Lufthansa Group
Conference & Roadshow Presentation
October 2018 Disclaimer
The information herein is based on publicly available information. It has been prepared by the Company solely for use in this presentation and has not been verified by independent third parties. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. The information contained in this presentation should be considered in the context of the circumstances prevailing at that time and will not be updated to reflect material developments which may occur after the date of the presentation.
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This presentation contains statements that express the Company‘s opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results, in contrast with statements that reflect historical facts. While the Company always intends to express its best knowledge when it makes statements about what it believes will occur in the future, and although it bases these statements on assumptions that it believes to be reasonable when made, these forward-looking statements are not a guarantee of performance, and no undue reliance should be placed on such statements. Forward-looking statements are subject to many risks, uncertainties and other variable circumstances that may cause the statements to be inaccurate. Many of these risks are outside of the Company‘s control and could cause its actual results (positively or negatively) to differ materially from those it thought would occur. The forward-looking statements included in this presentation are made only as of the date hereof. The Company does not undertake, and specifically declines, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.
Page 2 01 Q3 / 9M Results
02 Strategy
03 Outlook
04 Appendix
Page 3 Lufthansa holds up well in increasingly challenging market environment
Growing political Air traffic control strikes uncertainties and capacity shortages Trade conflicts Capacity constraints at airports
Oil price increase Moderation of global economic growth outlook Flight delays and cancellations
Adjusted EBIT Q3 Adjusted EBIT 9M Net debt & Pensions
-11% -8% -9%
1,518 1,354 2,560 2,362 8,000 7,278
Q3 17 Q3 18 9M 17 9M 18 FY 17 9M 18
Page 4 EBIT declines slightly because of one-off related losses at Eurowings
Group Adjusted EBIT 9M 2018 Comments
Fuel cost: • Group Adjusted EBIT above the +536m EUR previous year level excluding Eurowings which suffers from -198 / -8% c. 170m EUR of one-off 2,560 +13 Air Berlin integration costs • Network Airlines more than offset -210 fuel headwinds 2,362 • Positive performance of Cargo and -1 LSG offset by other businesses in Aviation Services
Adj. EBIT Network Eurowings Aviation Adj. EBIT 9M 17 Airlines Services1 9M 18
1 Aviation Services include Logistics, MRO, Catering, Others and Consolidation
Page 5 Strength in long-haul continues
Revenue KPIs Q3 9M Comments +11.3% +12.1% • Significant market share gains in +1.0pts. +1.8pts. Europe, yield pressure due to tough 48% comparison base, high market-wide
Europe -2.0% -3.9% capacity-growth and negative mix 1 1 ASK SLF Yield ASK SLF Yield effect from disproportionate growth +7.2% +6.7% of Eurowings
+0.3pts. +0.5% • Americas continue to perform well, 29% -0.1pts. -0.2% yield in key North Atlantic business Americas up 0.7% in Q3 (9M: +1.5%) ASK SLF Yield1 ASK SLF Yield1 • +4.1% Demand in Asia Pacific strong +2.1% +2.7% across the region +0.7pts. +1.0%
15% / Pacific/
-0.5pts. • Third quarter yield improvement in Asia ASK SLF Yield1 ASK SLF Yield1 Mid-East / Africa driven by African +5.3% +5.2% market +2.4%
Africa +0.8pts. / 8% -0.3pts. -2.2%
ASK SLF Yield1 ASK SLF Yield1 Mideast
% of Traffic Revenues as of 9M 18 1 excl. currency Page 6 Unit revenues at Passenger Airlines up in the first nine months
Revenue KPIs Q3 9M Comments
+7.5% +7.9% • Prior year comparison base has become more difficult due to effects Passenger +0.4pts. +0.6pts. +0.2% +0.3% of Air Berlin insolvency Airlines -0.6% -1.3% • Strong long-haul performance offset ASK SLF Yield1 RASK1 ASK SLF Yield1 RASK1 by yield decrease in short-haul at Network Airlines
Network • Tough comparison base and strong Airlines +4.7% +5.1% growth in long-haul impact +0.8% Eurowings yield and RASK +0.3pts. 0.0% +0.4pts. +0.7% -0.2% ASK SLF Yield1 RASK1 ASK SLF Yield1 RASK1
+21.0% +22.6% Eurowings
+0.9pts. +1.8pts. 0.0%
-2.3% -1.3% -4.6% ASK SLF Yield1 RASK1 ASK SLF Yield1 RASK1
1 Excl. currency
