Lufthansa Hub Management & Management of Hubs Karl Ulrich Garnadt Executive VP Services und HR Lufthansa German Airlines MUC, Terminal 2 June 25, 2008
Agenda Development of system and governance: Lufthansa s multi hub system Comparison to competitors approaches Lufthansa on the right track 2
The is attracting more customers than ever Passengers in Mio. 80 62,9 * 60 40 47,0 Duesseldorf 2008 20 7,0 13,9 20,6 0 1970 1980 1990 2000 2007 Munich 2008 Frankfurt 1970 Frankfurt 2008 3 * Deutsche Lufthansa AG, Lufthansa Regional, and incl. SWISS from July 2007 on
Starting with one centre hub, Lufthansa is moving into a true multi hub system Frankfurt Munich 2,813 weekly frequencies to 169 destinations in 75 countries 2,649 weekly frequencies to 109 destinations in 40 countries Fleet: 105 short-haul aircraft, 70 long-haul aircraft DUS Fleet: 102 short-haul aircraft, 23 long-haul aircraft FRA Zurich 76 destinations in 42 countries Fleet: 60 short-haul aircraft, 27 long-haul aircraft ZRH MUC Direct Services 1,733 weekly frequencies to 67 destinations in 26 countries Fleet: 76 short-haul aircraft, 3 long-haul aircraft plus 57 destinations* and 1.724 weekly frequencies additionally via STAR * Direct flights only Fleet as of May 2008. Includes Regional Aircraft. Long-haul fleet includes Wetlease (Privatair). LX Fleet (Regional) includes Wetlease. 4
The advantages of a hub system are still most appealing Point-to-point Hub-and-spoke Horses for courses comparative unit costs 0% CRJ200 45 aircraft Cost: 100 9 aircraft Cost: 20-5% -10% -15% -20% -25% -30% -35% -40% CRJ900 CRJ700 Avro B737-500 B737-300 A319 A320 A321 40 90 140 190 Seats In theory the most efficient way to organise traffic 5
but to respond to our customer base, we have to combine a multi hub yystem with direct (point-topoint) services 2-Hub Modell From single-hub to multi-hub 360 o -offer for our customers HAM Multi hub transfer options plus direct services FRA DUS MUC FRA 6 Kapazitätsbindung von 17 A enbindung: DM 59 MUC
The Lufthansa network matches important flows of traffic, our multi hub system guarantees high connectivity Example: number of frequencies per week from a Lufthansa hub to North America and India/Pakistan respectively YVR YYC SEA PDX DEN SFO LAX DFW IAH YUL YYZ ORD BOS DTW IAD PHL JFK EWR CLT ATL MCO MIA FRA 184 MUC 70 ZRH 55 FRA MUC ZRH FRA 48 MUC 10 ZRH 14 LHE DEL BOM PNQ HYD BLR MAA CCU Source: Flash, Summer 2008 (Calendar week 38) 7
From Hub Management to Division : Core operational, service and management functions have been assigned to decentralized units, closer to the customer and the competition Divisions (FRA, MUC and Direct) have increasing responsabilities History 2004-2007 Now/future Station management + + + Infrastructure Costs of infrastructure Crew MUC (Cabin/cockpit) + + + + Fleet (Dedicated tailsigns) + Network management +... 8
Each division is taking over a specific role, the entire system benefits from an increased sense of entrepreneurship DUS FRA MUC ZRH 9
Frankfurt, backbone of the Lufthansa system: strong LH position, but limited growth due to capacity restrictions Strenghts Lufthansa as dominant hub carrier Broad destination portfolio (360 degree) Highest number of flights per day Strong value for the region as the largest employer in the state of Hesse Requirements Expansion of infrastructure urgently needed: Terminal capacity and runway Adjustment of night curfew Perspectives A380 operation from autumn 2009 Administration approval of extension plans Extension of runway and terminal capacity expected for autumn 2011 10
Munich: Europe s highest rated hub by customers with dynamic growth Strenghts Short minimum connecting time (30 min) Consistent three class operation Solid system partnership with airport Positive results Terminal 2 Requirements Expansion of infrastructure urgently needed: Satellite and third runway Intermodality improvement (High speed trains to downtown Munich) Perspectives Improvement of network quality, growth by size of airplanes Rollover regional fleet (decrease of unit costs) Further stabilisation of continental network Independent base for cabin and cockpit crew 11
Direct services are supporting lufthansa s presence in non-hub-catchments and completing our 360 offer Strenghts Local presence and competence in non-hub-catchments Innovative steering, pricing and marketing Strong focus on competitors Requirements Fair competition, e.g. no distortion by subsidy payment to non profitable airports Focus on competitive cost base (productivity, aircraft size, airport cost) Innovative marketing concepts Perspectives Further development of successful programs, e.g. betterfly Further expansion in important catchments, especially HAM and DUS, including intercont operation DUS Local system partnership, cooperation e.g. regarding infrastructure BBI 12
