Commerzbank German Investment Seminar

Lufthansa Group
Commerzbank German
Investment Seminar
Simone Menne
Member of the Executive Board and CFO
New York, 12th January 2015
Page 1
Disclaimer in respect of forward-looking statements
Information published in this presentation concerning 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 nature subject to uncertainties and imponderable risk factors
– such as changes in underlying economic conditions – and rest on assumptions
that may not occur, or may occur differently, it is possible that the Group’s actual
results and development may differ materially from the forecasts. Lufthansa makes a
point of checking and updating the information it publishes. However, the Company
is under no obligation to update forward-looking statements or adapt them to
subsequent events or developments. Accordingly, it neither explicitly nor implicitly
accepts liability, nor gives any guarantee for the actuality, accuracy or completeness
of this data and information.
Page 2
 The Lufthansa Group: World’s largest aviation group with leading airlines and aviation services
Hub airlines to improve profitability at current size; point-to-point airlines and aviation services to grow
 From analysis to implementation: Comprehensive approach to managing change
Specific measures underpin on-going focus on implementing structural change
 Significant improvement enforced: Financial guidance for FY 2015
Operational outlook and lower fuel costs support profit increase
 Focus on return: New value-based steering concept and new dividend policy
EBIT, EACC, ROCE and dividend policy are directly linked to each other, transparent and easy to calculate
Page 3
The Lufthansa Group is the largest aviation group in the world…
Strong global market position but facing multiple challenges
Our challenges
Our strengths
World’s largest aviation group
with >30 bn EUR in revenue
Compete with low-cost and Gulf
carriers while securing strong
market position
Europe’s largest passenger
network with strong brands
Lower unit costs and offset cost
inflation and possible
yield pressure
Global leader in MRO and
airline catering
Page 4
Lufthansa
Group
5 STAR
Become quality leader and
innovation driver again
Leading positions in air cargo
and airline IT as well as other
aviation services
Execute faster, use of group
synergies better and explore
potential of service companies
Strong financials:
investment grade rating,
dividend payments
Reach higher profitability and
strengthen return on capital focus
… with a unique portfolio of airlines and aviation services
Service companies sustainably contribute c. 500 m EUR operating profit p.a.
Revenue
Operating result
Op. margin range
Airlines
23.5 bn
Passenger
Airline
Group
2009
2010
2011
2012
2013
2009
2010
2011
2012
495 m
+4.8%
2013
-0.1%
Service Companies
77 m
2.4 bn
Logistics
(Cargo)
2009
2010
2011
2012
2013
2009
2010
2011
2012
4.2 bn
+11.4%
2013
-8.0%
404 m
+10.9%
MRO
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
+6.9%
105 m
+4.3%
2.5 bn
Catering
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
0.6 bn
36 m
+3.1%
stable
non-airline profits
of c. 500 m EUR
+6.2%
IT Services
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
+1.8%
-420 m
Others incl. Group Functions
(burdened by restructuring costs)
2009
Page 5
2010
2011
2012
2013
Our strategy is based on optimizing the three pillars of the Group
Focus on profit improvement for hubs, growth in P2P and aviation services
Lufthansa Aviation Group - Key Advantages
Integrated Value Chain
Financial Stability
Strong Brand Family
Natural Hedge
Deep Customer Insights
Favoured Employer
Hubs
Point-to-Point
2013
2020
Revenue Share
70%
60%
Profit Margin
3%
Consolidation and
profit improvement
1) excl. consolidation effects
Page 6
2013
Revenue Share
Profit Margin
6%
-
Redesign and
growth
Aviation Services
2020
2013
Revenue Share
24%
Profit Margin
7%1
2020
Margin stabilization
and growth
Therefore future growth will be focused outside the network airlines
40% revenue share of new platforms and aviation services by 2020
Revenue Share Today
Targeted Revenue Share in 2020
• Geographical
expansion of
LSG and
Lufthansa
Technik
Service
companies
• Growth in
adjacent markets
30%
40%
70%
60%
Point-to-point
airlines
Network airlines
(Frankfurt, Munich,
Zurich, Vienna)
Page 7
Profitability
enhancement
Growth through
point-to-point
airlines and new
business models
Hub and P2P will be developed in balance…
Overall fleet size of ca. 600 aircraft remains stable in 2015
Hubs
Point-to-Point
Today
Future
c. 60 A320
incl. lower cost
A340 sub-fleet
ex GER
c. 20 CR9
c. 80 A320
ex GER
ex GER
starting with
3 from 10/2015
currently c. 520 aircraft
Total fleet as of 30 September 2014
ex GER
currently c. 80 aircraft
Σ c. 600 passenger aircraft
Page 8
7 A330
… while aviation services pursue global growth
Extending business models geographically and into adjacent markets
International expansions and
new partnerships
 Grow APAC, MidEast, North America revenue
 Extension of Joint Venture with Air China
 Joint Ventures with other service providers
International expansion and
exploring adjacent markets
 Grow global catering network organically and inorganically
 Assess opportunities in adjacent markets, e.g. train catering
 Margin improvement from restructuring parts of the network
Extend business models to
adjacent customer segments
 Attract new partners also from non-travel industries
 Enhance attractiveness for "less frequent" fliers
 Implement dedicated mileage program for P2P-platforms
Page 9
 The Lufthansa Group: World’s largest aviation group with leading airlines and aviation services
Hub airlines to improve profitability at current size; point-to-point airlines and aviation services to grow
 From analysis to implementation: Comprehensive approach to managing change
Specific measures underpin on-going focus on implementing structural change
 Significant improvement enforced: Financial guidance for FY 2015
Operational outlook and lower fuel costs support profit increase
 Focus on return: New value-based steering concept and new dividend policy
EBIT, EACC, ROCE and dividend policy are directly linked to each other, transparent and easy to calculate
Page 10
Comprehensive approach to drive change…
Our Way Forward: Seven areas of action to tackle challenges ahead
Customer
centricity &
quality focus
New concepts
for growth
Constantly
improving
efficiency
Innovation &
digitalization
Value based
steering
Effective & lean
organization
Culture &
leadership
Page 11
… by enhancing product quality to strengthen pricing
Implementation of five star product attains higher customer satisfaction
New First Class:
New Business Class:
New Premium Economy Class:
 Passenger satisfaction at 98%
 New full flat seat
 More exclusivity & personal space
 78% of retrofit completed
 52% of 7.000 seats replaced
 16% of 3.600 seats implemented
 Completion: June 2015
 Completion: August 2015
 Completion: Autumn 2015
5 Star Service in addition to hardware upgrades:
 Upgrade in food & beverage on board and on ground
 New transfer & arrival services in Frankfurt and Munich
 New lounges in London and Newark
 Faster and more personalized
feedback processes
Page 12
5 STAR
Full flat Business Class seats now standard
in the Lufthansa Group
… by stepping into new markets and lowering costs
Portfolio differentiation: The new Eurowings