Page 7 Irregularity costs and one-offs mask better underlying performance
Cost KPIs Q3 9M Comments
1 1 CASK CASK • Higher irregularity costs and increase of MRO expenses impact Passenger Airlines CASK in Q3, irregularity and Passenger +1.2% MRO cost growth expected to -0.0% Airlines moderate in the fourth quarter
• Group-wide irregularity costs because of flight cancellations and Network delays following industry-wide Airlines disruptions more than double to c. +1.2% 350 million euro year-to-date -1.0% • Integration cost of former Air Berlin aircraft at Eurowings amounts to Eurowings c. 170 million euros in the first nine +5.9% months +2.0%
1 Excl. currency, excl. fuel
Page 8 Fuel cost increase accelerates markedly compared to first half year
Fuel Cost Q3 9M Comments
• Development in the quarter in line with unchanged full year outlook of c. 850 million euro increase
+536 / +14% • Less protection compared to earlier in the year due to roll-off of lower price hedges • Group expects fuel cost increase of around 900 million euro in 2019 on a Lufthansa like-for-like basis (excluding volume Group growth)
+320 / +23% 4,475 3,939
1,699 1,379
Q3 17 Q3 18 9M 17 9M 18
Page 9 Network Airlines offset rising fuel costs in the first nine months
Adjusted EBIT Q3 9M Comments
+1% Network -15% • Nine months Adjusted EBIT up Airlines despite fuel, irregularity and MRO 1,190 1,009 1,947 1,960 cost increases
Q3 17 Q3 18 9M 17 9M 18 • Expected moderation of irregularity and MRO cost growth will benefit -18% -4% profit performance in the fourth quarter 836 686 1,405 1,346 • Results benefit from long-term labor agreements reached last year Q3 17 Q3 18 9M 17 9M 18
-9% +19%
255 232 442 525
Q3 17 Q3 18 9M 17 9M 18
-8% -14%
97 89 100 86
Q3 17 Q3 18 9M 17 9M 18
Page 10 Eurowings results distorted by one-off effects of Air Berlin insolvency
Adjusted EBIT Q3 9M Comments
-40% -145% Eurowings • Air Berlin aircraft integration and 145 ramp-up of long-haul operations 222 134 weigh on profits -65 Q3 17 Q3 18 9M 17 9M 18 • Integration of former Air Berlin aircraft completed in September • Non-recurrence of 170 million euro Operational KPIs of integration costs and reduction of operational complexity will drive return to profits in 2019 Passengers +20%
Aircraft +77
Page 11 Lufthansa Cargo and LSG Group lead profit growth in Aviation Services
Adjusted EBIT Q3 9M Comments
+40% +56% • Ongoing good demand supports continuously high yields at Lufthansa 28 153 20 98 Cargo
Q3 17 Q3 18 9M 17 9M 18 • Cost inflation in spare parts and short-term additions of external -6% -3% capacity impact profitability of Lufthansa Technik 111 333 322 104 • Result in Others & Consolidation
Q3 17 Q3 18 9M 17 9M 18 increases primarily due to timing effects in intra-Group transactions, +11% +50% primarily related to MRO; year-to- date performance still below prior 59 99 53 66 year
Q3 17 Q3 18 9M 17 9M 18
nmf. nmf.
Others & 20 -29 Consolidation -78 -107
Q3 17 Q3 18 9M 17 9M 18
Page 12 Balance sheet strengthened further
Gross Investments1 Free Cash Flow Net Debt / Pension Provisions
+27% -59%
2,496 2,790 8,000 7,278 1,962 -6% 5,116 4,801 1,152
2,884 -14% 2,477
9M 17 9M 18 9M 17 9M 18 FY 17 9M 18 Net debt Pension provisions
• Majority of investments (2.2bn EUR) • Decline mainly due to higher • Net debt declines mainly due to the relates to new aircraft to modernize the investments and cash taxes seasonality of the business, pension fleet provisions down mainly because of 0.1pp discount rate increase to 2.1% • Adjusted net debt/Adjusted EBITDA improves by 0.2 from 1.7x to 1.5x
1 Excluding cash-outs from equity investments
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Page 14 01 Q3 / 9M Results
02 Strategy
03 Outlook
04 Appendix
Page 15 Our goal remains: #1 for customers, employees and shareholders
Customers #1 Employees Shareholders
Network Airlines: Eurowings: #1 in Aviation Services: #1 in Europe home markets #1 world-wide
Strategic focus topics Aspirations
Consolidation Shape and lead the industry
Grow the business Flexibilization … and others Invest steadily
Digitalization Stay competitive Cost Reduction
Page 16 Balancing stakeholders’ interests is key to our success
New digital customer services
Lufthansa: 5 Star Airline
LH, LX, OS: Best three European Airlines
Customers
Employees #1 Shareholders
Long lasting labor agreements 3bn EUR Adj. EBIT in 2017
3,000 new jobs in 2017, revenue per FTE +7% Continuous unit cost reduction
