initiated a process to divest 1 Leading market position 2nd largest provider of airline catering globally Average market growth of c. 3% 2 Structurally growing market Growing importance of food & beverages: key differentiator in long haul Limited synergies 3 Synergies wit
Slide 26: Lufthansa Group strengthens its focus on its core business
Lufthansa Group strengthens its focus on its core business Initiated divestment process due to lack of synergies between LSG and group airlines Shift of line maintenance activities to airlines to generate higher synergies and increase flexibility Focus on creation of synergies with airlines and gene
Slide 27: Group strategy balances the interests of all stakeholders
Shareholders Stakeholders: Customers #1 Employees Group strategy balances the interests of all stakeholders Cost Focus & Operational Quality CMD 2019 Group Strategy Page 25
Slide 28: Sustainable management is the base for long-term success
Sustainable management is the base for long-term success Environment Main focus on improving fuel efficiency We are committed Employees Economical to sustainability Focus on maintaining high employee #1 We consider sustainability as our motivation and engagement Sustainability “license to operat
Slide 29: 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 CMD 2019 Group Strategy Page
Slide 30: The execution of the Group's strategy will drive strong financial results
The execution of the Group’s strategy will drive strong financial results Market-wide infrastructure constraints improve demand/supply ratio Best positioned to Clear focus on leverage brand, product cash flow generation and market strength Industry Converging consolidation cost position of legacy an
Slide 31: Commercial Strategy Network Airlines
Capital Markets Day 2019 Commercial Strategy Network Airlines Harry Hohmeister, Chief Commercial Officer Network Airlines 24th June 2019 Frankfurt
Slide 32: Global market presence and new premium positioning create unique value proposition
Global market presence and new premium positioning create unique value proposition Global Market Presence New Premium Position Customer Business Operating Reach Flexibility Consolidation Centricity Growth Model 41k 4 Multi 30 104m Fast O&Ds Hubs Airline Integration Top Awards Passengers Processes Co
Slide 33: 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 34: 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 35: 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 36: Multi-Hub system offers customers maximum choice and flexibility
Multi-Hub system offers customers maximum choice and flexibility Multi-Hub “I would like to fly from Berlin to New York. I can select one out of 14 options that best suits my tight schedule.” Berlin New York LH.com, UA.com, TXL-NYC, 16.9.19 CMD 2019 Commercial Strategy Network Airlines Page 6
Slide 37: Flexible commercial integration models allow quick reaction to market dynamics
Flexible commercial integration models allow quick reaction to market dynamics Capacity Growth Rate Integration Models Own platform (existing segments) 2014¹ 2019 2029² 10% Own platform (new segments) 7.5% 5-25% Focused growth ex hubs 5.6% 0-15% White label platform(s) 7.6% 6-8% Secondary plat
Slide 38: Network Airlines' business built on a diversified customer base
Network Airlines’ business built on a diversified customer base Revenue share by point of commencement Revenue share by segments 10% DACH Touristic 43% Rest of Europe 28% North America 12% Asia Pacific 10% 30% 50% Africa & Middle East Leisure Premium South America 4% Corporate 3% EU 10% Premium Leis
Slide 39: Customer segmentation enables tailored products and services
Customer segmentation enables tailored products and services Multi-Customer segments Traditional Premium New Premium Premium = Travel Class Premium = defined individually by every customer 46% Efficiency-Seeker 14% Convenience-Seeker 10% Individuality-Seeker Business Trip Business Trip Business Trip
Slide 40: Digitalization drives the perfect customer experience along the travel journey
Digitalization drives the perfect customer experience along the travel journey Customer Journey Inspiration Compare Book Plan & Get to airport Take Arrive at Get to & stay Get to airport Take Arrive at Stay Connect Get to home & Planning & Select Travel Prepare & await flight outbound flight Destina
Slide 41: Success of Premium Economy continues with roll-out of next generation product
Success of Premium Economy continues with roll-out of next generation product in 2020/2021 Premium Economy Class most productive cabin [revenues per square meters] 6% higher than Business Class 33% higher than Economy Class 1st Generation Premium Economy Class fully implemented on Lufthansa and Aust