Complete migration of non-hub traffic from Lufthansa Passenger to Germanwings
Letter of Intent signed with SunExpress for long-haul services under Eurowings brand
Feb 15
Rollover of CRJ900 fleet (existing Eurowings) to A320 aircraft (new Eurowings)
Oct 15
Launch of European low-cost platform outside Germany
Launch of long-haul low cost-platform based in Cologne (initially 3x A330)
Page 13
… by negotiating labour deals to support change in the core business
Agreements except of open issues with VC & Swiss pilot unions
Preliminary agreement with cabin personnel
Agreement with flight crews
 -20% costs for 14 Lufthansa A340s
 New terms effective since Dec 2014
 Move from DB to DC pension scheme
 New salary levels even below previous
regional platform
o
On-going negotiations with pilot union (VC)
 Productivity increased
 Change from DB to DC pension scheme
New CLA to be negotiated with pilot unions
 Employees move to "new" Austrian:
Reintegration of operations from
Tyrolean Airways into legal unit
Austrian Airlines AG as of March 2015
 Pilot union IPG agreed on new CLA
effective since July 2014
 Legal stability: withdrawal of lawsuits
from union and workers' councils
o
 One-time payments for staff leaving the
company
Aeropers rejected new CLA;
Existing agreement cancelled per Nov 16
 No further negative p&l impact after Q3 2014
Page 14
… by structural change which go beyond mere optimization
Recent example: Cost savings via outsourcing of IT Infrastructure
Airline Solutions:
Airline IT
Industry Solutions:
Professional
Services
IT Infrastructure
Equal revenue split of three Lufthansa Systems divisions
 Growth potential in
international
airline market
 Chances triggered
by digital
transformation
and services
Page 15
 Successful
system integrator
in automotive,
transport & logistics
Χ Lack of scale of in
business
dominated by large
providers
 Growth of process
consulting and
Big Data
Χ Cloud services and
offshoring increase
pressure on prices

One-time charge in 2014
of c. 240 m EUR in IFRS and HGB
net results (non-operating)

Average savings of 70 m EUR
p.a. in IT costs for LH Group
from 2015

Integration into international IT
Group secures jobs and increases
prospects for employees