Leaner management structure Dividend for 2017 up 60%1
Page 17 Three key themes to develop strategic pillars of the group
Expansion of market position through growth Consolidation (organic & inorganic) will redesign the structure of the airline industry
Efficient and flexible forms of organization and new production logic will determine the way of Flexibilization working within the Lufthansa Group. Cost focus remains key to sustainable success
New business models and digital solutions will Digitalization determine Lufthansa Group’s position in the airline industry
Page 18 Financial Strategy with focus on value creation
Improve Profitability Focus Capital Allocation Maintain Financial Stability
• Sustainable value generation • Continuous shareholder • Stable investment grade rating Focus participation • Strict cost management • Hedging of financial risks • Balanced investment level • Access to different forms of • Tight working capital funding management • Securing appropriate liquidity
KPIs • Adj. ROCE • Dividend • Adj. Net Debt / Adj. EBITDA • Adj. EBIT Margin • Capital expenditure
Targets Target 2017 Target 2017 Target 2017
10 – 25% Adj. Net Debt / Adj. ROCE 11.6% Dividend 11.4 % < 3.5 x 1.7 x constantly of EBIT Adj. EBITDA increasing through the in line with Adj. EBIT Margin cycle 8.4% Capex best-in-class 3.0bn EUR peers
Page 19 Lufthansa Group profits reach new highs
20 million more passengers Revenues increase 12% Unit cost1 down 0.4%
+20m +12% -0.4% 130 35.6 7.0 6.6 110 32.1 31.7 6.5 6.5 6.5 105 106 108 30.0 30.0
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Adjusted EBIT up 70% 1.8bn EUR value created (EACC) Dividend increased by 60%
+70% +1bn +60% 2,973 1,758 0.80
817 1,817 1,752 0.45 0.50 0.50 323 986 1,171
-338 -223 0.00 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
1 constant currency CASK excl. fuel
Page 20 Multiple levers in place to further improve financial performance
Revenue Cost Capital Employed Financial Strategy
Continuous cost focus 1 Premium positioning 2 (CASK down 1% - 2% per annum) Capital Allocation • Improve Profitability • Focus Capital 3 Distribution strategy 4 -25% management positions Optimization of working capital Allocation • Maintain Financial Joint Ventures Process orientation Stability
5 Fleet (Harmonization; new & efficient aircraft; used aircraft)
New Products & Services (e.g Internet on board) Cultural change
6 Labor agreements
7 Active market consolidation / Growth in Point-to-Point
8 Development of Aviation Services
Page 21 1 LH Group best positioned to benefit from superior European market
Very attractive home markets… …define premium positioning
• Strong premium corporate and leisure demand: “our product needs to be at least as much better than it is • Stable and export oriented economies more expensive” • Low unemployment • Highly diversified industries • Low cyclicality • Decentral structure In nearly all GER 5 Star Airline markets BE #1
Highest share Most dense of premium network seats CH AT
• At the same time these markets do not Partner of support cost leadership: Most digital choice for • E.g., labor and infrastructure cost airline JVs • Relatively high share of transfer passengers • Limited possibility to outsource production to lower cost countries for airlines
Page 22 2 Unit cost to be reduced between 1% and 2% every year
Labour deal Pilots (150m EUR cost reduction) Reorganization (200m EUR profit contribution)
1% to 2% Short term savings + Labour deal Cabin Crews strategic dialogue (structural cost improvement) CASK (two-digit million Euro initial cost reduction) reduction
New aircraft every year Optimizing MRO cost (c. 20% less operating cost each) (low three-digit million euro benefit over next few years)
Lower distribution cost (increasing share of direct sales)
Being awarded quality and reducing cost at the same time are not mutually exclusive
Page 23 3 New distribution strategy with distributive freedom to increase revenues
Distributive freedom Price curve (illustrative)
Background • Full content agreement expired in April 2015 • Loss of discount related to global distribution system Price • 16 EUR distribution cost charge for bookings via GDS • Neutral effect on bottom line
Benefits • No limitation to 26 pricing points anymore (GDS Technology) • Unlimited price points = optimized revenue ( ) • More direct distribution = stimulated demand ( ) (ancillaries and personalized offers)
