Shareholder Information 3/2019

Dear Shareholders,

The European airline industry is currently facing numerous challenges that are also affecting the course of business at the Lufthansa Group. Revenues increased year on year by 3% to EUR 17,523m over the course of the first half-year; Adjusted EBIT, the main earnings indicator, fell by 60% to EUR 418m.

The main reason for this performance was the difficult market situation in Europe, in addition to higher fuel and MRO expenses. Whereas long-haul business continued to perform strongly, especially on transatlantic and Asian routes, market-wide overcapacities and increasing competition from low-cost carriers trying to capture market share with low prices are leading to high pricing pressure in European traffic. These were the main reasons why we adjusted our outlook for the full year back in June. We are now expecting an Adjusted EBIT margin of between 5.5% and 6.5% for the financial year 2019.

To return to higher earnings in the future, the Lufthansa Group has initiated a wide range of measures. At their centre is the strategic realignment of Eurowings, which is most strongly affected by the tense situation in the European market. The aim is to bring Eurowings back to profitability as quickly as possible and so to create sustainable value for shareholders again. You can find further details on this in the “Topics"-section of this Shareholder Information.

Network Airlines will continue to focus on the premium segment and on innovative products and services. The recent Skytrax World Airline Awards, of which Network Airlines won no fewer than four, show that our quality offensive is paying off.

In summary, we can say that we have an excellent position in our home markets, which are among the strongest economies in the world. Our service companies are also world leaders. We intend to translate this market strength even more consistently into sustainable profitability and value creation in the future.

To enable our shareholders to participate more substentially in the Group's results, we will change our previous dividend policy and regularly distribute 20% to 40% of the Group's net income to our shareholders. This offers greater flexibility for enabling continuous dividend payments. 

We would be pleased if you would continue to accompany us on this journey.

Dennis Weber

Head of Investor Relations
Deutsche Lufthansa AG

Key figures Jan - Jun 2019

17,523 (+3%)

Revenue €m

418 (-60%)

Adjusted EBIT €m

Business Development

Difficult market environment and higher fuel costs burden earnings for the Lufthansa Group in first half-year of 2019

The market environment in Europe in the first half-year of 2019 was marked by price erosion due to overcapacities across the market and aggressive growth by low-cost carriers. In contrast, long-haul business at Network Airlines continued to perform well.

Traffic revenue was up year on year by 2% overall. Positive volume and exchange rate effects compensated for lower prices. Total revenue increased by 3%.

Adjusted EBIT decreased by 60%, especially due to lower unit revenues and higher fuel costs at the airlines as well as a weaker result in the logistics business. Decreasing constant currency unit costs at Network Airlines and Eurowings could not compensate this in full.

Cash flow from operating activities decreased by 26%, mainly because of lower earnings. Adjusted free cash flow was down by 73%. Adjusted net debt/Adjusted EBITDA increased by 0.9 points on year-end 2018 to 2.7 due to discount rate-related higher pension provisions and the first-time application of IFRS 16.

Key Figures Lufthansa Group

5 year development

Development Revenue, Adjusted EBIT €m (Jan – Jun)
Adjusted EBIT margin in % (Jan – Jun)

Revenue and result

Revenue and result
  Jan – June 2019Jan – June 2018Change in %
Total revenue€m17,52316,9383
of whichtraffic revenue€m13,48213,1562
Operating expenses€m18,26917,0077
Adjusted EBITDA€m1,7362,119– 18
Adjusted EBIT€m4181,052– 60
EBIT€m4171,054– 60
Net profit/loss€m– 116713 

Key balance sheet and cash flow statement figures

Key balance sheet and cash flow statement figures
  Jan – June 2019Jan – June 2018Change in %
Total assets€m43,09438,80611
Equity€m9,1669,374– 2
Equity ratio%21.324.2– 2.9 pts
Net indebtedness€m6,2342,554144
Pension provisions€m6,6125,41822
Cash flow from operating activities€m2,3933,233– 26
Capital expenditure (gross) 1)€m1,9042,142– 11
Adjusted free cash flow€m269997– 73