Transformation to be completed
in Q2 2015
…by moving to more efficient structures on the ground
Restructuring of non-hub stations in progress
Stations to be restructured
Starting point
 Transfer of Lufthansa Passenger
non-hub services to Germanwings
and Eurowings
● HAM
● BRE
● HAJ
● BER
Δ 50-60%
● DUS
● CGN
● NUE
Non-hub
stations
 Handling providers in Germany
produce services at approx.
50-60% lower costs than LH
Handling
services
● STR
Objective
 C. 1,500 employees
 Operational tasks at stations
(check-in, handling, lounges etc.)
Page 16
 Stations transferred in up to eight separate legal entities
 Better cost structure and more flexibility in new setup
… by creating efficiencies and strengthening perception of LH Group
Consolidating the decentral sales forces of the LH Group airlines
Today
Ausgangslage
de-central steering of field sales
In the future
Weiterentwicklung
steering via Head of Group Field Sales
Chief Commercial Officer Board
Chief Commercial Officer Board
CCO
Area
Mgmt.
Head of Group Field Sales
Market
 Field sales only bundled on market level
 One person in charge for Airline Group
 Several reporting lines, partly competing
steering impulses from five airlines
 Redesign of processes,
streamlining structures
High coordination effort and complexity
Page 17
Faster and more consistent approach
… by standing out through innovation and digitization
Driving business through systematic approach to innovation
 Strengthen internal innovation culture by creating
a new Group Innovation Unit
 Establish “innovation budget” to expedite the
development of innovative products and ideas
 Consistently promote existing innovative
projects within the Lufthansa Group (Lufthansa
Technik Innovation Fund, eCargo, Board Connect,
SMILE and similar)
Page 18
 “Innovation Hub” company in Berlin
to get close to the world of start-ups
and the digital technology scene
 Close collaborations and partnerships with Silicon
Valley companies
 Use potential of some 300,000 passengers a day to
develop new products and services with partners
… by diligently tracking profit improvement potentials
SCORE outlook and tangible short-term measures in implementation
Measures in 2015
Cabin product upgrade finalized
1,200
Start of operation to leisure
destinations on lower cost sub-fleet
from summer schedule
1,200
926
>700
>700
Start of Eurowings in Europe from
February and on long-haul routes from
October
618
926
1,083
Bundling of the airline group’s field
sales under one management
responsibility from March
618
2012
2013
measures P&L effective
Status: November 2014
Page 19
2014
2015
2016
measures in implementation
2017 ff.
further measures targeted
… by rolling-over the existing fleet
Fleet overview Lufthansa Passenger Airlines
2011
2025
5 aircraft types
5 aircraft types
long-haul
400-500
seats
A380
A380
Development
747-8I
300-400
seats
740-400
A340-600
200-300
seats
A340-300
Phase-out by age
Phase-in of 777-9X
Use in 2-class configuration
Phase-in of A350-900
A350-900
A330-300
Deployment on thinner markets
9 aircraft types
3 aircraft types
A310/19/20/21 Development & rollover
short-haul
Classic
Regional
„sustainable“
733/5
E90/95
CR9
CR7
Regional
„in transition“
DH4
AT7
F100
AR8
A320Family
Phase-out by 2015
E90/95
CR9
Used as hub-Feeder
Total Orders: 261 aircraft (2014 – 2025)
Phase-out
by 2015
Phased-out
2013
2013

Short haul: 177 aircraft

Long haul: 84 aircraft
(thereof 59 new generation aircraft)
Phased-out
2012
2011
Page 20
-20%CASK
vs. replaced
aircraft
Phase-out by age
Lower cost sub-fleet of 14 A340
A330-300
777-9X