Development so far • Direct distribution: from 30% to now more than 40% (2015 vs. H1 2018) Price point Booking classes • Positive results of dynamic revenue mgmt. on test routes (26 letters of the alphabet) • Neutral bottom line effect from introduction of DCC Currently untapped revenue potential (Dynamic revenue management with unlimited pricing points) • SWISS with new website first; Upward shift of the price curve Lufthansa and Austrian Airlines to follow later (Increasing sales of ancillary and personalized fares)
Page 24 4 Reorganization allows for better steering and leverages synergies
Reduction of management positions by 25% Process-orientation to leverage synergies
Commercial Finance, Admin, Management HR IT
New Management levels FRA Previously Now MUC ZRH VIE
• Fleet and technical asset management • Network and revenue management Processes • Sales and distribution (Examples) • Product development • Operations
500 300 Sustainable profit contribution 100
2016 2017 2018 2019
Page 25 5 Modern and less complex fleet as driver of cost reduction
Efficient and modern fleet Lufthansa Group fleet strategy
Successful phase-in of Long-haul C Series, A320neo and A350 Delivery schedule Aircraft type Ø -20% cash operating costs 2018 19 20 21 22 X 19 Airbus 350-900 until 2023 111 additional aircraft in 2017 38 Boeing 777 until 2025 5 Airbus 330 Reduced number of short-haul aircraft types 62 777-9X from 9 to 3 at LGA between 2012 and 2017 from 2020 Short-haul Delivery schedule Aircraft type Historic fleet development 2018 19 20 21 22 119 A320 Family (incl .NEO) until 2025 728 710 696 15 Bombardier CSeries 627 622 615 600 617 + 0.4% 134
323 • Less complexity from reduction of fleet diversity 268 274 287 + 4.7% 234 258 260 263 • Acquisition of used aircraft • Optimization of age structure 2010 2011 2012 2013 2014 2015 2016 2017 • ASK (bn) # of aircraft High cyclical flexibility through owned aircraft
Page 26 6 Long-term labor agreements achieved with all employee groups
Cabin Crews Pilots Ground & Admin
Wage agreement until 30 June 2019 30 June 2022 30 September 2020
01/04/2018 +1.20% 01/01/2018 +2.00% 01/02/2018 +3.00% 01/04/2019 +1.40% Salary increases 01/05/2019 +1.80% 01/04/2020 +1.55% to +3.00% 01/04/2021 +1.75%
• Defined contribution for • Defined contribution for • Defined contribution for existing staff and new entrants existing staff and new entrants new entrants and Pensions • Shortened transitional pension existing non-tariff employees scheme • Possible change to defined contribution for existing staff
• Cabin unit cost monitoring • Productivity increased • Wage increase in Jan. 2019 implemented • Revised pay structure for depending on financial result 2018 Other • Conflict resolution mechanisms new entrants (per business unit) agreed • Commitment to 325 aircraft operated under new agreement
Page 27 7 Industry consolidation is a major driver
US EU
‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18
American Airlines American Airlines Lufthansa Lufthansa Group
Swiss TWA Austrian America West Sabena Brussels Airlines U.S. Airways Air Berlin Partly Delta Delta British Airways Northwest International Airlines Group Iberia United United Continental Vueling Continental Aer Lingus
Southwest Southwest Air France Air France KLM AirTran KLM
Ryanair Ryanair Jetblue Jetblue Easyjet Easyjet
‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18
US Market share EU 2007 2017 2007 2017
Top 5 US carriers Top 5 EU carriers reach 85% market reach 44% market % % % % 65 85 share in terms of ASK 33 44 share in terms of ASK
Source: FLASH Flight data statistics
Page 28 7 Eurowings: Market position significantly improved
Strong growth and integration phase LH Group position in home markets D-A-CH-B
2015 2016 2017 2018 #3 #1 Hamburg P2P in Hanover #1 #1 90 185 #2 #Aircraft Europe Dortmund #2 #2 Berlin #2 #3 ~2x #1Dusseldorf #1 • Market consolidation around Air Berlin insolvency #1 #1 Leipzig • # Sustainable strengthening of market position Brussels 1 #1 #3 • One-off cost of 170m EUR for integration of former #1 Cologne #1 #1 Nuremberg Air Berlin aircraft and operational irregularities Frankfurt #1 #2
Stuttgart #1 #1 Munich #1 #2 Zurich #1 Palma de #3 #2 #1 Vienna Mallorca #1 Salzburg Focus now: Optimization #2 #2 #1 & profit turnaround #X Market position LH Group Airlines versus competitors #X Market position Eurowings
Page 29 8 Aviation Services: Current development and outlook
Current developments Outlook