Key profitability figures

Key profitability figures
  Jan – June 2019Jan – June 2018Change in %
Adjusted EBITDA margin%9.912.5– 2.6 pts
Adjusted EBIT margin%2.46. 2– 3.8 pts
EBIT margin%2.46. 2– 3.8 pts

Lufthansa Share

Lufthansa Share
  Jan – June 2019Jan – June 2018Change in %
Share price at the quarter-end€15.0720.60– 27
Earnings per share€– 0.241.51 

Employees

Employees
  Jan – June 2019Jan – June 2018Change in %
Employees as of 30 Jun 137,639134,3992

Traffic figures2)

Traffic figures2)
  Jan – June 2019Jan – June 2018Change in %
Flightsnumber573,964558,9313
Passengerstsd.68,94166,7293
Available seat-kilometresmillions174,686166,7895
Revenue seat-kilometresmillions141,095133,1826
Passenger load factor%80.879.90.9 pts
Available cargo tonne-kilometresmillions8,5517,9018
Revenue cargo tonne-kilometresmillions5,2365,362– 2
Cargo load factor%61.267.9– 6.6 pts


1) Without acquisition of equity investments.
2) Previous year’s figures have been adjusted.

Date of publication: 30 July 2019.

Share Price Development

Share price burdened by market situation in Europe

The Lufthansa share stood at EUR 15,07 at the end of the first half year of 2019. This represents a decrease in the share price of 24% since year-end 2018. The DAX Index rose by 17% over the same period. The share price development primarily reflects the challenging situation of the airline industry in Europe, which is marked by overcapacities, discount price and customers’ growing price sensitivity, particularly in the Group’s home markets. With the exception of one, all of the Group’s competitors also reported share price losses as a result of this.

As of 30 June 2019, 8 analysts recommended the Lufthansa share as a buy, 14 as a hold and 3 as a sell. The average target price was EUR 18.78. The free float for Lufthansa shares was unchanged at 100 % at the end of the first half year of 2019. 63% of Lufthansa shares were held by German investors.

Performance of the Lufthansa Share

Outlook

Forecast for financial year 2019 was adjusted

On 16 June 2019, the Executive Board of Deutsche Lufthansa AG adjusted its financial outlook for the full year 2019 compared with the forecast published in the Annual Report 2018. An Adjusted EBIT margin of 5.5% to 6.5% is now expected for the full year (previously: 6.5% to 8.0%).

Fuel costs for Network Airlines are anticipated to increase EUR 500m year on year (previously: increase of EUR 600m), fuel costs at Eurowings are expected to be EUR 50m up on the year (previously: increase of EUR 100m).

Earnings outlook for Network Airlines was adjusted, primarily due to weaker-than-expected income on European short-haul routes. Performance on long-haul routes is in line with original expectations. However, earnings in European short-haul traffic are diminished by overcapacities, aggressive competition and increasingly price sensitive demand, especially in the German and Austrian home markets.

For 2019 Network Airlines are therefore expecting a low single-digit decline in unit revenues on a constant-currency basis (previously: stable to low single-digit decline). Although the increase in MRO expenses is higher than originally expected, predominantly as a result of significantly more engine maintenance operations, unit costs will decrease year on year by 0% to 1% (previously: decline of 0.5% to 1.5%).

The Group is now expecting an Adjusted EBIT margin for Network Airlines of between 7% and 9% in 2019 (previously: 7.5% to 9.5%).

Ongoing optimisation of the route network will lead to a capacity reduction of around 1% at Eurowings (previously: capacity unchanged year on year). Eurowings is hit harder than Network Airlines by the challenging market environment in Europe because its route portfolio is different; unit revenues are therefore expected to fall by a mid single-digit percentage (previously: stable to low single-digit increase). Progress on reducing costs at Eurowings is slower than expected; decline in unit costs over the full year now forecast at between 6% and 8% (previously: decline of 7% to 9%).