2015
2017
2019
2021
Equals EUR 32 bn in list prices
Concrete measures and fleet strategy successfully reduce costs
Airline KPIs 2013 vs. start of restructuring program in 2011
FY 2013 vs. FY 2011
Fleet Size
Explanation
fleet rollover,
phase-out of small, non-efficient aircraft
-2.6%
(no. of aircraft)
Capacity
Volume
+4.6%
(RPK)
Load Factor
+2.2%
(SLF)
Pricing
+1.2%
(Yield)
Unit Revenue
+4.1%
(RASK)
Unit Costs
-1.9%
(CASK ex fuel)
Cargo Capacity
Page 21
capacity growth realized through
larger aircraft with more seats per aircraft
+1.7%
(ASK)
-8.5%
increase driven by
higher load factor and yield increases
SCORE cost reductions: transfer of non-hub traffic to
Germanwings, Austrian restructuring, etc.
Reduction mainly due to terminated joint ventures and
decrease in belly capacity
 The Lufthansa Group: World’s largest aviation group with leading airlines and aviation services
Hub airlines to improve profitability at current size; point-to-point airlines and aviation services to grow
 From analysis to implementation: Comprehensive approach to managing change
Specific measures underpin on-going focus on implementing structural change
 Significant improvement enforced: Financial guidance for FY 2015
Operational outlook and lower fuel costs support profit increase
 Focus on return: New value-based steering concept and new dividend policy
EBIT, EACC, ROCE and dividend policy are directly linked to each other, transparent and easy to calculate
Page 22
Concrete measures and fleet strategy successfully reduce costs
Fleet, costs and revenue figures FY12-14 and FY15 assumptions
FY12 actual
Number of flights
FY13 actual
-1.6%
Capacity
-3.7 %
+0.6%
Load Factor
+1.2pts
(SLF)
Unit Revenue
-2.3%
+2.6%
(RASK ex currency)
Cargo Capacity
+2.4%
+1.0pts
+3.7%
(Yield)
(CASK ex fuel, ex one-offs)
+2.1%
+0.3pts
-0.5%
-8.2%
* negative
+1.2%
-1.3%
-0.3%
* negative
* c. -4%
-1.1%
* no actual data, expectation unchanged from previous guidance. Unit costs guidance for FY 14 excl. fuel costs, one-offs and currency effects
Page 23
c. +3%
above capacity growth
slightly up
clearly negative
Pricing
Unit Costs
FY15 assumptions
further reduction
+2.3%
+2.2%
(RPK)
-2.6%
+1.0%
(ASK)
Volume
FY14 act. / *est.
due to uncertain market dynamics from lower
oil price (surcharge, yield, capacity discipline)
clearly negative
slightly reduced
overall stable
Significantly lower fuel costs expected for FY 2015
Fuel forecast and sensitivities FY14 and FY15
150
Lufthansa Group fuel expenses after hedging
(in bn EUR)
LH price
2015
140
Sensitivities
costs with
deviating oil price
7.4
7.1
Price paid in USD/barrel
130
6.7
6.3
120
5.8
Market price
(unhedged)
5.4bn (-10%)
5.0bn (-20%)
5.0
110
6.6bn (+20%)
6.2bn (+10%)
break-even of hedges at 105 USD/bbl
100
90
2010
2011
2012
2013
2014e 2015e
80
Assumptions
FY 2014
FY 2015
Current fuel hedging levels
79%
73%
Expected volume (m tons)
8.9
9.0
Brent forward (USD/bbl)
--
68
EUR / USD forward
--
1.24
70
60
70
80
90
100
110
120
Market price in USD/barrel
as of 11 Dec 2014
Page 24
130
140
150
Operating result FY15 expected "significantly above previous year"
Profit increase to be achieved from airlines and aviation services
Lufthansa Group Reported Operating result
Actual and Forecast
"significantly above
previous year"
Financial Year 2014
 Operating profit expected at c. 1.0 bn EUR
1,378
 Operating profit excl. one-offs at c. 1.3 bn EUR
1,280
 Forecast includes strike impacts until October,
excludes costs from December strikes (2.5 days)
1,020
845
c. 1,000
820
Financial Year 2015
839
 Operating profit
"significantly above previous year"
697
 Profit increase in 2015 vs. 2014 to be achieved
from airlines and aviation services
 Lower fuel price to be main driver
 High degree of uncertainty around market
dynamics from lower fuel price
(surcharge, yield, capacity discipline)
130
 Higher pension costs due to lower interest rate
2006
2007
2008
2009
2010
2011
in m EUR
effect from change in depreciation policy
Page 25
2012
2013
2014
2015
forecast outlook
 Project costs to be slightly less than in FY2014
 Potential further labor action
 The Lufthansa Group: World’s largest aviation group with leading airlines and aviation services
Hub airlines to improve profitability at current size; point-to-point airlines and aviation services to grow
 From analysis to implementation: Comprehensive approach to managing change
Specific measures underpin on-going focus on implementing structural change
 Significant improvement enforced: Financial guidance for FY 2015
Operational outlook and lower fuel costs support profit increase
 Focus on return: New value-based steering concept and new dividend policy
EBIT, EACC, ROCE and dividend policy are directly linked to each other, transparent and easy to calculate
Page 26
Lufthansa Group is commited to value creation
New KPIs are to improve transparency and usability
1999
1999-2014
Introduction of
value creation metric
Cash Value Added (CVA)
Positive track record.
> 6 bn EUR CVA
from 2015
EACC
(Earnings After Cost of Capital)
and ROCE replace CVA
EACC & ROCE
Transparent: Quick and easy to calculate

Simple: Easier to use in operational steering

Integrated: Directly linked to comprehensive set of KPIs

Comparable: Possibility to compare with peers

Page 27
New system directly links profit figures and value creation metric
EBIT, EACC and ROCE are transparent and can be calculated easily
Total Op. Income
Balance Sheet Total
./. non-interest bearing
liabilities
./. operating costs
Capital Employed
Current Year
+ Income from
Subsidiaries
Capital Employed
Last Year
50
:
50
X
WACC
ROCE =
Page 28
(Rev.+ Oth. Op. Income)
EBIT
+ Interest on Liquidity
+/- pension changes:
past service costs,…
./. Tax (assumed tax
rate 25%)
+/- book gains/losses
on asset disposal
./. Cost of Capital
+/- impairments
EACC
Adj. EBIT
(EBIT + Interest on Liquidity – Tax)
Average Capital Employed
New system directly links profit figures and value creation metric
Example for financial year 2013
29,084
32,156
./. 11,555
./. 31,344
17,529
17,619
6.2%
ROCE =
Page 29
+ 125
50
:
50
X
EBIT: 937
+ 67
-14
./. 251
-6
./. 1,090
+70
EACC: -337
Adj. EBIT: 987
(937 + 67 - 251)
17,574
= 4.3%
EBIT is a structurally higher number than operating result
Main difference is that income from subsidiaries is included
1,645
Operating profit
1,465
1,297
EBIT
1,020
Adj. EBIT
937 987
972
839
725
697
2010
2011
2012
2013
29,136
31,070
32,947
32,156
-27,774
-30,277
-31,396
-31,344
103
71
94
125
1,465
864
1,645
937
-445
-44
-806
-240
Operating Result
1.020
820
839
697
Adj. EBIT
1,297
972
725
987
-277
-152
-114
-290
1.020
820
839
697
Total Operating Income
./. Operating Expenses
+ Income from Subsidiaries
EBIT
./. Delta to Operating Result
./. Delta to Operating Result
Operating Result
Page 30
820 864
Current capital employed is ca. 17.5 bn EUR
Weighted average cost of capital is 6.2%
17,949
18,101
17,526
17,574
7.9%
7.0%
7.0%
6.2%
2010
2011
2012
2013
Balance Sheet Total
29,320
28,081
28.559
29.084
./. Non-Interest Bearing Liabilities
Average
Capital Employed
WACC
10.550
10,649
10,940
11.555
- liabilities from unused flight documents
2,389
2,359
2,612
2,635
- trade payables, other fin. liabillites, other provisions
- adv. payments, deferred income, other non-fin. liabilities
- others
4,855
2,153
1,153
4,758
2,095
1,437
4,887
2,096
1,345
5,108
2,148
1,664
Capital Employed at year-end
18,770
17,432
17,619
17,529
Average Capital Employed
17,949
18,101
17,526
17,574
WACC
7.9%
7.0%
7.0%
6.2%
EBIT
1.465
864
1.645
937
111
62
75
67
-394
-232
-430
-251
Interest on liquidity
Taxes
Cost of capital
-1,418
-1,267
-1,227
-1,090
EACC
-236
-573
63
-337
ROCE
6.6%
3.8%
7.4%
4.3%
Page 31
Lufthansa Group has strong track record of dividend payments
Future dividends continue to be linked to profit development
Dividend per share in EUR
1,25
0,60
0,70
0,60
0,70
0,60
0,50
0,45
0,30
0,00
Financial Year
Dividend Year
0,25
0,00
0,00
continue
regular payments
0,00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Old
Dividend Policy
New
Dividend Policy
Regular dividend payments


Pay-out directly linked to performance


Pay-out from earnings not equity


Page 32
Dividends are now linked to EBIT
Pay-out ratio adjusted for depreciation change and structurally higher base
 Links dividends to leading profit KPI EBIT
New
Dividend Policy
„10-25% of EBIT“
 Effective from financial year 2015 (pay-out 2016)
 Allows for similar pay-outs as old policy
 Adjusts non-cash effect from changed aircraft depreciation (+350 m EUR p.a.)
 Reflects that EBIT is a structurally higher number than operating result
EBIT is structurally higher
number than operating result
+ca. 350 m EUR p.a. non-cash
because of change in depreciation of aircraft
Op. Result old
EBIT
30-40% payout
10-25% payout
Dividend per share
Page 33
=
Dividend per share
Extraordinary
Pay-outs
Regular
Pay-outs
New dividend policy is to pay-out 10-25% of EBIT
Maximum pay-out is defined by net result under German GAAP
Page 34
Old Dividend Policy
New Dividend Policy
Operating Result
EBIT
30%-40%
pay-out
10-25%
pay-out
local GAAP net result
= max payout in m EUR
local GAAP net result
= max payout in m EUR
Special dividends and
share buy-backs possible
Special dividends and
share buy-backs possible
Shareholders will not be put in worse situation
Different earning scenarios - local GAAP defines maximum payout
10-25%
of EBIT
Local
GAAP
Result
Pay-out
Sum
# of
shares
Dividend
per Share
Example 1
1,500
150375
500
150375
÷462.8m
= 0.32-0.81 EUR
Example 2
1,500
150375
200
150200
÷462.8m
= 0.32-0.43 EUR
Example 3
1,500
150375
0
0
÷462.8m
= No Dividend
in m EUR
Page 35
EBIT
Implementation timeline
2014
Reporting, steering and management remuneration based on old KPIs
Some new KPIs presented in annual report 2014 for information only
External reporting fully based on new KPIs
2015
2016
Page 36
First interim report based on new KPIs will be Q1 2015
Dividend proposal 2015 (for FY14) based on old policy and adjusted for depreciation
Full internal and external integration of new KPIs
Management Remuneration based on new KPIs
First dividend payment based on new policy
Lufthansa Investor Relations Contact
Deutsche Lufthansa AG
Investor Relations / FRA IR
Lufthansa Aviation Center
Airportring
D-60546 Frankfurt
Andreas Hagenbring, Head of IR
Phone: +49 (0) 69 696 28000
Fax: +49 (0) 69 696 90990
E-mail: [email protected]
Visit our webpage: lufthansa-group.com/investor-relations
Page 37
Appendix
– Detailed guidance 2014 and financial profile –
Page 38
Profit guidance for 2014 unchanged
Operating profit expected at around 1 billion Euros
Segment
Result 2013
(m EUR)
Forecast for 2014
Lufthansa Passenger Airlines
265
on par with previous year
SWISS
226
significantly above previous year
25
below previous year, but positive
Austrian Airlines
Consolidation
-21
Passenger Airline Group
495
Logistics
77
slightly above previous year
above previous year
MRO
404
significantly above 2012 level (328 m EUR)
Catering
105
on par with previous year
IT Services
Others
36
-378
slightly below previous year
significant improvement due to lower restructuring costs
Internal Result / Consolidation
-42
LH Group (reported)
697
approx. 1,000
Restructuring costs
245
80
Project costs Lufthansa Passenger Airlines
100
200
LH Group (normalised)
1,042
approx. 1,300
*incl. 340 m EUR lower depreciation for aircraft and engines
Page 39
Lufthansa Group benefits from superior financing conditions
Conservative financial profile, but currently burdened by pension provisions
1. Lufthansa Group is profitable and
produces strong cash flows
2. Conservative fleet structure and
ambitious balance sheet targets provide
security buffer
3. Solid financial profile provides
competitive edge in financing conditions;
low net financial debt, but pension
provision burden
in bn EUR
1.7
1.8
1.7
S&P Investment Grade
Rating (BBB-, stable)
affirmed in Nov 2014
1.8
1.1
1.0
0.8
0.8
0.7
0.8
2010
2011
2012
2013
9M 2014
Depreciation
ca. 90% of fleet
is owned vs. 10% leased
>70% of fleet
is financially
unburdened
(not used as security
for financing deals)
Recent
Debt
financing
Issuance of 1.125% Bond
Volume of 500 m EUR
and a maturity of 5 years
(Sept 2014 - Sept 2019)
Operating Profit
Target
FY 13
9M 14
7.4
3.3
3.0
5.8
2.8
2.4
Equity
Ratio
2.1
1.5
1.4
1.3
0.7
0.2
2010
2011
Operating CF
Page 40
2012
2013
Free Cash Flow
25%
midterm
Debt Re45%
payment
(min. 35%)
Ratio
21%
15%
37%
23%
4.7bn
EUR
3.5bn
EUR
4.7
2.6
2.2
1.6
2.3
2.0
1.7
2.3
2010
2011
2012
2013
9M 2014
pension provisions
net financial debt
9M 2014
Min.
Liquidity
2.3
bn EUR
pension provisions: flexible funding model,
no "margin call" for additional fundings
Cost of capital is based on a target capital structure of 50:50
Current WACC is 6.2%
Cost of Debt1
Cost of Equity2
3.6% (FY2013)
8.8% (FY2013)
Target Capital Structure
50 : 50
WACC: 6.2%
1 Currently
2
Page 41
no consideration of tax shield
