- Lufthansa what s different? Deutsche Bank German Corporate Conference 29 Stephan Gemkow Member of the Executive Board & CFO Deutsche Lufthansa AG Frankfurt, June 23, 29
Executive summary World-wide recession has hit the airline industry Lufthansa, too, is affected by lower volumes and yields Meanwhile fuel prices have gone up again Capacity, fuel and cost management can limit but not eliminate effects on the financial performance A solid financial profile enables crisis management and supports active Group development Lufthansa Is able to cope with the current crisis Continues to develop towards the leading European Airline Group 2
The airline industry is cyclical Source: IATA, April 29 3
Long-term growth will continue but will pick up from lower levels Source: EIU, IATA, April 29 4
However, no recovery is expected before 21 it will be challenged by increasing fuel prices Airline industry: Outlook 29 Oil price recovery (Jan-May 9) Industry Loss - 9 bn $ 16 USD / bbl Revenues -15% -8 bn $ 14 12 Most difficult situation that the industry has faced. we are in survival mode rising oil prices anticipating recovery a great risk 1 8 6 4 +55% ytd Giovanni Bisignani, CEO of IATA, 8 June 9 2 2.1.272.4.272.7.272.1.272.1.282.4.282.7.282.1.282.1.292.4.29 Economic Outlook: GDP 29e-212e Source: IATA 6 4 2-2 -4-6 North America 29 21 211 212 6 4 2-2 -4-6 Europe 29 21 211 212 Germany 6 4 2-2 -4-6 29 21 211 212 Asia/Pacific 6 4 2-2 -4-6 29 21 211 212 Source: Global Insight World Overview as of 14 May 9 5
The impact on Lufthansa is significant, too Traffic drops in passenger and freight business and yield mix declines RPK* and RTK development (Jan 28 May 29, change yoy) % 1 Premium passengers (change yoy) Jan-Apr 9 5-15,2-5 -1-15 -2-25 LH RPK (Passenger Traffic) LH RTK (Freight traffic) IATA RPK IATA RTK -36,8-33,8-13,9 Long-haul Short-haul -3 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dez Jan Feb Mar Apr May 28 29 LH AEA Source: IATA *incl. SWISS since July 28 Source: AEA 6
Lufthansa reacts with flexible capacity and cost management Flexible capacity management ASK vs. PY in % 6 5 4 3 2 1-1 -2-3 Passenger Airline Group -1.6% -4 25 26 27 28 29 Lufthansa Cargo -3% freighter capacity (-6 MD11) -2.5 a/c external capacity (Jade Cargo) >5% of headcount on short-time work Extensive cost management initiatives Cost management LH Passenger Airlines Hiring freeze in all admin. and operating functions Short-time work at German non-hub stations Reduction of administrative costs Project freeze 7
s financial performance has gained stability and is top in the industry Revenue Jan March 27-29 in m 6. 5. 4. 3. 2. 1. 27 28 29 27 28 29 27 28 29 LH AF/KLM BA Net profit / loss Jan March 27-29 Operating result Jan March 27-29 in m 3 2 1-1 -2-3 -4-5 -6-7 LH AF/KLM BA Operating cash flow Jan March 29 in m 8 6 4 2-2 LH AF/KLM BA -4-6 Source: Company reports in m 8 6 4 2-2 -4 n.a. LH AF/KLM BA 8
Key figures of in detail in m FY 28 vs. PY Q1 29 vs. PY Revenue 24,87 +1.9% 5,15-1.3% -thereof traffic revenue 19,998 +13.8% 3,813-14.6% Operating result 1,354-1.7% -44 - Adj. operating margin 6.1% -.8PP -.6% -3.8PP EBIT 976-46.% -25 - Net profit 599-63.8% -256 - Operating cash flow 2,473-13.6% 78-4.5% Capital expenditure 2,154 56.3% 664-17.8% in m 31.12.28 31.3.9 Net liquidity 125-83.7% 46-94.8% Equity ratio 3.9%.PP 26.1% -2.6PP 9
However, in the current environment the market differentiates more on industries 13% 12% 11% 1% 9% 12 months share price performance LH vs. peers and DAX 8% 7% 6% 5% 4% 3% 19.6.8 19.9.8 19.12.8 19.3.9 19.6.9 DAX BA LH AF LH AF/KLM BA Ø Network Carrier EV / EBITDA (29e) 4.4x 7.1x 9.8x 8.x EV / EBITDA (21e) 3.7x 4.7x 3.6x 5.2x Market Value / Adj. Book Value.85x.67x 4.51x 1.54x Source: RBS 1
Lufthansa continues to adjust operations to market needs without sacrificing the strategic development Short-term operational flexibility... Mid-term strategic developments Flexible capacity approach Variable cost structure Extenstive cost management Organic growth Alliances & partnerships Consolidation, M&A based on stability Strong balance sheet Strategic minimum liquidity Forward looking risk management (Fuel, FX,..) Investment grade rating Strong and diversified customer base Global network & multi-hub system 11