Slide 42: Tailored products represent our USP in a world of commodity
Tailored products represent our USP in a “world of commodity“ – monetarization of added value is part of our commercial success Robust Ancillary Revenue Growth Tailored Offers & Services [in m EUR] Flight-related Non-Flight-related Individual food offers 100% +50% New variety of seat options Innovat
Slide 43: We are building the foundation for a truly customer-centric retailing model
We are building the foundation for a truly customer-centric retailing model Traditional Static Offering Future Dynamic Offering First Business Economy First Business PE Economy 670€ Comfort J 580€ C 529€ 465€ D 325€ Z Family 235€ P Price Price Fixed booking classes & limited offer portfolio Effi
Slide 44: Revenue maximization by bundling the right offers and pricing
Revenue maximization by bundling the right offers and pricing them according to the customers’ willingness to pay Today – Static Branded Fares Future – Need based bundles & upselling structure Economy Light Economy Classic Economy Flex Efficiency BASE 100 100 Bundles 1 carry-on bag Seat reservation
Slide 45: Customer access and Multi-Channel push are key to our distribution strategy
Customer access and Multi-Channel push are key to our distribution strategy Multi-Channel Growing Direct Distribution Share [by number of bookings] Modern Retail Capabilities >50% Offer and order control Product placement 45% Dynamic cross- and upsell 30% Multi-Channel Reach & Interaction Di
Slide 46: Targeted offers based on the intelligent use of data drive customer loyalty
Targeted offers based on the intelligent use of data drive customer loyalty Data Driven Approach Initiatives along Customer Journey Product & Services Communication Analytics / Segmentation ID Management (incl. permission) Integrated Data Infrastructure CMD 2019 Commercial Strategy Network Airlines
Slide 47: Europe's largest frequent flyer program drives customer loyalty
Europe’s largest frequent flyer program drives customer loyalty Miles & More 35m Leading loyalty program for members 9 1 Provides direct customer access airline partners 75bn miles issued More than 2 Allows improvement of customer 270 experience 51% non-air partners € higher spend than non-members M
Slide 48: 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 49: Strategic initiatives will continuously increase our revenues
Strategic initiatives will continuously increase our revenues New capabilities Ambition 2022 1 Tailored Products Contribution to RASK Dynamic Offering +3% 2 3 Direct Customer Access CMD 2019 Commercial Strategy Network Airlines Page 19
Slide 50: Key messages
Key messages Innovative product, Multi-Hub and New Premium pricing and Multi-Brand enhances customer distribution strategy strategy optimally experience through significantly caters to specifics customer contribute to future of home markets centricity revenue growth CMD 2019 Commercial Strategy Netw
Slide 51: Eurowings Turnaround
Capital Markets Day Eurowings Turnaround Thorsten Dirks CEO Eurowings 24th June 2019, Frankfurt
Slide 52: 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 140 139 Destinations Aircraft sustainably positive EBIT margin Co
Slide 53: 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% P MI PRN Note: Capacit
Slide 54: Eurowings builds on a strong market footprint and well established commercial approach
Eurowings builds on a strong market footprint and well established commercial approach Eurowings' capacity deployment Eurowings' commercial strengths 63% of Eurowings' 25% Loyal business customers: capacity in Share of loyalty Highest share of business customers in # of aircraft markets with custome
Slide 55: Eurowings achieves significant yield premium
Eurowings achieves significant yield premium Yield premium € per passenger 89 86 9 77 Significant yield premium 10 67 despite strong competition 16 Ancillary 54 Current competitive 451 17 28 environment increases 80 76 pressure on fares 61 Fare2 37 39 Growth of ancillaries to largely offset potentia
Slide 56: Past years' growth came at the expense of increased complexity
Past years' growth came at the expense of increased complexity New Germanwings Long-haul expansion Air Berlin assets Expansion at DUS/TXL/HAM Long-haul operations, Replace Air Berlin capacity Brussels Airlines acquisition 2014 2015/2017 2018 Market position / Comprehensive coverage New long-haul
Slide 57: 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 58: Exit long-haul business: Eurowings will focus on short-haul only
Exit long-haul business: Eurowings will focus on short-haul only Refined long-haul strategy Way forward Transfer commercial responsibility for Focus Eurowings on short-haul long-haul business to Network Airlines business only Increase connectivity and benefit from Develop detailed plan for syn