Cost of Equity FY2013 = Risk-free market interest rate of 3.2% + (Market risk premium of 5.1% x Beta Factor 1.1)
Appendix
– Lufthansa Passenger Airlines –
Page 42
Strong network quality through comprehensive route network
Segmentation of long-haul network
Share of premium passengers
30%
Small Niche
Mid-Size Premium
20%
Premium Trunk
A380 and
747-8I Fleet
New Technology Aircraft
10%
Lower cost
sub-fleet of 14 A340
5%
Small & Growing
Medium Volume
350,000
long-haul O&Ds Europe-World served by Lufthansa
long-haul O&Ds Europe-World total market
Page 43
Two Class Fleet
& New Technology Aircraft
Large Volume
1.2 million
14 million
total passengers p.a.
Successful track record of unit cost reductions set to continue
Spread of RASK and CASK to be increased
Lufthansa Passenger Airline development of KPIs (numbers normalized)
yoy %
# of
flights
Q1
12
Q2
12
Q4
12
Q1
13
-0.1
-1.7
(ASK)
+8.3
+2.3
+6.7
+3.1
-3.9
-2.9
+5.1
+4.0
(RASK)
+3.1
Non-fuel
unit costs
+1.4
+24.3
+18.0
Q1
14
+0.7
+0.5
+0.4
+12.4
+2.7
+0.8
-2.6
-1.4
-2.2
-0.1
-3.4
-1.6
+0.0
-3.1
Q2
14
Q3
14
-3.1
-1.6
+1.1
-3.7
Q4
14
+4.3
-3.6
-3.4
-6.0
-11.2
-10.4
-5.8
2017
stable at constant fleet
3% p.a. on average from upgauging
(half of global passenger growth)
-4.2
continuous focus on cost reduction,
introduction of new technology
-3.3
net technology aircraft,
group-wide fuel efficiency management
today
Page 44
2016
-2.7
+5.1
-9.8
2015
to be stabilized by product initiatives
and new pricing concepts
+2.1
-3.7
Fuel-only +17.9
unit costs
(CASK)
+0.8
Q4
13
-4.6
+1.2
-1.1
Q3
13
-1.5
-4.0
+5.3
(CASK)
Q2
13
+0.3
Capacity
Unit
revenues
Q3
12
Five focus areas to increase profitability
Revenue quality to stabilize RASK, efficiency measures to reduce CASK
new platforms
2012
2013
2014
2015
2016
2017
freeze fleet size at 400 aircraft
1
Capacity & fleet
dimensioning
Phase-in A380 and B747-8i (c. -15% CASK)
ASK growth at half of market rate (3% p.a.)
introduction of 2 class long-haul fleet
2
Lower cost sub-fleet of 14 a/c (>-20% CASK)
(c. -10% to -20% CASK)
Restructuring of
long-haul
WINGS Intercont (>-30% CASK)
launch new technology aircraft
(-20% CASK / -25% fuel-only CASK)
reduction of regional platforms
Roll-over Eurowings CR9 to A320 (c. -40% CASK)
(c. -10 to -15% CASK)
3
Restructuring of
short-haul
Eurowings p2p platform (c.-15% CASK to GW)
exit from 70-seater fleet
A320neo delivery
Phase-Out B737
(c. -15% fuel-only CASK)
return non-hub operations to break-even (new germanwings)
Phase-Out Avro 85
(c. -20% CASK vs. mainline; 200 m EUR profit improvement)
turn LH from functional to process oriented company (project Shape!)
4
Reduce
unit cost
reduce overhead costs through shared services
reduce IT infrastructure costs
(c. 70 m EUR savings p.a.)
restructure outstation operations
reduce costs at all suppliers (ATC, internal suppliers, etc.)
5
Invest in revenue
quality and best
product
Roll-out new First and Business Class
Premium Economy phase-in (c. 80 m EUR profit improvement)
become Europe’s first 5 Star Airline
today
Page 45
Network and partnerships are important drivers for revenue quality
Passenger network and partner overview
Largest Airline Group in Europe
Largest Transatlantic Joint Venture
First JV for Japan-Europe and Europe-China
IntraEuropean
46.6%
North
America
21.4%
Asia
Pacific
17.6%
(+0.3pts.)
(+0.8pts.)
(-1.3pts)
Mid-East
4.1%
(-0.4pts.)
South
America
6.3%
Africa
4.0%
(+0.0pts.)
(+0.6pts.)
Traffic revenue shares Passenger Airline Group as of 31 December 2013 (comparison to previous year)
Page 46
Appendix
– Financial Figures 9M & Q3 2014 –
Page 47
The Lufthansa Group was able to increase its profits
Key figures 9M & Q3 2014 for the Lufthansa Group
9M 2014
9M 2013
vs. PY
Q3 2014
Q3 2013
vs. PY
22,624
22,767
-0.6%
8,458
8,303
+1.9%
18,460
18,664
-1.1%
6,994
6,884
+1.6%
Operating result
849
663
+28,1%
735
590
+24.6%
One-off items*
155
198
--
50
127
--
1,004
861
+16.6%
785
717
+9.5%
482
247
+95.1%
561
450
+24.7%
9M 2014
9M 2013
vs. PY
Passenger Airline KPIs
Operating cash flow
2,052
3,006
-16.8%
Net invest
1,823
1,448
229
1,558
Lufthansa Group (in m EUR)
Total revenue
of which traffic revenue
Normalized operating result
Net income
Free cash flow
9M 2014
Q3 2014
No. of flights
-2.2%
-2.2%
+25.9%
ASK (capacity)
+2.2%
+4.0%
-85.3%
RPK (volume)
+2.6%
+5.0%
SLF (load factor)
+0.3P.
+0.8pts.
Yield ex. currency
-3.6%
-3.6%
9M 2014
FY 2013
vs. Year-end
Equity ratio
15.2%
21.0%
-5.8pts.
RASK (unit revenue)
-3.2%
-2.6%
Net financial debt (excl. pensions)
2,262
1,695
+33.5%
CASK** (unit costs)
-4.4%
-2.9%
Pension provisions
7,397
4,718
+56.8%
* adjusted for one-off items in m EUR:
9M 2013: 168 / 30; Q3 2013: 97 / 30 restructuring / project costs
9M 2014: 30 / 125; Q3 2014: 0 / 50 restructuring / project costs
Page 48