• Successful turnaround, profit improvement of • Strong demand situation continues in 2018 approx. 300m EUR vs. PY • Restructuring program “C40” ahead of plan, • Targeted investments into high yield product to be completed in 2018 categories
• First airline customers for Digital Platform • Roll-out predictive maintenance capability using AVIATAR acquired AI for AVIATAR Platform
• Partnership models integrated into • Broaden global footprint through accretive acquisitions and global network (GE, MTU, Honeywell) new aircraft types (e.g. 737 MAX)
• Central production sites: • Transformation of LSG Europe in implementation operational setup in Europe • Retail in Motion strengthens its • Further growth of Onboard Retail, In-flight Equipment and leading market positioning in Onboard Retail Convenience Retail business
Page 30 Lufthansa starts operational excellence initiative and reduces growth
18,000 cancelled flights 1.7m Passengers affected by cancellations 70% punctuality (-7pts. vs. previous year)
Capacity growth for Summer Additional spare aircraft 2019 reduced to 3.8% Qualitatives Wachstum Additional A320ceo orders Allocation of growth Additional Staff: 600 to hubs as a function of quality and cost Customer communication
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Page 32 01 Q3 / 9M Results
02 Strategy
03 Outlook
04 Appendix
Page 33 Lufthansa Group confirms financial outlook
9M Forecast ∆ Previous forecast
Capacity Growth +7.9% c. +8% (ASK, organic and inorganic) c. +8%
Unit Revenue +0.3% slightly positive (RASK, ex. currency) slightly positive
Unit Cost 0.0% c. -1%
(CASK, ex. currency, ex. fuel) c. -1% Passenger Airlines Passenger
Fuel +536 additional cost of c. 850m EUR
(compared to previous year) m EUR additional cost of c. 850m EUR 1 467 Adjusted EBIT m EUR slightly below previous year slightly below previous year
(-0%)
Aviation Services
2,362 Group Adjusted EBIT m EUR slightly below previous year slightly below previous year (-8%)
1 Aviation Services include Logistics, MRO, Catering, Others and Consolidation
Page 34 Group Adjusted EBIT expected to be “slightly below previous year”
Segment Adj. EBIT 2017 (m EUR) Adj. EBIT Forecast for 2018
Lufthansa German Airlines 1,627 slightly below previous year SWISS 542 above previous year Austrian Airlines 94 below previous year
Network Airlines 2,263 slightly below previous year Eurowings 94 negative Logistics 242 broadly stable MRO 415 broadly stable Catering 66 significantly above previous year Other -130 below previous year Internal Revenue / Reconciliation 23
Lufthansa Group 2,973 slightly below previous year
Page 35 Capacity growth at Passenger Airlines
12% 12% Total growth incl. inorganic growth1
5% 9M ‘18 FY ‘18 9M ’18 FY ’18 4% 7% 7% 9% 8% 9% 8%
9M ’18 FY ’18 9M ’18 FY ’18 5% 6%
Landings ASK Landings ASK
9M ’18 FY ’18 1 Growth through Air Berlin insolvency
Status: October 2018
All capacity plans indicative and subject to change
Page 36 Confident outlook above all for long-haul
Europe • Yield pressure as a result of tough prior year comparison base, high industry-wide capacity growth and protection of expanded market position
Americas Asia / Pacific • Good demand expected to continue • Good demand both • Limited market-wide ways, westbound capacity growth particularly driven by should support yields leisure • Only moderate Group capacity growth will support yields
Middle East / Africa • High market-wide capacity growth • Competitive pressures will impact yields
Page 37 Fuel cost outlook and sensitivity
Fuel cost Sensitivity to Brent and currency
+850 FY 18 ~7.0 100 1.100 1.050 1.000 1.000 950 950 900 95 2019: 1.050 1.000 1.000 950 950 900 850 90 5,2 6,1 + ~900m EUR 1.000 950 950 900 900 850 850 85
(excluding volume growth) ) 950 950 900 850 850 800 800 80 FY 17 FY 18e FY 19e bbl 900 900 850 850 800 800 750 75
(USD/ 900 850 800 800 750 750 700 Hedging level 78% 78% 62% 70 Volume (m tons) 4
LH 10.2 10.9 nd 850 800 800 750 750 700 700 65 1 LH Jet fuel price (USD/t) 578 663 752 Q4 in Brent Average 2 Full Year 17 / 18 / / 18 19 / 17 Year Full EUR/USD 1.13 1.19 1.18 1.10 1.12 1.14 1.16 1.18 1.20 1.22 1.24 3 Mkt. Brent forward (USD/bbl) 55 75 80 Average EUR / USD in Q4
+300 Q4 18 100 550 500 450 450 400 400 350 95 1,6 500 450 450 400 400 350 300 1,3 90 450 400 400 350 350 300 300 ) 85
bbl 400 400 350 300 300 250 250 Q4 17 Q4 18e 80 350 350 300 300 250 250 200 Hedging level 78% 77% (USD/ 75 Q4 2018 Q4 350 300 250 250 200 200 150 Volume (m tons) 70
