Investor Relations

On Solid Strategic Track
in Turbulent Times
Wolfgang Mayrhuber
Chairman of the Executive Board &
CEO Deutsche Lufthansa AG
Lufthansa Training & Conference
Center Seeheim
June1 25,
2009 Group
Lufthansa
Lufthansa Group
Lufthansa: Three pillars of success
Corporate Structure
Business Strategy
Operational Execution
2
Lufthansa Group
Lufthansa Group
Our Structure
Lufthansa Group Settings
„The Lufthansa Group provides mobility
for people and goods“
• Management of networks
• Management of operations
• Management of assets, resources and supply
chain
„The Lufthansa Group provides global services to
airplane operators“
Logistics
MRO
IT Services
• Management of innovations
• …
Catering
3
Lufthansa Group
Internal market
Passenger
Businesses
External
market
Lufthansa Group
Business strategy: common themes
4
•
Be focused
•
Grow profitably
•
Create value
•
Enhance quality differentiation
•
Be innovative
•
Provide brand value
•
Nourish key success factors
Lufthansa Group
Lufthansa Group
Key factors for a successful airline
Brand
Fleet
Product
Leadership
& Partnership
5
Lufthansa Group
Location –
Home Market –
Growth Market
Employees
Infrastructure
Financials
Market Circumstances: Cyclic Economy
Since mid of 2008 a sharp decline in the airline business is evident
Monthly growth of international air traffic (IATA) and of Lufthansa
(% to PY)
15
10
5
0
Jan 08
Mrz 08
Mai 08
Jul 08
Sep 08
-5
Nov 08
Jan 09
Mrz 09
Mai 09
PKT
-10
-15
-20
-25
-30
-35
Source: IATA
6
Lufthansa Group
IATA
FTKT
Market Circumstances: Cyclic Economy
For 2009 IATA forecasts net losses of USD -9.0bn in the airline
industry
USDm
Civil
aircraft
15000
10 years
10 years
9 years
?
4000
10000
3000
2000
?
5000
1000
0
1975
1980
1985
1990
1995
2000
2005
2010
Known
aircraft deliveries
-5000
Aircraft
orders
-10000
Net earnings
IATA
-15000
Source: IATA, Lufthansa
7
Lufthansa Group
2015
Market Circumstances: Cyclic Economy
A parallel growth to the former trend of 4.7 % is earliest expected from
around second half of 2010 on
Worldwide air traffic development after cyclic peaks
(in billion PKT)
4.7% pa
2000 trend
6000
5000
2008 peak
4.8% pa
1990 trend
Forecast
4000
2000 peak
5.4% pa
1980
trend
3000
1990 peak
2000
9.7% pa
1970
trend
1979 peak
1000
3 years of low growth
Source: IATA
8
Lufthansa Group
ar
s
s
ye
+9
ye
ar
+8
ye
+7
ye
ar
s
s
ar
s
ar
+6
ye
+5
ye
ar
s
s
ar
+4
ye
+3
ye
ar
s
ar
+2
ye
+1
c le
pe
ak
ar
ye
Cy
-1
ar
s
ye
ar
s
-2
ye
ar
s
-3
ye
-4
-5
ye
ar
s
0
Market Circumstances: Cyclic Economy
Still, Airline Business remains a growth industry in the medium term
Worldwide air traffic development
(in billion PKT)
6000
5000
.8%
4
+
4000
3000
+
2000
+
%
+ 8.8
1000
a.
p.
.a.
p
%
4.8
p.a.
%
5.9
p.a.
0
1970
1975
Source: IATA
9
Lufthansa Group
1980
1985
1990
1995
2000
2005
2010
2015
Lufthansa's Overall Setup
Lufthansa flexibly adapts to short-term market changes while
maintaining long-term strategic path for profitable growth
Short-term flexibility
• Capacity reduction of both, passenger & cargo
business
• Flexible adjustments of workforce
• Cost-cutting measures
• Reduction of investments
• Secure financial position (cash)
Long-term strategic approach
• Customer innovation & quality
• Increase level of flexibility
• Take actively part in consolidation process
• Gain market share
• Realise synergies
• Organisational set-up for the LH Airline Group
80
2000
10
Lufthansa Group
2005
2010
2015
Crisis Countermeasures
Short-term: Reducing expenses and securing cash flow
Long-term: Structural and strategic review for optimisation
Short-term
Countermeasures
Capacity
Personnel
Material &
Investments
Suppliers
Long-term
Opportunities
1.
2.
3.
4.
11
o
o
o
-
-
-
o
o
o
Structural Review (organisation, business models, best owner …)
In the short run, a comprehensive corporate programme is launched to counteract the effects of the crisis
Lufthansa remains on solid strategic track, continuously striving for efficiency and higher quality
With strong brands, Lufthansa offers high quality products in every segment
Lufthansa to remain Industry Leader with respect to profitability among European network carriers
Lufthansa Group
Strategic Crisis Management
To successfully navigate through economically weaker times a well
prepared sound strategic setup is essential
Strategic Vision and Leadership
Cost Flexibility
Responsiveness
Opportunities
(Reduce share
of fixed expenses)
expenses)
(Fast capacity
adjustments)
adjustments)
(Secure markets,
markets,
deploy for economic
revival)
revival)
Entrepreneurship
Corporate Culture
Strong Balance Sheet & Financials
12
Lufthansa Group
Cost Flexibility
Current status of adaptability to weak demand
Cost flexibility at:
20% revenue decrease
30% revenue decrease
LH Passage
Airlines
50%
59%
50%
61%
SWISS
53%
69%
53%
70%
Logistics
43%
55%
43%
54%
Technik
MRO
63%
84%
63%
79%
IT Services
5%
82%
7%
79%
Catering
48%
82%
44%
75%
at once
13
Lufthansa Group
after 12 months
Response to market
Adapt to market needs
14
Lufthansa Group
•
Reduce number of aircraft
•
Reduce SKO
•
Optimise aircraft compartment
(Cont. 4 > 6 abreast, intercont.
convert Business to Economy) &
optimise structure of fleet
•
Maintain best network possible with
respect to destinations and
frequencies
Response to market
Rollover with more efficient fleet and compartment structure
SKO effect of rollover with higher capacity aircraft
A346 vs. A343*
B744 with larger Y/Cl**
CRJ 900 vs. DH3***
+ 38.5 %
+ 6.7 %
+ 72.0 %
(*) A346: 8/60/238 vs. A343: 8/48/165 (**) B744: 16/66/270 vs. 16/80/234 (***) CRJ 900: 86 vs. DH3: 50
15
Lufthansa Group
Response to market
Planned growth of 6 % for 2009 reversed into a capacity reduction
with a more efficient fleet structure
Continental production LH Passenger Business 2009 to PY
(in %)
Capacity measures to original plan
SKO
As of July
2009
April - June
2009
Winter 08/09
Landings
-1 A306
(-271 mio. SKO p.a.)
-1 A319
(-245 mio. SKO p.a.)
-3 BAe 146
(-248 mio. SKO p.a.)
Summer
flight plan
-9 aircraft
-4 aircraft
-5 aircraft
(-968 mio. SKO p.a.)
(1.1 bn. SKO p.a.)
(1.4 bn. SKO p.a.)
∑ 18 aircraft & 3.5 bn. SKO p.a.
Remark: Capacity planned,19 June 2009, without LH Italia
16
+
-1 Dash 3
(-32 mio. SKO p.a.)
-5,7
-8,6
Q1
+
-5 A306
(-1.4 bn. SKO p.a.)
-3 CRJ 200
(-172 mio. SKO p.a.)
-3,9
-5,4
-4 A306
(-1.1 bn. SKO p.a.)
Lufthansa Group
Response to market
Planned growth of 6 % for 2009 reversed into a capacity reduction
with a more efficient fleet structure
Intercontinental production LH Passenger Business 2009 to PY
(in %)
Capacity measures to original plan
SKO
As of Sept.
2009
April - July
2009
Winter 08/09
Landings
0,7
-1 A343
(-1.2 bn. SKO p.a.)
-1 B744
(-1.5 bn. SKO p.a.)
-0,5
-4 A306 IC
(-2.4 bn. SKO p.a.)
-2,6
+
-3,1
+
-1 A346
(-1.5 bn. SKO p.a.)
Q1
Summer
flight plan
-4 aircraft
-1 aircraft
-2 aircraft
(-2.4 bn. SKO p.a.)
(1.2 bn. SKO p.a.)
(3.0 bn. SKO p.a.)
∑ 7 aircraft & 6.6 bn. SKO p.a.