With Zurich and Milan Lufthansa seizes attractive market opportunities Zurich Economic success: Trust in SWISS integration pays off Access to important customer groups in the Swiss market Local identity, value of two brands Zurich enables additional transfer options within the Lufthansa Hub system Milan Economically important region with high volume of traffic Perspectives - Development of European network with focus on business traffic - Close cooperation with partners and airport - First step: Positioning of 6 shorthaul aircraft operated by Air Dolomiti in spring 2009 13
Agenda Development of system and governance: Lufthansa s multi hub system Comparison to competitors approaches Lufthansa on the right track 14
The European airline market key Players Aircraft fleets ( Regional aircraft included ) 82 153 Longhaul Shorthaul and regional 177 123 on order 58 379 343 133 115 22 49 146 135 164 159 14 116 114 146 AF/KL LH/LX BA Iberia RyanairAir BerlinEasyjet 15 Source: ACAS, without LCC: Germanwings, Clickair, Flybe, Transavia
The Big Three in the legacy league BA AF / KL LH Group Focus on mega-catchment LON and longhaul Low focus on traffic outside LON Limited European feed Two hubs PAR/ AMS Mega-catchment PAR Moderate feeder traffic in PAR Extensive feed AMS No mega-catchment Multi hub European feed is essential Strong presence in European feed markets One brand Oneworld Two brands SkyTeam Multiple brands Star Alliance Moderate growth Growth strategy Growth strategy Successful in the past Future with Open Sky? Strong growth basis and successful integration Success depends on position in European markets 16
Different market structures drive different strategies Catchments* (population in millions within 90 min) DUS 22.6 STO 1.3 CPH 2.4 2,8 LON 19.4 PAR 13.7 AMS 13.5 13.5 FRA 12.5 12.5 ZRH 6.2 MUC 7.3 7.3 VIE 4.3 BUD 3.3 15,5 MXP 9.3 * exemplary Source: LH Catchment Data MAD 5.9 ROM 4.6 ATH 3.1 IST 8.8 17
Efficient feeder services are the lifeline for Lufthansa s longhaul system Longhaul passengers in 2007, in Mio. Transfer Local 11 (63%) 5 9 (41%) (74%) 7 7 (37%) 3 (59%) (26%) AF/KL / LH LH/LX Group BA Source: MIDT O&D Passengers 2007 vv 18
Lufthansa hub performance in comparison to major European hubs On time performance (Departure) AEA-Hubs April 2008 in % 100 450 90 80 70 88,2 84,2 83,0 372 79,3 302 395 78,3 78,0 333 73,6 400 400 350 300 60 265 52,8 250 50 40 30 200 * 165 200 150 20 100 10 50 0 0 OS VIE LX ZRH LH MUC KL AMS LH FRA IB MAD AF CDG BA LHR *Average number of departures per day 19
On time performance: Zurich and Munich take top positions, but room for improvement AEA Comparison Ranking Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 1 VIE VIE VIE VIE VIE AMS AMS ZRH VIE MUC VIE VIE VIE 88,2% 2 MUC AMS AMS MUC AMS VIE VIE MAD MUC ZRH MUC MUC ZRH 84,2% 3 ZRH ZRH MAD ZRH MUC FRA FRA AMS ZRH MAD MAD MAD MUC 83,0% 4 AMS MUC MUC FRA FRA ZRH MAD VIE MAD VIE ZRH ZRH AMS 79,3% 5 FRA MAD ZRH MAD ZRH MUC MUC MUC AMS AMS AMS FRA FRA 78,3% 6 MAD FRA FRA AMS MAD MAD ZRH FRA FRA FRA FRA CDG MAD 78,0% 7 CDG CDG CDG CDG CDG CDG CDG CDG CDG CDG CDG AMS CDG 73,6% 8 LHR LHR LHR LHR LHR LHR LHR LHR LHR LHR LHR LHR LHR 52,8% 20
A high performance feeder system creates a competitive edge in the business segment First/business class passengers in intercontinental traffic 2007 in million passengers 3,3 2,9 2,2 Share LH LH/LX Group AF AF/KL/ KL BA of premium passengers: 21% 12% 17% Source: AEA 21
Fragmented market and demand patterns in Central Europe require a broad strategic approach, not limitited to Multi Hub FRA Multi- PRODUCT Global Multi- HUB ZRH MUC Network Multi- BRAND 22
Ground product evolution: customer convenience and process efficiency Online check-in with home print boarding pass More than 10,500 online check-in users per day in May 2008 Online boarding pass available on: - all flights ex-germany (except USA) - 560 routes worldwide, 50 of these intercont Extension on further routes planned in 2008 (especially USA) Mobile Bordkarte Mobile Bordkarte LH0024, S10A, 08DEC, M Lufthansa wünscht Ihnen einen guten Flug. Mobile boarding pass Pilot routes: Check-in channels: FRA-HAM and vice versa MUC-HAM and vice versa Mobile internet SMS push check-in From end of June 2008 mobile boarding pass will also be offered at online check-in on all domestic routes as an alternative to home print boarding pass High customer satisfaction 23
To further improve the lounge product LH will invest more than 150 million Euro in the next few years 24
Besides premium traffic market: Our Multi Product strategy supports our seat load factor and the productivity of aircraft Competitive pricing concepts Extension of seasonal services 25
Investments in modern technology reduce cost base and help the environment Fleet investment, LH Group 15 Airbus A 380-800 Average specific fuel consumption (litres per 100 passenger kilometres) 6,5 6,2 20 Boeing 747-8 6 5,64 Lufthansa-fleet 2007: 4,32 l/100pkm 18 Airbus A 330/340 64 Airbus A 320-Family 30 Embraer 190 15 Bombardier CRJ 900 5,5 5 4,5 4 5,31 5,19 5,14 5,14 4,98 4,97 30,3% Reduction since 1991 4,68 4,57 4,65 4,51 4,31 4,36 4,39 4,38 4,32 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 26
Agenda Development of system and governance: Lufthansa s multi hub system Comparison to competitors approaches Lufthansa on the right track 27
Market shares in premium traffic: LH Group in leading position in most European markets Premium traffic market shares Longhaul traffic to/from Europe 63% LH/LX AF/KL BA OAL 2% 4% 36% 59% UK, Ireland 45% 19% 12% 6% Scandinavia 47% 27% 11% 5% 57% 83% 10% 5% 2% Russia 46% 46% 46% 7% 2% Germany 38% 30% Eastern Europe 64% 87% 81% 5% 3% France, Benelux 10% 6% Switzerland 5% 2% Austria 68% 81% 8% 2% 2% CIS 12% 4% 3% 7% 8% 4% Spain/Portugal Source: MIDT 2007 18% 11% 3% Italy Greece Turkey 28
Lufthansa s seat load factor exceeds the AEA average [%] 100 90 80 70 60 AEA average 50 40 1992 1994 1996 1998 2000 2002 2004 2006 2008 * * 2008: Jan-April only. SLF cum. 2008 expected to remain stable. Source: AEA (Association of European Airlines) and Lufthansa Annual Reports 29
Our capacity is highly utilized, on longhaul flights but also in European traffic SLF longhaul flights SLF shorthaul flights 1 [%] 100 90 80 70 AEA average [%] 100 90 80 70 30 60 50 40 2000 2001 2002 2003 2004 2005 2006 2007 2008 1) domestic and cross border Europe * 2008: Jan-April only. SLF cum. 2008 expected to remain stable. Source: AEA (Association of European Airlines) * 60 50 40 2000 2001 2002 2003 2004 2005 2006 2007 AEA average * 2008
The productivity of our fleet is increasing Aircraft productivity, in block hours per day Entwicklung der Flottenproduktivität (Kont Classic) Shorthaul (Classic) 10,0 8,0 6,0 8,3 8,6 8,7 8,8 8,9 8,8 9,0 7,0 7,4 4,0 2,0 Entwicklung der Flottenproduktivität (Interkont) Longhaul 0,0 Total FRA MUC DIRECT 2006 2007 2008 (expected) Shorthaul (Regional) Entwicklung der Flottenproduktivität (Kont Regional) 15,2 15,0 14,8 14,6 14,4 14,2 14,0 13,8 14,5 14,4 14,8 14,8 14,7 14,7 14,3 15,0 Total FRA MUC DIRECT 8,0 7,8 7,6 7,4 7,2 7,0 6,8 6,6 6,4 7,9 7,9 7,9 7,7 7,5 7,5 7,4 7,1 7,0 Total FRA MUC DIRECT 2006 2007 2008 (expected) 2006 2007 2008 (expected) 31
Thank you for your attention! 32
Disclaimer This presentation is for informational purposes only, contains preliminary financial and other information about Lufthansa and is subject to updating, revision, amendment and completion. This presentation does not and is not intended to constitute or contain any offer of securities for sale or a solicitation of an offer to purchase any securities of Deutsche Lufthansa AG or any other company and neither this presentation nor anything contained herein shall form the basis of any contract or commitment. Certain statements contained in this presentation may be statements of future expectations and other forward-looking statements or trend information that are based on management's current views and assumptions and involve known and unknown risks and uncertainties. In addition to statements which are forwardlooking by reason of context, including without limitation, statements referring to risk limitations, operational profitability, financial strength, performance targets, profitable growth opportunities, and risk adequate pricing, as well as the words "may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, or continue", "potential, future, or further", and similar expressions identify forwardlooking statements. Actual results, performance or events may differ materially from those in such statements. Lufthansa assumes no obligation to update any such statements or any other information contained herein. 33