LH 2.5 2.7
Average Brent in Q4 in Brent Average 300 250 250 200 200 150 150 LH Jet fuel price1 (USD/t) 608 693 65 EUR/USD 1.18 1.18 1.10 1.12 1.14 1.16 1.18 1.20 1.22 1.24 3 Mkt. Brent forward (USD/bbl) 62 82 Average EUR / USD in Q4 As of 30 Sep 2018 1 incl. fuel hedging and into-plane charge 2 2017: average of realized FX rates; 2018: average of realized FX rates for 9M and spot as of 30 Sep for Q4; 2019: spot as of 30 Sep 3 2017: average of realized Brent price; 2018: average of realized Brent price for 9M and forward as of 30 Sep for Q4; 2019: forward as of 30 Sep Page 38 4 calculation based on an unchanged volume assumption Fuel and foreign exchange hedging strategy
Hedging Strategy Fuel Hedging Approach
Aim of hedging strategy 85 80 75 71 • Lufthansa's hedging strategy is designed to 66 61 56 reduce volatility 52 47 42 38 33 • No intention to outperform the market 28 24 19 14 9 • Rolling approach up to 24 months going forward 5
24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Fuel Hedging # months before actual date of consumption • Hedging level is increased month-by-month Fuel price curve remainder of 2018 until up to 85% is hedged 110 • Mostly options, not fixed contracts, to still benefit Market price: 82 USD/bbl 100 LH price: 66 USD/bbl from falling oil prices Hedging result : +16 USD/bbl 90
80 FX Hedging 70 Hedging result • Hedging of net FX exposure per currency, level is 60 increased every two or six months until 80% for 50 Hedging result next 24 months is hedged USD/barrel in paid Price 40 • Use of forward contracts 30 30 40 50 60 70 80 90 100 110 Market price in USD/barrel
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Page 40 01 Q3 / 9M Results
02 Strategy
03 Outlook
04 Appendix
Page 41 Exemplary calculation of operational airline KPIs
Network Airlines, Q3 2018 (1) Traffic revenues 5,954 Traffic Figures 1 (2) RPK 2 67,154 1 Quarterly Data.xls Yield
Q2 2018 Yield: (1) / (2) * 100 8.9
Netw ork Airlines LOGISTICS MRO CATERING OTHER CONSOLDIATON LH GROUP Profit and Loss LHP SWISS AUA Netw ork Airlines Point-to-Point 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 2018 2017 Change External Revenue 5764 5994 -3,8% 1140 1089 4,7% 652 582 12,0% 926 875 5,8% 650 656 -0,9% 166 64 159,4% 0 0 9298 9260 0,4% Traffic Revenue 3850 4062 -5,2% 1090 1081 0,8% 558 598 -6,7% 5498 5741 -4,2% 1109 1057 4,9% 621 552 12,5% 0 0 - 0 0 - 0 0 - 143 135 7371 7485 -1,5% Internal Revenue 176 174 1,1% 2 0 - 8 7 14,3% 498 424 17,5% 180 172 4,7% 86 45 91,1% -950 -822 0 0 - Total Revenue 4154 4358 -4,7% 1242 1210 2,6% 612 651 -6,0% 5940 6168 -3,7% 1142 1089 4,9% 660 589 12,1% 1424 1299 9,6% 830 828 0,2% 252 109 131,2% -950 -822 9298 9260 0,4% 0 0 Other Operating Income 115 232 -50,4% 68 45 51,1% 26 26 - 178 267 -33,3% 71 48 47,9% 6 30 -80,0% 63 81 -22,2% 17 13 30,8% 460 657 -30,0% -331 -493 464 603 -23,1% (1) Total revenues 6,426 thereof reversal provisions 34 2 1600,0% 6 3 100,0% 0 0 - 40 5 700,0% 10 0 - 2 5 -60,0% 8 6 33,3% 1 1 - 4 1 300,0% 13 -3 78 20 290,0%
thereof FX gains 41 175 -76,6% 31 24 29,2% 8 9 -11,1% 60 182 -67,0% 15 25 -40,0% 0 3 -100,0% 22 34 -35,3% 5 1 400,0% 149 269 -44,6% -48 -201 203 313 -35,1%
Total Operating Income 4269 4590 -7,0% 1310 1255 4,4% 638 677 -5,8% 6118 6435 -4,9% 1213 1137 6,7% 666 619 7,6% 1487 1380 7,8% 847 841 0,7% 712 766 -7,0% -1281 -1315 9762 9863 -1,0% 0 0 Material Costs -2170 -2323 -6,6% -641 -646 -0,8% -332 -393 -15,5% -3077 -3312 -7,1% -824 -779 5,8% -428 -395 8,4% -798 -747 6,8% -351 -364 -3,6% -71 -51 39,2% 868 765 -4681 -4883 -4,1% (2) Other Op. Income 172 Fuel -844 -764 10,5% -246 -217 13,4% -117 -104 12,5% -1207 -1084 11,3% -250 -189 32,3% -97 -76 27,6% -1555 -1350 15,2% Fees & Charges -513 -828 -38,0% -215 -216 -0,5% -105 -188 -44,1% -830 -1231 -32,6% -246 -353 -30,3% -72 -77 -6,5% -1144 -1660 -31,1% Operating Lease/ Charter -35 -35 - -29 -38 -23,7% -6 -12 -50,0% -45 -58 -22,4% -89 -93 -4,3% -200 -181 10,5% -189 -184 2,7% Other Material Costs -778 -696 11,8% -151 -175 -13,7% -104 -89 16,9% -995 -939 6,0% -239 -144 66,0% -59 -61 -3,3% -1793 -1689 6,2% Staff Costs -695 -716 -2,9% -227 -239 -5,0% -117 -105 11,4% -1039 -1060 -2,0% -165 -122 35,2% -108 -105 2,9% -360 -344 4,7% -305 -314 -2,9% -260 -268 -3,0% 3 0 -2234 -2213 0,9% D&A -203 -202 0,5% -72 -69 4,3% -31 -33 -6,1% -305 -302 1,0% -69 -46 50,0% -20 -21 -4,8% -30 -29 3,4% -15 -16 -6,3% -12 -14 -14,3% -2 2 -453 -426 6,3% Other Operating Expenses -634 -773 -18,0% -176 -149 18,1% -95 -84 13,1% -870 -970 -10,3% -150 -135 11,1% -63 -61 3,3% -189 -183 3,3% -145 -140 3,6% -429 -394 8,9% 394 521 -1452 -1362 6,6% (3) Reversal of provisions 19 thereof FX losses -46 -181 -74,6% -42 -28 50,0% -10 -7 42,9% -78 -191 -59,2% -18 -23 -21,7% -2 -4 -50,0% -27 -19 42,1% -4 -3 33,3% -164 -185 -11,4% 45 204 -248 -221 12,2% Operating Expenses -3702 -4014 -7,8% -1116 -1103 1,2% -575 -615 -6,5% -5291 -5644 -6,3% -1208 -1082 11,6% -619 -582 6,4% -1377 -1303 5,7% -816 -834 -2,2% -772 -727 6,2% 1263 1288 -8820 -8884 -0,7% Result of equity investment 10 5 100,0% 0 0 - 1 0 - 10 6 66,7% -1 0 - 13 8 62,5% 5 8 -37,5% 8 8 - 7 7 - -2 1 40 38 5,3% 0 0 0 0 Adjusted EBIT 577 581 -0,7% 194 152 27,6% 64 62 3,2% 837 797 5,0% 4 55 -92,7% 60 45 33,3% 115 85 35,3% 39 15 160,0% -53 47 -20 -27 982 1017 -3,4% Impairment losses / gains 1 0 - -1 0 - -1 -1 - 0 2 -100% 1 -1 0 -6 100% -2 0 - 0 0 - 1 12 -92% -2 0 -2 7 Effects from pension provisions 0 0 - 0 0 - 0 0 - 0 0 - -2 0 - 0 0 - 0 0 - 0 0 - 0 0 - 1 0 -1 0 - (4) FX losses -84 Results of disposal of assets 3 0 - 0 -1 100% -3 0 - 1 -2 0 0 - 0 0 - 0 0 - 0 -1 100% 0 -4 100% 1 2 2 -5 Adjustments 4 0 - -1 -1 - -4 -1 -300% 1 0 - -1 -1 - 0 -6 100% -2 0 - 0 -1 100% 1 8 -88% 0 2 -1 2 EBIT 573 581 -1% 195 153 27% 68 63 8% 836 797 5% 5 56 -91% 60 51 18% 117 85 38% 39 16 144% -54 39 -20 -29 983 1015 -3,2% Adjusted EBIT Marge 13,9% 13,3% 0,6 P.P. 15,6% 12,6% 3,1 P.P. 10,5% 9,5% 0,9 P.P. 14,1% 12,9% 1,2 P.P. 0,4% 5,1% -4,7 P.P. 9,1% 7,6% 1,5 P.P. 8,1% 6,5% 1,5 P.P. 4,7% 1,8% 2,9 P.P. 10,6% 11,0% -0,4 P.P. Result from Equity Investments 28 23 21,7%
Result from Other Equity 12 15 -20,0% RASK Interest Income 18 19 -5,3% = (5) Basis for RASK (1)+(2)–(3)+(4) 6,495 Interest Expenses -62 -75 17,3% Other Financial Items 55 -22 Financial Result 51 -40
EBT 994 937 6,1%
Minorities -10 -10 - 3 Taxes on Income -250 -187 -33,7% (6) ASK 78,340 Result from Discontinued Businesses 0 0 - Net Profit Group 734 740 -0,8%
Number of Shares Earnings per Share
Other KPIs RASK: (5) / (6) * 100 8.3 Adjusted EBITDA 780 783 -0,4% 266 221 20,4% 95 95 - 1142 1099 3,9% 73 101 -27,7% 80 66 21,2% 145 114 27,2% 54 31 74,2% -41 61 1435 1443 -0,6% Shareholder's Equity Total Assets Equity Ratio Net Debt Pensions Provisions
* Numbers in millions ** adjustments include e.g. book gains/loss, impairments, valuation of pension *** Numbers in this excel sheet are provided for service only, data and rounding errors may occur, for audited figures please see interim or annual report CC Zahlen (1) Operating expenses -5,600 (2) Reversal of provisions 19 (3) FX losses -84
= (4) Basis for CASK (1) + (2) - (3) -5,497 CASK (5) ASK 3 78,340
CASK: -(4) / (5) * 100 7.0
1 Available on www.investor-relations.lufthansagroup.com, 2 RPK: Revenue Passenger Kilometers, 3 ASK: Available Seat Kilometers
Page 42 Adoption of IFRS 15 reduces reported revenues and costs
• IFRS 15 relates to the accounting of revenues arising from contracts with customers
• Netting of revenues and related expenses required in some cases (e.g. ticket related taxes, airport fees) Context
IFRS 15 effect in 9M ’18 P&L on traffic revenue and fee expenses Revenues and costs: in m EUR ► Both reduced in absolute terms Lufthansa German Airlines -977.7
► RASK (c. –8%); CASK (c. –10%) Swiss -54.10
► EBIT remains unaffected, Austrian Airlines -232.3 thus higher EBIT Margin Network Airlines -1,264.1
Eurowings -462.3 IFRS 15 will be applied prospectively, thus no adjustment for previous years will be made.
Effect on on Group Lufthansa Effect A note in the appendix of the 2018 Annual Accounts will quantify the like for like development Lufthansa Group -1,726.4
Structural improvement of Adj. EBIT margin around 0.4 pts.1
1 Calculated for FY 2017
Page 43 Operating profit and loss statement
Lufthansa Group (in m EUR) Q3 ‘18 vs. Q3 ‘17 9M ’18 vs. 9M ‘17 • Excluding IFRS 15, “Total operating income“ would Total revenue 9,959 +1.5% 26,897 +0.5% have increased by 6.0% Other operating income 395 -31.1% 1,269 -27.4% versus Q3 ’17 (+4.9% vs. 9M ’17) Total operating income 10,354 -1.2% 28,166 -1.2% Operating expenses 9,093 +0.2% 25,938 -1.0% • Excluding IFRS 15, “Fees and charges“ would have Non-fuel operating expenses 7,394 -3.9% 21,463 -3.6% increased by 7.4% versus Cost of materials and services 5,083 +2.5% 13,847 -2.7% Q3 ’17 (+6.5% vs. 9M ’17)
Fuel expenses 1,699 +23.2% 4,475 +13.6%