Slide 59: Re-focus short-haul network: profitable core and strict capacity discipline
Re-focus short-haul network: Focus network on profitable core and strict capacity discipline Refocus network Restrict growth Strategic Grow in core markets via productivity and/or Apply capacity discipline: 1% ASK CAGR growth aircraft, e.g. DUS, STR, CGN, HAM core Grow moderately in coming years
Slide 60: One AOC in Germany: Reduce complexity and enable higher productivity
One AOC in Germany: Reduce complexity and enable higher productivity 2018: 4 AOCs 2019 transition: 2 AOCs Way forward: 1 AOC Multi-AOC structure: Four own short- One AOC per base implemented One AOC in Germany – haul narrow body AOCs in Germany in DUS and TXL implementation starting immediatel
Slide 61: Increase productivity: Improve crew productivity to competitive level until 2022
Increase productivity: Improve crew productivity to competitive level until 2022 Crew productivity ambition Way forward Situation today: Target Block hours (BH) per crew p.a. Transfer of “CLA” pilots to Lufthansa Low crew productivity and high complexity, e.g. 2018 530 Reduce crew redundancies
Slide 62: Increase productivity: Improve aircraft productivity
Increase productivity: Improve aircraft productivity up to 15 percent Aircraft productivity ambition Way forward Situation today: Target BH / A/C p.a. Reduce number of reserves and transitions – Heterogeneous fleet ~3,000 >3,300 start in Q4 2019 configuration with Aircraft + 10-15% several sub-f
Slide 63: Modernize fleet: Return wetleases and roll-over oldest aircraft
Modernize fleet: Return wetleases and roll-over oldest aircraft Fleet roll-over plan Way forward Short-haul fleet 2019 Phase out 70-seat turboprops Phase-out of 9 oldest/most Return Dash 8 wetleases 15 expensive A320 aircraft – Increase gauge size to lower unit cost to be completed in 2019 R
Slide 64: Overhead cost: Focus on simplicity will decrease overhead cost significantly
Overhead cost: Focus on simplicity will decrease overhead cost significantly Towards competitive overhead costs Way forward Complexity reflected in overhead Developed target cost via Apply target costing based costs benchmarks with LCC on benchmarks – Cost increase due to competitors completed E
Slide 65: Eurowings Digital: Push all digital sales channels and ancillary revenues
Eurowings Digital: Push all digital sales channels and ancillary revenues New services and partners along customer journey Way forward New catering concept: Full Buy-on-Board since June 20191 Leverage Eurowings Digital – since 2018 Focus on entire travel chain and become a 9% leading travel co
Slide 66: Eurowings short-haul CASK: 15% reduction until 2022
Eurowings short-haul CASK: 15% reduction until 2022 CASK in €cts. 2019 development Short-term turnaround measures Elimination of integration cost €50M investment into operational stability 6.60 0.50 Higher productivity One AOC in Germany Productivity increase 2019 Right-sizing short-haul
Slide 67: Overview turnaround plan
Overview turnaround plan 2019 2020 2021 2022 Business model Exit long-haul business adjustment and dimensioning Re-focus short-haul network Reduce to one AOC in Germany Improve productivity Structural cost improvement Modernize and harmonize fleet Decrease overhead costs Digital and Improve digital
Slide 68: Key messages
Key messages Eurowings plan is to Leverage break even in 2021 strong market position and simplify the business model for Long-term future value creation and profitability: Adjusted EBIT margin >7% Exit long-haul business and set full focus on short-haul Re-focus short-haul network Point-to-point
Slide 69: Resource Management & Operational Excellence
Capital Markets Day 2019 Resource Management & Operational Excellence Dr. Detlef Kayser, Chief Officer Airline Resources & Operations Standards 24th June 2019 Frankfurt
Slide 70: New Board function established to optimize resource management and operational standards
New Board function established to optimize resource management and drive operational standards and excellence Responsibilities and goals Current focus areas Resources Operations standards 1. Fleet 4. Operational Excellence Fleet Flight Operations Crew Ground Operations Fuel Technical Fle
Slide 71: Our fleet strategy aims at maximizing flexibility and reducing complexity
Our fleet strategy aims at maximizing flexibility and reducing complexity Flexibility in allocation “Corridor planning” and flexibility to shift aircraft within the Group Flexibility in operation Increase share of smaller/mid-sized intercontinental aircraft Flexibility in fleet size Maximize (down-)