Remark: Capacity planned,19 June 2009, without LH Italia
17
Lufthansa Group
Opportunities
Increasing market presence by partnerships and consolidation
Our logic of consolidation
Markets / Customers
•
•
•
HEL
•
Solid demand
Strong brand
Customer benefits from network
connectivity and no. of
destinations
Safeguarding “stronghold Europe”
CPH
DUB
AMS
Financial Performance
BRU
WAW
LHR
FRA
MUC
?
CDG
ZRH
VIE
PRG
•
•
•
Stand-alone profitability
Synergies cost- and revenue-wise
Opportunities for restructuring
MXP
Values & Cultural Fit
LIS
MAD
FCO
•
•
•
Governance
Entrepreneuship
Cultural fit
Remark: Brussels Airlines, Austrian Airlines and bmi subject to transaction closing
18
Lufthansa Group
Opportunities
Increasing network quality by multiple hub strategy
For Example: More choices regarding flights
from Barcelona to Manchester
MAN
BRU
DUS
FRA
MUC
ZRH
BCN
Remark: Brussels Airlines, Austrian Airlines and bmi subject to transaction closing
19
Lufthansa Group
Higher flexibility
regarding schedule
and hub:
via MUC
via BRU
via FRA
via BRU
via DUS
via MUC
via FRA
via BSL
via BRU
via DUS
via ZRH
via FRA
via MUC
06:10
06:30
08:20
09:15
09:35
12:00
12:40
14:10
14:10
14:15
14:45
15:40
18:05
Opportunities
Adding new destinations for each member of the Airline Group
For Example: Additional destinations in Africa by Brussels Airlines
for each Lufthansa Airline Group Member
New destinations in Africa
BRU
cl
FRA
MUC
VIE
ZRH
ABJ
BJL
BJM
CKY
DKR
EBB
FIH
KGL
ROB
Remark: Brussels Airlines, Austrian Airlines and bmi subject to transaction closing
20
Lufthansa Group
Abidjan
Banjul
Bujumbura
Conakry
Dakar
Entebbe
Kinshasa
Kigali
Monrovia
Cote D´Ivoire
Gambia
Burundi
Guinea
Senegal
Uganda
Congo
Rwanda
Liberia
Brussels Airlines
Commercial cooperation intensified, EU process finalised
• Bilateral cooperation in Summer flight plan
(29.03.2009) successfully started:
- Comprehensive codeshare partnership
- Mutual recognition of frequent flyer programme
- Combinability of prices in neighbourhood traffic
- Mutual lounge access and ground processes
- Relaunch of business class at Brussels Airlines on all European routes
• Preparation of Miles & More-full-integration and integration into Star Alliance
before year end 2009
• Further synergy projects planned after share transfer
• Time schedule of EU clearance process:
- 15 September 2008: Signing of contract
- 26 November 2008: Formal application to EU
- 22 June 2009: EU clearance given
21
Lufthansa Group
bmi
Settlement reached
Time schedule of transaction
• 9 November 1999: Basis Shareholder's Agreement
- Basis for acquisition of 30 % minus 1 share
- Put option for Sir Michael Bishop/ call option for LH
• 10 October 2008: Execution of put option by Sir Michael
Bishop (50 % share)
• 22 June 2009: Out-of-court settlement
- Cancellation of put option by Sir Michael Bishop
- Lufthansa in turn will pay GBP 175m
Transaction structure: Similar to other airline investments
• Initially, bmi is to remain UK-owned
-LHBD Holding Limited (LHBD) will acquire The BBW Partnership Limited's
entire stake of 50 % plus 1 share in bmi for approximately GBP 48m
-Lufthansa will have 35 % direct voting shares in LHBD
-1 July 2009: Transaction closing expected
• After obtaining necessary traffic rights, Lufthansa expects to be able to acquire
100 % of LHBD
22
Lufthansa Group
Austrian Airlines
Merger process on track with impacts from the global economic crisis
• Takeover offer for Austrian Airlines shares expired on
June 11th with an acceptance rate of 88.1%
• Antitrust clearance and approval of the restructuring
concept by the European Commission is expected
within the next few weeks
• Closing of the merger process intended until the end
of July*
• Global economic crisis has also major impact on
Austrian Airlines‘ current performance
• First cost savings programme of EUR 225m has been successful
• Further measures must be taken in order to get the company back into profitability
Lufthansa anticipates the takeover as announced and is convinced of multiple
chances that arise form the enlarged Lufthansa Airline Group Network
Despite the recent downsizings of Austrian Airlines’ network, Lufthansa still
expects a long-term annual synergy potential of EUR 80m
(*) Upon completion of all conditions precedent
23
Lufthansa Group
Lufthansa Italia
