Continuous value creation

The Lufthansa Group applies a value-based system of management. At its centre is the return on capital. This is measured by the Adjusted Return on Capital Employed (Adjusted ROCE). The capital base is adjusted for the Group’s cash and cash equivalents. If Adjusted ROCE exceeds the weighted average cost of capital (WACC), the Company is creating value. In 2021, the Lufthansa Group set itself the objective of generating an Adjusted ROCE of at least 10% from 2024. This objective was already reached in the reporting year.

The Company’s profitability is measured by Adjusted EBIT and the Adjusted EBIT margin, i.e. the ratio of Adjusted EBIT to revenue. The adjustments eliminate non-recurring, non-operating effects and thus improve the presentation of the Company’s operating performance and facilitate comparisons.

Matters that justify an adjustment are listed in a catalogue. They comprise write-downs and write-backs, earnings effects from disposals of non-current assets, effects of pension plan changes, restructuring expenses in the form of severance payments, significant costs of legal procedures and company transactions not arising in the normal course of business and other material non-recurring expenses caused directly by extraordinary external factors.

Material matters eliminated for the purpose of Adjusted EBIT measurement in the reporting year were impairment losses on aircraft held for sale, expenses in connection with the purchase and sale of company divisions, expenses from adjustments to pension plans, book losses largely for aircraft and reserve engines, book gains, in particular from sale-and-lease-back transactions and from the disposal of interests in joint ventures.

The Lufthansa Group seeks to achieve a sustainable Adjusted EBIT margin in excess of 8%.

Furthermore, the Lufthansa Group incorporates the specific carbon emissions into its management system to lower the associated costs of reducing environmental impacts and to enable sustainable value creation. Progress made in reducing emissions also influences funding terms. Target achievement in this area also forms part of management remuneration.

Information about the long-term goals for reducing carbon emissions can be found in the Combined non-financial declaration/Climate protection.

The Company’s value creation was significantly positive in the 2023 financial year. In the 2023 financial year, the Adjusted ROCE after tax was 13.1% (previous year: 7.6%), while the WACC was unchanged year on year at 7.2%. Adjusted EBIT came to EUR 2,682m (previous year: EUR 1,520m). The Adjusted EBIT margin was therefore 7.6% (previous year: 4.9%). Specific carbon emissions per passenger-kilometre were 88.4 grammes in 2023, 1.8% lower than in the previous year (previous year: 90.0 grammes).

The Lufthansa Group completed its Group-wide restructuring and transformation programme as planned in financial year 2023. The programme has allowed the Company to align itself with the changes in the market environment created by the crisis. It included adjustments to cost structures, particularly the reduction of fixed costs. This reflected the lower market volume caused by the coronavirus pandemic and made it possible to return to the earnings level in the period before the pandemic, although available capacity was significantly lower than the pre-crisis level.

Since cost pressure remains high due to high inflation and lower productivity than before the crisis, an efficiency programme is to be launched for the Group airlines in 2024. The intention is to achieve the same level of efficiency as in 2019 by no later than year-end 2025. The focus here is primarily on the efficient use of fleet and crews, which was compromised in the reporting year, partly by bottlenecks at system partners and the significant capacity expansion in response to resurgent demand.