Slide 72: Our fleet is flexible to react to changing market demand
Our fleet is flexible to react to changing market demand Fleet flexibility [number of operative aircraft] # A/C 900 Extending 850 aircraft life 800 1 Ability to up/downscale base case Shifting of the fleet will increase 750 planned 700 deliveries 650 2 Potential to compensate 600 for delivery delays
Slide 73: Reduction of fleet complexity has positive impact on costs and efficiency
Reduction of fleet complexity has positive impact on costs and efficiency Today Long haul fleet [number of aircraft types] 14 744 772 346 1 Seven aircraft types will be removed from 343 the fleet in the next decade 332 New 763 8 MD-11F 789 2 Reduction of aircraft types leads to lower 380 costs for c
Slide 74: Standardized A320 family enables flexible fleet reallocation across the Group
Standardized A320 family enables flexible fleet reallocation across the Group Today 1 Establishment of Aircraft Specification Board has increased standardization 2 Standardization and modernization of Past: 28 A320 sub-fleets MRO-software significantly increased flexibility to allocate aircraft 3 82
Slide 75: Investment in new technology is a major lever to reduce CO2 emissions
Investment in new technology is a major lever to reduce CO2 emissions Carbon neutral growth [CO2 in million tons] CO2 emissions with planned fleet 40 growth based on current technology -6 million 1 Orders of new and more efficient aircraft tons CO2 p.a. 35 ensure that CO2 emissions remain at current
Slide 76: Proprietary flight school secures supply of new pilots
Proprietary flight school secures supply of new pilots 1 Pilot shortages in the industry make pilots a critical resource 2 Ramp up of Lufthansa Aviation Training to train 500 pilots/year 3 New Group-wide approach manages supply based on expected demand CMD 2019 Resource Management & Operational Exce
Slide 77: Operational excellence measures will improve performance and reduce irregularity costs
Operational excellence measures will improve performance and reduce irregularity costs +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 Group targets to reduce irregularity costs (EUR 51
Slide 78: First results demonstrate significant progress compared to the prior year
First results demonstrate significant progress compared to the prior year Technical Eurowings High cancellations in Eurocontrol arrival punctuality performance reduced by Jan-Apr 2019 up to Easter 2019 52% 5th rank +7.0pts. YTD19 vs. YTD18 from 44th in same period 2018 punctuality vs. Easter 2018 CM
Slide 79: Operational performance is increasingly dependent on the quality of our system partners
Operational performance is increasingly dependent on the quality of our system partners Air Traffic Control Airports Security CMD 2019 Resource Management & Operational Excellence Page 11
Slide 80: Healthy competition between the airports drives better quality and lower cost
Healthy competition between the airports drives better quality and lower cost Airports Number of aircraft Network Airlines 1 Capacity is allocated to hubs based on Long-haul capacity, cost and quality Short-haul Hubs FRA 2 Shift of long-haul capacity from Frankfurt to 74 Munich 140 MUC VIE 31 3 Muni
Slide 81: Group has implemented multiple measures to drive ATC performance improvements
Group has implemented multiple measures to drive ATC performance improvements Air Traffic Control (ATC) European en-route ATFM delays ? Reduction of sector openings due to staff shortages at Karlsruhe Center 1 Initiatives under way to push automation 35 and upgrade technology in ATC processes 20 + 1
Slide 82: Pilot projects and joint initiatives improve security processes at airports
Pilot projects and joint initiatives improve security processes at airports Security Joint testing of new security lanes in Munich 1 Aim to extend new technology and optimize processes via proposed security control masterplan 2 Take over of responsibility for sub-processes in joint cooperation with
Slide 83: 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 84: Operative Decision Support: Use of AI to enhance planning processes
Operative Decision Support: Use of Artificial Intelligence to enhance planning processes and implement predictive steering Prediction of rotation robustness Prediction of passenger availability Flight Ops Prediction of Ground Ops crew availability Tech Ops Prediction of aircraft’s technical readines
Slide 85: Strategic initiatives will continuously reduce our costs
Strategic initiatives will continuously reduce our costs Focus areas Ambition 1. Fleet 4. Operational Excellence 2. Sustainability 5. System Partners Reduction of operations costs 3. Crew 6. Digitalization -1% to -2% p.a. CMD 2019 Resource Management & Operational Excellence Page 17