The Group is now expecting an Adjusted EBIT margin for Eurowings of between – 4% and – 6% in 2019 (previously: around 0%).

Revenue in the Logistics segment is now expected to be the same as last year, with an Adjusted EBIT margin of 3% to 5% (previously: 7% to 9%). Forecast is unchanged for the MRO and Catering segments. Earnings in the Additional Businesses and Group Functions segment is now expected to fall by EUR 50m (previously: decline of EUR 100m).

Topics

Management

Thorsten Dirks appointed as Executive Board member for three more years

In its meeting on 6 May 2019, the Supervisory Board of Deutsche Lufthansa AG decided ahead of schedule to extend the contract with Thorsten Dirks by three years until 30 April 2023. Dirks, 55, will therefore be continuing the turnaround as CEO of Eurowings.

Thorsten Dirks, who was born on 17 June 1963 in Hamburg, has been an Executive Board Member of Deutsche Lufthansa AG since 1 May 2017, where he is responsible for Eurowings. Under his leadership, Eurowings has significantly expanded its market position, among other things by integrating parts of Air Berlin. Today, Lufthansa’s value brand is Europe’s third-largest point-to-point airline and the clear market leader in its home markets. After a significant improvement of Eurowings’ operational performance, Thorsten Dirks and his team now set their sights on improving profitability as one of Eurowings key goals.

Strategy

Eurowings adjusts strategic direction

At the Capital Markets Day on 24 June 2019, the Executive Board of Deutsche Lufthansa AG informed investors and analysts about the further development of the airline strategy. The planned actions should sustainably enhance Lufthansa Group’s value creation. 

A key element is a comprehensive set of measures to turn around Eurowings, which should be returned to profit as swiftly as possible and sustainably generate value for shareholders.

The central, clear focus is on short-haul routes in direct traffic and the transfer of commercial responsibility for the long-haul routes operated by Eurowings to Network Airlines organisation. The integration of Brussels Airlines will not be pursued. Instead, Brussels Airlines will be tied in more closely with Network Airlines. In addition, the Eurowings fleet is to be harmonised and rejuvenated. Cutting flight operations down to one in Germany should also reduce complexity and increase productivity.

Fleet

Lufthansa Group expands A380 fleet in Munich

Starting in Summer 2020, Lufthansa German Airlines will be taking off from Munich with two additional Airbus A380 aircraft. This will increase the Munich A380 fleet to a total of seven aircraft, with the remaining seven stationed in Frankfurt. Soon, Lufthansa German Airlines passengers can experience the world’s largest commercial aircraft on five routes from Munich, including the addition of two new destinations served by the double decker. For the first time, Lufthansa German Airlines will be operating the A380 to Boston and serving San Francisco with an A380 year-round. In addition to these routes, Los Angeles, Beijing and Shanghai are also on Munich’s A380 flight schedule for summer 2020.

The Airbus A380 has been the flagship of Lufthansa German Airlines since 2010, with a fleet of 14 aircraft. It is the world’s largest commercial aircraft – 24 meters high and almost 73 meters long. Thanks to a high proportion of composite materials, the A380 is 15 tons lighter and has a 50% lower noise level than comparable long-haul aircraft. Moreover, the A380 flies in and out of airports, at the same speed of an A320. All of these characteristics contribute to the reduction of aircraft noise in airport surrounding areas.

The A380 has 33% lower fuel consumption and correspondingly lower CO2 emissions than aircraft of the previous generation.

Product & Services

Lufthansa German Airlines improves travel experience on short- and medium-haul routes

Lufthansa German Airlines customers can now enjoy a completely new flight experience on short- and medium-haul routes. The Group has received its first A321neo in Frankfurt, which will be operated by Lufthansa German Airlines. New on board: a new, improved seat for an even more comfortable travel experience, which is jointly introduced by the three Network Airlines, Lufthansa German Airlines, SWISS and Austrian Airlines.