Flexible capacity management Measures to reduce long-haul capacities by up to 8%* prepared Fleet structure allows short-term reaction Step 1 (in place) Step 2 Step 3 Step 4... approx. - 1% Group a/c in ownership Frequencies -2/7 PDX / NGO -2/7 NKG / CCU -1/7 HYD -2/7 M-SIN/BOM approx. - 2% approx. - 5% 3% encumbered 7% unencumbered Escalation Seasonal Services Routes Destinations -7/7 F-JFK -6/7 F-EWR -5/7 F-DTW -7/7 M-DEN F-LHE approx. - 8% Shortest a/c depreciation years 3 25 2 15 1 5 As of Q3 28 LH AF / KLM BA 12 * Lufthansa Passenger Airlines only
Cost management All business segments enforce their cost savings initiatives Passenger Airline Group Logistics LH: Short-time working at German non-hub stations LH: Hiring freeze, fixed costs reductions, project and administrative cost freeze SWISS: Hiring freeze for ground personnel, cost optimisation, reassesment of projects Program to safeguard earnings phase II As of May 29 short-time working of ground personnel expanded to 25% Administrative costs budget reduced to 75%, Project budget reduced to 3% Technik Suspension of 4h week and reduction of time-banking accounts Reduction of external personnel Project budget cut in 29 IT Services Up to 5% reduction of external personnel Project portfolio reduced Budget for controllable administrative costs reduced to 7% Catering Reduction of external personnel, reduction of time-banking accounts and holidays Short-time working since March 9 in Alzey Preparation of short-time working at several German sites Unchanged focus on sustainable increase in profitability More than 1 group wide projects running 13
Customer orientation Customer satisfaction and loyalty support premium traffic Product and process innovations Increasing customer satisfaction 77 Customer Profile Index 74 71 68 65 21 22 23 24 25 26 27 28 Europe s leading Frequent Flyer Programme Significant premium revenue share 18 16 14 12 1 8 6 4 2 Miles&More members in millions 1998 1999 2 21 22 23 24 25 26 27 28 IK premium revenue share 55% 5% 45% 4% 35% 23 24 25 26 27 28 14
Revenue structure With its global presence and customer base Lufthansa will participate from pick-up in demand More than 5% of revenues on non-european routes 47% Corporate revenues are well diversified over the respective sectors Production; 49% 17% Americas 26% 65% Europe 7% 2% 1% Asia- Pacific Others; 16% Automotive 1% Pharma & Chemicals 9% Metal & Machinery 8% Others 22% By Sales Origin 8% Mid East & Africa Services; 22% Finance & Consulting ; 13% By Traffic Region As of FY 28 As of FY 28 15
Group structure Different cycles of business segments have stabilizing effect on Group pofitability Operating result in m TOTAL 577 845 1,378 1,354 Logistics 18 82 136 164 V o l a t i l i t y Passenger Transportation Catering Σ S&F Comp. IT Services 135 49 5 5 19 52 63 49 826 1 53 23 722 7 69 4 MRO 258 248 293 299 Year 25 26 27 28 16
Group structure As a result Lufthansa s operating margin is more stable compared to its peers Operating margin (in %) 12 11 1 9 8 7 6 5 4 3 2 1-1 -2-3 -4-5 -6-7 -8 24-5 25-6 26-7 27-8 28-9 LH Group (adj. operating margin) BA AF FY 28 Like-for-like (APR8 MAR9) 5.8% 5.% -.5% -2.4% 17
Systematic risk management LH benefits from lower price lewels, but recent recovery has its effect, too Oil price scenarios 29 Projected fuel costs and sensitvities 14 135 13 125 12 LH price 29 incl. SWISS Fuel costs (in bn after hedging) 6 5.4 115 USD / bbl 11 15 1 95 9 85 8 75 7 5 4 3.4 3.9 3.55 3.7 (+6%) 91 USD/bbl (+2%) 3.6 (+ 3%) 83 USD/bbl (+1%) 3.4 (-3%) 68USD/bbl (-1%) 65 6 55 5 45 Market Price 4 4 45 5 55 6 65 7 75 8 85 9 95 115 1111512125 1313514 USD / bbl 3 2 26 27 28 29e 3.3 (-4%) 61 USD/bbl (-2%) As of June 16, 29 (incl. capacity adjustments, forward price: 75,64 USD/bbl 1.3626USD/EUR) 18
Financial strength Strong balance sheet supports crisis management and strategic development in bn 7% of fleet unencumbered Lufthansa balance sheet as of 31 March 29 Assets Aircraft & reserve engines 9. Liabilities Equity 6.4 Equity ratio: 26.1% Target: Sustainable equity ratio of 3% Depreciation period: 12 years 2 bn strategic minimum liquidity Additionally approx. 1.7 bn credit lines Other intangible assets 2. Trade and other receivables 3.5 Liquidity 5.2 Others Pension provisions 2.5 Financial liabilities 5.1 Trade payables and other liabilities 4. Others approx. 64% funded Future allocations flexible Gearing: 38% (target: 4-6%) Net liquidity: 46 m 19 Total: 24.5
Investment Grade Rating Lufthansa benefits from significantly lower funding costs Current Lufthansa Ratings 5Yr CDS Lufthansa lower than peers Moody s S&P Baa3 (negative) BBB (CW negative) 8 7 6 5 Lufthansa British Airways Air France 4 Airlines with Investment Grade Rating 3 2 Investment Grade 1 22/5/26 31/5/27 4/12/27 29/2/28 21/5/28 24/7/28 8/9/28 Source: Reuters 21/1/28 15/12/28 27/4/29 2
Group development We evaluate all alternatives for active development Organic growth Partner & Alliances Acquisitions Secure leading role of LH in European traffic flows Expand global presence Strengthen position in strat. markets Innovation, Quality, Cost Reduction 21
Organic growth We remain committed to invest into the future Aircraft deliveries 29 Expected capex development through 211 [in bn] A33/34 8 3,5 Primary investments Secondary investments Financial investments 3, A32 Family 14 2,5 ERJ-195 15 2, 1,5 CR9 9 1,,5 Cessna Citation 5*, 28 29e 21e 211e Financing through 1% Roll-over Operating cash flow Liquidity External financing * thereof 3 training aircraft for LH Flight Training 22
Partnerships & alliances Star Alliance is No. 1 and continues to grow considerably Alliance Capacity Shares (measured by ASK) Number of members since 1997 Others Star Alliance Expansion 29-21 2.5% 31.7% 25.8% 22.% 2 1 ASK (bil) Star oneworld Skyteam 128.5 891.1 142.9 MAY1997 FEB1999 JUN2 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 Source: Star Alliance April 29, IATA WATS published 27, UPS & FedEx not included, 23
Consolidation Update on M&A transactions Status All regulatory approvals received Commercial cooperation initiated (e.g. codesharing, lounge access) Secure traffic rights Regulatory approvals received Out-of-court agreement reached LH receives 88.1% of AUA shares during initial offer period - No execution of put option by Sir Anti-trust documents filed in Michael Bishop, purchase of May option for 175m - LH BD Holding Ltd. to acquire 5% of BMI for 48m Options regarding future of bmi under evaluation Additional offer period until August 14 EU commission reviews antitrust case in phase I until July 1 Transaction Acquisition of 45% stake in SN Airholding SA/NV for EUR 65 m Call option for remaining 55% after two years, price depends on performance-related factors Put option initially executed in October 28 by Sir Michael Bishop obliged Lufthansa to acquire 5% plus one share of bmi LH to acquire 41.56% from ÖIAG for 366 TEUR + earn-out option of max EUR 164 m Public tender offer: EUR 4.49 per share Subject to EU approval of anti-trust and restructuring aid of EUR 5 m 24
Value Creation The industry has a bad reputation - but Lufthansa s management is incentivised to earn the cost of capital..the industry is not able to earn the cost of capital in the long run (Investor, Germany) Lufthansa Cash Value Added 2-28* m 2 15 1,546 1 5 588 44 151 386 552 654-5 -1 2 21 22 23 24 25 26 27 28-628 -745 CVA is essential parameter in investment decisions Management remuneration is linked to CVA performance 25 *Note: WACC: 7,9%, Beta: 1,1, ficitional capital structure of 5%
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Disclaimer in respect of forward-looking statements Information published in this presentation with regard to the future development of the 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 very 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. Lufthansa 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. It neither expressly nor conclusively accepts liability, nor gives any guarantee, for the actuality, accuracy and completeness of this data and information. 27