Slide 86: Key messages
Key messages Digitization and Our fleet strategy Close cooperation the harmonization aims at with system of processes will maximizing partners is key to help us reach a flexibility while optimizing our new level of minimizing operational operational complexity performance excellence CMD 2019 Resourc
Slide 87: Financial Update
Capital Markets Day 2019 Financial Update Ulrik Svensson, CFO 24th June 2019 Frankfurt
Slide 88: Group growth has gone hand-in-hand with significant profitability improvements
Group growth has gone hand-in-hand with significant profitability improvements Number of Passengers Total Revenue & Adj. EBIT Adj. ROCE [in million] [in m EUR] [before tax; in %] 35,844 142 15.9 14.2 129 11.0 22,283 108 110 9.3 101 104 105 106 2,836 7.8 7.1 93 6.0 5.7 4.6 77 130 1.4 2009 2018 2009 2
Slide 89: 2019 financial guidance adjusted
2019 financial guidance adjusted Passenger Airlines Network Airlines Eurowings Capacity Growth (ASK) c. +4% c. 0% Unit Revenue (RASK, at constant currency) Down low-single digit Down mid-single digit Unit Cost (CASK, at c. currency, excl. fuel) 0% to -1% -6% to -8% Fuel (year-on-year change) +500m E
Slide 90: 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 91: 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 – one AOC in Germany and rotation planning Group-wide standardizat
Slide 92: Further cost efficiency improvements will be enabled by LEAN culture
Further cost efficiency improvements will be enabled by LEAN culture Mindset Leadership End-to-end view Lead by example Customer orientation Acceptance of failure Challenge what we do Transparent feedback LEAN Culture Enabling Projects Lean methods Continuous Improvement Process Management KPIs On t
Slide 93: LEAN spans operations and administrative functions
LEAN spans operations and administrative functions Operations Admin Lufthansa Hub Munich Procure to Pay Process Reduce turnaround time Increase automation & process quality Reduced delay minutes by -35% Target to double degree of automation to 60% Increased punctuality by 12% Increased transparency
Slide 94: Balance sheet strength is a key competitive advantage
Balance sheet strength is a key competitive advantage Net Debt Pension provisions Leverage [in m EUR] [in m EUR] % = Discount Rate [Adj. Net Debt/Adj. EBITDA] 2.1% 2.0% 2.0% 1.8% maximum target threshold: 3.5 8,364 3.2 5,830 5,865 6,179 5,116 IFRS 2.4 16 3,489 2,701 2,884 1.7 1.8 3,474 31 Dec 31 Dec
Slide 95: Investment grade ratings secure attractive financing options
Investment grade ratings secure attractive financing options Credit Ratings Gross Debt by Instrument [in bn EUR] Long-term: BBB Outlook: Stable 6.7 Low financing 1.0 Bonds costs Schuldschein 1.9 Loan Long-term: Baa3 Outlook: Stable & Aircraft 3.8 Broad range of Financing Long-term: BBB available fin
Slide 96: Disciplined capex focused on enhancing capital returns
Disciplined capex focused on enhancing capital returns Gross Investments & Adj. ROCE [Average p.a. 2014 – 2018] Gross Investments [in m EUR] Adj. ROCE, after tax Capital return performance drives 15 % investment allocation 13 % 1,316 9% 8% 6% 6% All investments must be accretive to Group Adj. RO
Slide 97: New Management compensation model fully aligned with shareholder interests
New Management compensation model fully aligned with shareholder interests Base Salary Targets: Adj. EBIT growth (42.5%) + EBIT margin (42.5%) Short-Term Annual Bonus (STI) Non-financial targets (15%), in 2019: Targets: Net Promoter Score (7.5%) Employee Engagement Index (7.5%) + Adj. RO
Slide 98: Majority of aircraft orders are for fleet roll-over
Majority of aircraft orders are for fleet roll-over Fleet Size Fleet Additions & Roll-over 2019-2023 [number of aircraft] [number of aircraft] 795 234 202 32 763 Fleet Capex* 32 3.5bn EUR, average p.a. 2019 – 2023 2018 2019-2023 2023 Addition Roll-over Growth * Including aircraft/fleet, engines, cab
Slide 99: Outright purchase remains primary choice for aircraft sourcing
Outright purchase remains primary choice for aircraft sourcing Lufthansa Group’s Fleet Structure Outright purchase Leasing Advantageous when aircraft Advantageous in cases of 6% is used until end of lifetime temporary capacity gaps leased Retirement of fully depreciated More expensive compared with
Slide 100: Higher investments will drive structural improvement of Group profitability
Higher 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. 3.6bn
Slide 101: 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 102: 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 103: 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