The first A321neo now flies for the first time with a cabin harmonized for all three Network Airlines. The three airline brands Lufthansa German Airlines, SWISS and Austrian Airlines remain clearly recognizable thanks to individual design elements. The standardization applies to all aircraft of the A320 family, which will be delivered to the three Network Airlines.

The Airbus A321neo is now configured and unified in such a way that aircraft can be adapted quickly and easily when transferred between Lufthansa Group airlines. This enables the Lufthansa Group to react faster and more flexibly to current developments and to move aircraft and capacities more easily and efficiently to another airline or to another hub. Costs for adjustments and lay times can be significantly reduced. In addition, the standardization will lead to further synergies in aircraft purchasing. In addition to benefits for customers, the reduction of weight and thus CO2 emissions as well as maintenance costs were the focus of development.

Dividend

Lufthansa Group changes dividend policy

The Executive Board of Lufthansa Group decided on 24 June 2019 to change its dividend policy. In the future, the Group plans to pay out a regular dividend of 20% to 40% of the Group’s net profit, adjusted for one-time gains and losses. The prior policy stipulated a payout of 10% to 25% of Group EBIT.

By changing its dividend policy, the Group demonstrates its commitment to the generation of attractive shareholder returns. The payout range of the new dividend policy offers the Group more flexibility compared to the previous policy to achieve dividend continuity.

Unchanged to the previous policy, the new dividend policy also allows for shareholders to participate in a particularly positive performance by the Company by means of a special dividend or share buyback.

Corporate Responsibility

Lufthansa Group publishes 25th sustainability report

On 6 June 2019, the Lufthansa Group has published its 25th sustainability report. For a quarter of a century now, the company has been providing information every year on the various activities, programs and advances but also challenges in the area of corporate responsibility, with the title “Balance”. 

Responsibility towards the environment and towards society is a central strategic principle for the Lufthansa Group. For years now, the company has been strongly committed to limiting the environmental impact of its business activities to the unavoidable minimum – in the air and on the ground.

With success: the airlines of the Lufthansa Group have not only increased their fuel efficiency by 30% since 1994; they also set a new efficiency record in 2018: on average, the passenger airlines only used 3.65 liters of kerosene to fly a passenger 100 kilometers. That is an improvement of 0.8% and the lowest figure in the history of the company so far.

Awards

Lufthansa Group Airlines Win Four Airline Oscars

The Network Airlines in the Lufthansa Group received four prestigious awards from Skytrax at the Paris Air Show on 18 June 2019.

Lufthansa German Airlines was chosen as “Best Airline in Europe” and “Best Western European Airline” for the third straight year. Austrian Airlines received the award for its catering in the Premium Economy Class – "Best Premium Economy Class Onboard Catering" and SWISS in the category "The Worlds Best First Class Lounge" for the outstanding SWISS Lounge in Zurich.

Skytrax, the market research institute specializing in aviation, had previously surveyed some 20 million passengers from over 160 countries worldwide.

Lufthansa German Airlines also won first place in the category Best Airline for Business Travellers in German and European Traffic at this year’s Business Traveller Awards. Eurowings collected a bronze medal at the award ceremony, which was held in Frankfurt on 4 July 2019.

Contact

Your contacts at Investor Relations

We are at your disposal to answer your questions.

Disclaimer in respect of forward-looking statements

Information published in this Shareholder Information 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. Its purpose is exclusively informational and is identified by the use of such terms as ‘believe’, ‘expect’, ‘forecast’, ‘intend’, ‘project’, ‘plan’, ‘estimate’, ‘assume’ and ‘endeavour’. 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, or divergently occur, it is possible that the Group’s actual results and development may differ materially from those implied by the forecasts. The Lufthansa Group 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. Accordingly, it neither expressly nor conclusively accepts liability, nor gives any guarantee for the actuality, accuracy or completeness of this data and information.