Own attractive brand is introduced in Italian market
Northern Italy is a highly attractive market for
Lufthansa
• One of the leading economic regions in Europe
• High share of business travelers
• Alitalia significantly reduced its offer from MilanMalpensa in Summer 2008
Lufthansa Italia ideally complements the Lufthansa
offer in the Italian market
• Mobility offer based on local customer requirements
• Access to new customer groups in a strategic market
• Important contribution to Lufthansa´s growth strategy
Lufthansa Italia operation started successfully in February 2009
• Fleet of 8 A319 aircraft, more than 250,000 passengers
• Direct connections from Milan-Malpensa to eleven European and Italian destinations
High quality operations- & service concept: praised by over 85 % of our customers
24
Lufthansa Group
Organisational Upgrade
Clear structure for focused development
Chairman of the
Executive Board &
Chief Executive Officer
Airlines
Financial Services
Lufthansa Systems
LSG Skychefs
Lufthansa Technik
Chief Financial
Officer
Lufthansa Cargo
jetBlue
SunExpress
germanwings
Austrian Airlines
Brussels Airlines
Chief Officer
Group Airlines &
Corporate HR
bmi
Lufthansa
Passage
SWISS
Chief Executive Officer
Lufthansa German
Airlines*
Services
Airline Development Board
(ADB)
Members of Executive Board
& Airline CEOs
(*) Deputy Chairman of the Executive Board of Deutsche Lufthansa AG
25
Lufthansa Group
•
•
•
Strengthend management
•
Established crossborder
"Airline Development Board"
Aligned responsibilities
Added dedicated Lufthansa
German Airline CEO
position
Organisational Upgrade
Further development of the Group organisation
26
•
Maintain focused development in various Business Units
•
Enhance synergy potentials between Airlines and other Business Units
•
Create a learning organisation amongst Group Members
•
Share ideas, innovations and expertise
•
Contain responsibilities within Business Units (bottom up)
•
Allocate resources (top down)
•
Promote Shared Services
Lufthansa Group
Organisational Upgrade
Entrepreneurship by organisational structure
•
Egalitarianism
•
"Big but slow"
•
•
•
•
•
•
•
27
Lufthansa Group
Competition of ideas
Learning organisation
Responsibility/accountability
Close to market, customers and
employees
Risk avoidance
Modular expandability, fungibility
"Swift, flexible and market geared"
Innovations
Ongoing improvements of products, services and benefits for our
customers
Modern aircraft with
optimised cabin interior
New check-in terminals
Inseat screens in Eco.
Lufthansa eFly Services
New services &
food innovations
New lounges
28
Lufthansa Group
Summary
•
•
29
We cannot change the market environment, but we can adapt to it
We have attained favourable competitive advantages which we
intend to use:
(1) Stronger balance sheet and asset base
(2) Well balanced market exposure and business set-up
(3) Advanced ability to react to new opportunities
(4) Capability to manage a future oriented corporate portfolio
and multi-hub airline system
(5) Experienced management and highly educated
employee base
Lufthansa Group
30
Lufthansa Group
Disclaimer in respect of forward-looking statements
Information published in this presentation with regard to the future development of
the Lufthansa Group and its subsidiaries consists purely of forecasts and
assessments and not of definitive historical facts. These forward-looking
statements are based on all discernible information, facts and expectations
available at the time. They can, therefore, only claim validity up to the date of their
publication. Since forward-looking statements are by their very nature subject to
uncertainties and imponderable risk factors – such as changes in underlying
economic conditions – and rest on assumptions that may not or divergently occur,
it is possible that the Group's actual results and development may differ materially
from those implied by the forecasts. Lufthansa makes a point of checking and
updating the information it publishes. It cannot, however, assume any obligation to
adapt forward-looking statements to accommodate events or developments that
may occur at some later date. It neither expressly nor conclusively accepts liability,
nor gives any guarantee, for the actuality, accuracy and completeness of this data
and information.
31
Lufthansa Group