Air Carrier Update II Lufthansa Group Daniel Pauli Manager Intercontinental Network Planning Washington D.C, Dec 7, 2017. lufthansagroup.com
Who we are Lufthansa Group: Three-pillar strategy Shareholders Network Airlines # 1 in Europe Customers #1 Financial stability Point-to-Point Airlines # 1 in home markets Employees Aviation Services # 1 worldwide and more Page 1
Who we are Lufthansa Group: No. 1 for our Customers, Employees and Shareholders First European 5-star airline (Skytrax) Product and Digitalization Expanded Network & Partnerships Customers Shareholders #1 Employees 240 220 200 180 160 140 120 100 80 LH Stock price at all-time high +133% since Jan 2, 2017 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Lufthansa DAX 30 New long-term labour agreements negotiated with all employee groups (pilots union vote expected by mid-dec) 3,000 new jobs created in 2017 Page 2
Network & Fleet Page 3
Network & Fleet Lufthansa Group s network strategy based on 2 pillars #1 premium network airline in Europe #1 P2P airline in home markets Premium positioning & cost optimization Safeguarding local catchments Strategic role & targets Three brands & four hubs #1 premium network airline in Europe Connecting Europe to Intercont Expanding Joint Venture activities Strategic role and targets Profitable P2P growth Focus: Price-sensitive customers Defending LHG home markets Foundation for M&A and consolidation Page 4
Network & Fleet Leading Premium Network Airline in Europe and largest Point-to-Point Carrier in Home Markets Premium Hub Carrier Lufthansa Airlines FRA, MUC... 335 36,000 193 Austrian Airlines VIE... 76 6,300 90 Point-to-point Carrier Eurowings CGN... 166 3,400 98 SWISS and Edelweiss Air ZRH... 107 10,200 112 Brussels Airlines BRU... 47* 3,500 85 Source: HN/F Fleet-Schedule Fleet incl. external wet-lease summer 18 *Figures taken from company website Page 5
Network & Fleet Lufthansa Premium Hub Airlines Longhaul Fleet (Su18) FRA MUC ZRH VIE Source: Schedule Fleet, wet-leases are excluded Page 6 ~78 A/C 105 Aircraft ~27 A/C 35 Aircraft (30+5) 12 Aircraft
Network & Fleet 8,564 weekly frequencies to 263 destinations in 86 countries DACH * 2523 weekly frequencies to 27 destinations in 3 countries Germany 1271 weekly frequencies to 17 destinations North Atlantic 420 weekly frequencies to 25 destinations in 2 countries Europe w/o DACH 4990 weekly frequencies to 146 destinations in 41 countries Near/Middle East 174 weekly frequencies to 15 destinations in 11 countries Far East 251 weekly frequencies to 22 destinations in 9 countries South America 62 weekly frequencies to 10 destinations in 8 countries Africa 144 weekly frequencies to 18 destinations in 12 countries * Figures for DACH (Germany, Austria, Switzerland) include figures for Germany (also shown separately) Page 7
Network & Fleet Current challenges in the airline industry affecting network planning Political environment US politics Less dependency on North America Terror Additional security measures Brexit FR & U2 migrating to mainland Europe? Economic & Consolidation EU Consolidation AB/AZ bankruptcy Consolidation in Europe Global Alliances Eroding of alliance boundaries? Digital Trends Opportunities for network planning (AI) Low Cost Competition Low-cost Germany Ryanair ambitious growth plan in Frankfurt Low-cost Intercont Joon, Level & Norwegian expanding network Worldwide by EasyJet Feeding Norwegian & Westjet in Gatwick Page 8
Network & Fleet LH Group operates from affluent home markets but smaller catchments than main EU competitor hubs Purchasing Power Catchment Size Inhabitants in 90 min. radius (in millions) 19,7 13,8 LHG Hubs 9,3 5,9 5,6 4,0 LHR CDG FRA ZRH MUC VIE Source: www.gfk.com/geomarketing-de (2017) Source: Catchment Database (2017) Page 9
Network & Fleet Hub Airlines are organized in a multi-hub structure to best cover valuable markets Mega-Catchment IK-IK Transfer Multi-Hub Structure LHR DXB LH Group Local market demand secures base load + High valuable local markets Premium demand Low dependency of one market / catchment Exclusively low IC unit costs Scale effect with high amount of large A/C No Mega-Catchment comparable to LHR or CDG Dependent on transfer PAX No IC-IC unit cost advantage (i.e. Gulf carriers) Page 10
Network & Fleet Dual strategy of covering IC demand (efficiently) & safeguarding local catchments Covering IC demand ex EU Serving local catchments HAM HAJ BRU DUS CGN TXL FRA STR MUC VIE GVA ZRH SZG Bundling over one 360 hub: Efficient connection of EU catchments to IC Maximum 360 offer with optimal quality Economies of scale (i.e. hub focus and positioning) Basis for all LHG catchments: Offering most important destinations with premium demand (customer retention) Additional IC transfer traffic Page 11
Page 12 Lufthansa Group Premium Hub Airlines in the North American Market
North American Market The importance of the North Atlantic Market for LHG Premium Hub Airlines has continuously increased Summer 2013 Development of NA Summer 2018 Premium Hub Airlines ASM by Region 10% 7% 7% 37% NA flying has steadily increased 26.697 1.445 767 2.994 1.572 2.285 Su13 Su14 Su15 Su16 Su17 Su18 35.761 Premium Hub Airlines ASM by Region 10% 6% 6% 40% United States Canada Asia-Pacific 35% 5% 42% 19% New Destinations New Airport Pair Others 33% 5% Latin America Africa Middle East 39% NA +34%, Others +16% Page 13
North American Market Lufthansa Premium Hub Airlines network development to North America over the past 10 years 2008 2013 2018 YVR SEA PDX SFO LAX YYC DEN YUL YYZ ORD BOS EWR DTW JFK IAD PHL CLT DFW ATL MCO IAH MIA SFO YVR PDX YYC DEN +TPA +SJC +LAS LAX +SAN +YYC DEN TPA YYZ EWR MCO MIA YUL FRA YUL TPA SJC SAN 15 MUC YVR YYZ MIA DEN ZRH YYC SAN MCO VIE ORD EWR MIA LAX new routes 2013 2014 2015 2016 2017 2018 launched LH FRA LH MUC LX OS Page 14 / increased/reduced LHG service + added destination Source: FLASH, Calendar years 2008, 2013, 2018, as of 12/01/17
North American Market Destination Criteria (example) Premium Share Potential for Stimulation Level of Competition Traffic Flows Corporates Risk Mitigation Market Size A++ Strength Page 15
North American Market The transatlantic is market more concentrated on North American side than on the European end more opportunities for US and CA carriers? Thousand PDEWs EU-NA 25 Cum.. Share of markets 100% 90% 20 80% Top10 NA markets = 67% of O&D 70% 15 Top10 EU markets = 53% of O&D 60% 50% 10 40% 30% 5 20% 10% 0 0% NA EU Source: O&D Marketsize Sep16-Aug17 Page 16
North American Market LH Premium Hub Airlines serve 23 of Top30 North American Markets, Top10 markets generally served from 3-4 hubs Top30 NA Transatlantic Markets Transatlantic JVs marketshares by NA Airport Thousand PDEWs EU-NA 25 20 15 10 5 0 NYC LAX YTO MIA SFO BOS CHI WAS ORL YMQ YVR LAS HOU ATL SEA PHL DEN DFW DTT MSP YYC TPA SAN CLT PHX FLL PDX RDU BWI AUS NYC LAX YTO MIA SFO BOS CHI WAS ORL YMQ YVR LAS HOU ATL SEA PHL DEN DFW DTT MSP YYC TPA SAN CLT PHX FLL PDX RDU BWI AUS A++ OneWorld Skyteam Unaligned Source: O&D Marketsize Sep16-Aug17 Page 17
Ratio between transatlantic seats and PDEW North American Market Daily Seats 36.000 8.000 6.000 4.000 2.000 0 High market share, market stimulation or partner hub required SAN BWI AUS YYC CLT RDU FLL MSP DTT TPA PDX PHX PHL DFW DEN ATL HOU SEA YVR LAS YMQ 0 500 1.000 1.500 2.000 2.500 3.000 3.500 4.000 4.500 5.000 5.500 6.000 6.500 22.500 ORL WAS CHI BOS MIA SFO YTO NYC LAX Low market share, limited stimulation & no partner hub required Source: O&D Marketsize & Flash Sep16-Aug17 PDEW Page 18
North American Market Honolulu, Phoenix and Portland lead the ranking of LHG Premium Hub Carriers largest beyond markets in NA (excl. markets served by LHG in Su18) YEA 23 49 HNL PDX 37 36 29 42 SLC 19 PHX 25 AUS 21 MSY 27 MSP STL 23 22 IND BNA 20 CLE PIT 21 YOW 20 YQB Source: O&D Segments Sep16-Aug17 Page 19 = PDEWs EU-NA Source: O&D Segments Sep16-Aug17
Joint Ventures Page 20
Network and partnerships are important drivers for revenue quality Joint Ventures Largest Airline Group in Europe Leading Transatlantic JV First JVs for Japan/China-Europe Americas 30,2% Intra- Europe 46,0% Near East/ Africa 6,8% Asia Pacific 16,9% First JVs for Southeast Asia-Europe Source: LH Annual Report 2016; Page 21
Joint Ventures Partnerships & Joint Ventures Standalone Carrier (government owned) Bilateral Agreements Multilateral Agreements (Star Alliance) Joint Ventures The new frontiers (Joint Venture 2.0) Page 22
Thank you for your attention! Page 23