** adjusted for one-off items in m EUR in (passenger airlines):
9M 2013: 102 / 30; Q3 2013: 91 / 30 restructuring / project costs
9M 2014: 22 / 125; Q3 2014: 0 / 50 restructuring / project costs
Profit increase driven by lower one-off costs and depreciation effect
Segment Overview 9M
Share of
LH Group’s
external revenue
9M 2014 vs. 9M 2013
in EUR m
Revenue
vs. PY in%
Operating result
vs. PY in m EUR
76.0%
7.7%
Passenger
Airline Group
8.8%
Logistics
MRO
6.6%
0.9%
Catering
IT Services
Others &
Consolidation
17,694
1,767
3,200
1,960
483
-2,480
-1.1%
-1.9%
+2.9%
+3.8%
+2.3%
-3.5%
473
51
335
66
21
-97
-41
+6
+3
+3
+4
+211
+54 m EUR
excl. one-offs
+73 m EUR
excl. one-offs
incl. +267 m EUR
from lower D&A
in EUR m
Total revenue
vs. PY
Operating result
vs. PY
Lufthansa Passenger
Airlines
Austrian
Airlines
12,989
3,190
1,574
-1.2%
-0.4%
-0.2%
260
217
-7
-56
+35
-26
+39 m EUR
excl. one-offs
Page 49
SWISS
Passenger airlines: Record volumes but pricing remained weak
Operating KPIs of Passenger Airline Group
Total
9M '14
Q3 '14
Europe
9M '14
Q3 '14
Asia/Pacific
9M '14
Q3 '14
Number of flights
-2.2%
-2.2%
ASK
+1.1%
+0.3%
ASK
+1.7%
+4.0%
ASK
+2.2%
+4.0%
RPK
+2.3%
+2.6%
RPK
+2.4%
+4.8%
RPK
+2.6%
+5.0%
SLF
SLF
+0.3pts.
+0.8pts.
Yield
-2.7%
-0.7%
Yield
-4.5%
-3.8%
Yield ex currency
-2.3%
-1.1%
Yield ex currency
-2.8%
-4.2%
RASK
-1.6%
+1.6%
RASK
-3.8%
-3.1%
RASK ex currency
-1.2%
+1.2%
RASK ex currency
-2.1%
-3.5%
+0.8pts. +1.8pts.
SLF
+0.6pts. +0.7pts.
Yield
-3.6%
-3.6%
America
9M '14
Q3 '14
Mid East / Africa
9M '14
Q3 '14
Yield ex currency
-2.7%
-3.9%
ASK
+6.5%
+10.9%
ASK
-7.5%
-6.5%
RASK
-3.2%
-2.6%
RPK
+4.7%
+9.1%
RPK
-3.6%
-1.7%
CASK* incl. fuel
-4.4%
-2.9%
SLF
-1.5pts.
-1.4pts.
SLF
RASK ex currency
-2.3%
-2.9%
Yield
-4.0%
-6.0%
Yield
-3.7%
-4.6%
CASK* ex currency ex fuel
-3.4%
-4.1%
Yield ex currency
-2.7%
-5.9%
Yield ex currency
-2.4%
-5.1%
RASK
-5.7%
-7.6%
RASK
+0.3%
+0.2%
RASK ex currency
-3.5%
-7.5%
RASK ex currency
+1.6%
-0.4%
+3.1pts. +3.9pts.
*adjusted for one-off items
Page 50
Operating expenses grew less than revenue in Q3, stable in 9M
Operating costs and revenues
9M 2014
vs. PY
Q3 2014
vs. PY
Total revenue
22,624
-0.6%
8,458
+1.9%
Other operating income
1,348
-4.0%
496
+15.1%
Total operating income
23,972
-0.8%
8,954
+2.5%
Operating expenses
23,123
-1.6%
8,219
+0.9%
Non-fuel operating expenses
17,943
-0.6%
6,282
+1.4%
Cost of materials and services
13,002
-2.3%
4,738
-0.3%
Fuel expenses
5,180
-4.9%
1,937
-0.5%
Fees and charges
3,978
+1.4%
1,460
+3.7%
Staff costs
5,455
-0.3%
+2.0% excl. one-offs
1,809
-2.8%
+2.5% excl. one-offs
Scheduled depreciation
1,047
-17.5%
+3.0% excl. D&A change
360
-16.3%
+4.9% excl. D&A change
Other operating expenses
3,619
+4.5%
1,312
+19.3%
849
+28.1%
735
+24.6%
Lufthansa Group (in m EUR)
Operating result
Page 51
-0.4% excl. one-offs
+1.0% excl. one-offs & D&A
+16.6% excl. one-offs
+2.7% excl. one-offs
+4.2% excl. one-offs & D&A
+9.5% excl. one-offs
Operating Results and one-off factors
Quarterly operating results 2013-2014
in m EUR
Reported operating result 2013
Q1
Q2
Q3
Q4
6M
9M
Full Year
-359
432*
590*
36
73*
663*
699*
-64
-7
-97
-77
-71
-168
-245
0
0
-30
-70
0
-30
-100
Normalized operating result 2013
-295
439*
717*
183
144*
861*
1,044*
Reported operating result 2014
-245
359
735
114
849
incl. SCORE restructuring costs
-20
-10
0
-30
-30
incl. Project costs
-35
-40
-50
-75
-125
-190
409
785
219
1,004
83
86
91
169
260
incl. strike impacts
-10
-60
-35
-70
-105
incl. Venezuelan cash write-offs
-38
-23
+7
-61
-54
incl. SCORE restructuring costs
incl. Project costs
Normalized operating result 2014
incl. depreciation policy change effect
-65**
* Restatement due to IFRS11: Aerologic GmbH has been proportionately consolidated as a joint operation since 1 January 2014
** as of October 30, 2014
Page 52
-170**
Cash flow reduced due to working capital and higher investments
Cash flow statement
Group Cash Flow Statement in m EUR
9M 2014
EBT (earnings before income taxes)
vs. PY
634
+275
1,064
-368
Net proceeds from disposal of non-current assets
-24
-24
Result from equity investments
-94
+7
Net interest
210
-47
Income tax payments/reimbursements
-215
-138
Depreciation & amortisation (incl. D&A for non-current assets)
+70
Change in working capital
338
-729
Operating cash flow
2,052
-954
Capital expenditure (net)
-1,823
-375
229
-1,329
2.1
FY 2011
FY 2012
FY 2013
2.6
2.5
2.4
2.0
1.5
1.6
1.4
FY 2010
FY 2011
FY 2012
FY 2013
Gross Capex
Free cash flow
1.5
Cash and cash equivalents as of 30.09.2014*
819
-756
Current securities
2,711
-1,109
Total Group liquidity*
3,530
-1,865
Page 53
2.2
1.8
9M 2014
Net Capex
1.4
1.3
0.7
0.2
FY 2010
FY 2011
FY 2012
FY 2013
Free Cash Flow
* Excluding fixed-term deposits with terms of three to twelve months (115 m EUR)
9M 2014
Operating Cash Flow
2.3
139
2.8
2.4
FY 2010
Non-cash changes in measurement of financial derivatives
3.3
3.0
9M 2014