Fees and charges 1,207 -30.4% 3,373 -29.6% Staff costs 2,190 +1.3% 6,529 +1.1% Depreciation 478 -20.3% 1,376 -5.8% Other operating expenses 1,342 -0.7% 4,186 +2.9% Result from equity investments 90 -8 133 -7 EBIT 1,351 -53 2,361 -74 Adjustments +3 -111 +1 -124 Adjusted EBIT 1,354 -164 2,362 -198
Page 44 Cash flow statement
Lufthansa Group (in m EUR) 9M ‘18 vs. 9M ‘17 5,0 3,4 3,8 EBT (earnings before income taxes) 2,266 -84 3,2 2,0 Depreciation & amortization (incl. non-current assets) 1,393 -56
Net proceeds from disposal of non-current assets -1 +33 FY 2014 FY 2015 FY 2016 FY 2017 9M 2018
Result of equity investments -133 +7 Operating Cash flow
Net interest 120 -81 3,1 2,8 2,8 2,6 2,6 2,4 2,6 Income tax payments/reimbursements -502 -323 2,3 2,2 2,1 Significant non-cash-relevant expenses / income -157 -18
Change in trade working capital 947 +351 FY 2014 FY 2015 FY 2016 FY 20172 9M 20182 Change in other assets / liabilities -162 -517 Gross invest Net invest Operating cash flow 3,771 -688
Capital expenditure (net) -2,619 -950 2,3 0,8 1,1 1,2 Free cash flow 1,152 -1,638
1 Cash and cash equivalents as of 30.09.18 1,261 -40 -0,3 Current securities 2,681 -2,261 FY 2014 FY 2015 FY 2016 FY 2017 9M 2018 Free Cash flow Total Group liquidity 3,942 -2,301
1 Excluding fixed-term deposits with terms from three to twelve months (2018: 248m EUR, 2017: 201m EUR) 2 Excl. cash-outs from equity
Page 45 Operating KPIs of Passenger Airlines by region
Total Q3 '18 9M '18 Europe Q3 '18 9M '18 Asia/ Pacific Q3 '18 9M '18 Number of flights +9.1% +8.7% ASK +11.3% +12.1% ASK +2.1% +4.1% ASK +7.5% +7.9% RPK +12.7% +14.7% RPK +2.9% +3.5% RPK +8.0% +8.7% SLF +1.0pts. +1.8pts. SLF -0.7pts. -0.5pts. SLF +0.4pts. +0.6pts. Yield -4.3% -3.4% Yield +1.9% -1.8%
Yield ex currency -3.9% -2.0% Yield ex currency +2.7% +1.0%
Yield -1.0% -2.1% Americas Q3 '18 9M '18 Middle East/ Africa Q3 '18 9M '18 Yield ex currency -0.6% +0.2% ASK +7.2% +6.7% ASK +5.3% +5.2% RASK -1.3% -2.1% RPK +7.0% +7.0% RPK +4.8% +6.2% RASK ex currency -1.3% +0.3% SLF -0.1pts. +0.3% SLF -0.3pts. +0.8pts. CASK incl. fuel +3.9% -0.5% Yield -0.1% -2.8% Yield +1.3% -5.0% CASK ex currency ex fuel +1.2% -0.0% Yield ex currency -0.2% +0.5% Yield ex currency +2.4% -2.2%
North America +0.7% +1.5% South America -3.9% -1.8%
Page 46 2018 regional yield1 development by quarter
Q1 Q2 Q3 Q4 H1 9M FY
Europe +0.1% -1.6% -3.9% -0.9% -2.0%
Americas -1.6% +3.0% -0.2% +1.0% +0.5%
Thereof North America -0.8% +3.9% +0.7% +1.9% +1.5%
Thereof South America -0.7% -0.2% -3.9% -0.6% -1.8%
Asia Pacific -0.3% +0.1% +2.7% -0.1% +1.0%
Middle East & Africa -6.0% -3.8% +2.4% -5.0% -2.2% Total +0.5% +1.1% -0.6% +0.7% +0.2%
1 Constant currency
Page 47 Group revenue bridge
in m EUR
Price: +1.5% Volume: +8.0% 318 -489 Currency: -2.3% -1,726 1.682
IFRS 15 adj.: -8.1% 21,360 21,145
Traffic revenue (-1.0%)
5,752 Other revenue (+6.5%)1 5,401
9M 2017 9M 2018 ∑ 26,761 ∑ Group revenue (+0.5%) ∑ 26,897
1 Including positive 270m EUR IFRS 15 effect from reclassification of LAT and AirPlus commissions from other operating income into other revenue
Page 48 Fuel cost bridge
Hedging result by quarter (in m EUR) in m EUR Q1 Q2 Q3 Q4 FY (YTD) 2017 -30 -63 -30 -123 2018 107 229 245 581
Change versus previous year
+536 Price -704 +1.288 4,475 Volume Hedging -260 3,939 +212 Currency
9M 2017 9M 2018
Page 49 EBIT and Adjusted EBIT by quarter 2018
in m EUR Q1 Q2 Q3 Q4 6M 9M FY
EBIT 27 983 1,351 1,010 2,361
pension changes +2 -1 +1 +1 +1
book gains / losses on asset disposals -3 +2 0 -1 -1
impairments gains / losses / badwill 0 -2 +2 -2 +1
Adj. EBIT 26 982 1,354 1,008 3,362
interest on liquidity
taxes (25% lump sum)
cost of capital
EACC
average capital employed
WACC
ROCE (after tax)
ROCE (after tax)
Page 50 EBIT and Adjusted EBIT by quarter 2017
in m EUR Q1 Q2 Q3 Q4 6M 9M FY
EBIT 16 1,015 1,404 875 1,031 2,435 3,310
pension changes +32 0 +9 -592 +32 +41 -551
book gains / losses on asset disposals -23 -5 -6 -3 -28 -34 -37
impairments gains / losses / badwill 0 +7 +111 +133 +7 +118 +251
Adj. EBIT 25 1,017 1,518 413 1,042 2,560 2,973
interest on liquidity +178
taxes (25% lump sum) -872
cost of capital -858
EACC 1,758
average capital employed 20,441
WACC 4.2%
ROCE (after tax) 12.8%
ROCE (after tax) 11.6%
Page 51 Lufthansa Group has access to attractive financing options
Sustainable free cash flow & high liquidity Financial strength
Lufthansa Group‘s profitability in bn EUR Full Investment Grade Rating
• Standard & Poor’s (BBB-, positive outlook) – Jun. 18
2.1 • