Sustainable value creation

The Lufthansa Group applies a value-based system of management. At its core is the return on capital, measured as the adjusted return on capital employed (Adjusted ROCE), where­ by the underlying capital base is adjusted for the Group’s cash and cash equivalents. If Adjusted ROCE exceeds the weighted average cost of capital (WACC), this means that the Company is creating value. The Company’s value creation was negative in the 2024 financial year. Adjusted ROCE after tax was 7.2% (previous year: 13.1%), while WACC increased to 8.5% (previous year: 8.1%) in the 2024 financial year. The system of calculating the Adjusted ROCE and WACC will be adjusted in financial year 2025, with the aim of showing the Company’s value creation before tax in future. In the years ahead the declared aim is to achieve an Adjusted ROCE that is at least equal to WACC.

Sustainable value creation requires adequate profitability. This will in turn provide scope for entrepreneurial freedom and en able key stakeholders – investors in particular – to ­ participate in the Company’s success.

The Company’s profitability is measured on the basis of its Adjusted EBIT margin, i.e. the ratio of Adjusted EBIT to revenue. Calculating the underlying Adjusted EBIT entails adjusting EBIT for 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.

Adjustments were made in the reporting year, in particular due to book gains from the sale of the AirPlus group, sale-and-lease-back transactions and impairment losses on equity investments and loans in the MRO segment and aircraft held for sale.

Adjusted EBIT came to EUR 1,645m in the 2024 financial year (previous year: EUR 2,682m). The Adjusted EBIT margin was therefore 4.4% (previous year: 7.6%).

To increase future profitability the Group initiated comprehensive measures in 2024, such as a turnaround programme at Lufthansa Airlines and a Group-wide efficiency programme. In addition to the ongoing fleet renewal, the Lufthansa turnaround programme constitutes the main lever for improvingprofitability in future. The goal of safeguarding the Company’s future value creation underpins all of its investment and ­ strategic decisions.

Furthermore, the Lufthansa Group incorporates the specific carbon emissions into its management system to lower the associated costs by reducing environmental impacts. This facilitates sustainable value creation, positively affects financing conditions and is also factored into management remuneration. Specific carbon emissions per passenger-kilometre were 87.5 grammes in 2024, 1% lower than in the previous year (previous year: 88.7 grammes). Information about the longterm goals for reducing carbon emissions can be found in the Combined non-financial declaration.

Over the next few years, the Lufthansa Group envisages significant cost increases, in particular due to sustainability-related expenses which will arise on regulatory grounds, such as the SAF quota and the loss of free emissions certificates. Other cost items such as taxes, fees and charges and staff costs are also expected to significantly increase. The Lufthansa Group therefore expects its unit costs to remain under pressure due to factors including ongoing cost inflation. In response to unavoidable cost increases and in order to ensure the Company’s value creation, it is focusing on increasing unit revenues through targeted revenue-increasing measures. The ongoing capacity restrictions in the market are expected to make an additional contribution to stabilising yields across the market.

It is therefore necessary to carefully weigh up the different options of increasing market shares, boosting yields or allocating production capacity to different flight operations.

Ultimately, the goal is for flight operations with high productivity levels and low unit costs to increasingly deliver growth.

In order to preserve its competitiveness, the Company has also reviewed and implemented programmes to increase its cost-related efficiency and productivity as well as further cost-reduction measures. Operational units – from the ­ Company’s fleet to its staff – and administrative functions must both contribute to this.

In response to the immense cost pressure, efficiency improvement programmes were launched for the passenger airlines in 2024. These mainly target the efficient use of crews and the fleet and particularly include a turnaround programme at Lufthansa Airlines with measures planned to impact earnings by EUR 2.5bn in 2028. From 2025, the Group-wide efficiency and earnings improvement programmes will be combined under a central unit, which will report to the Executive Board directly on a regular basis.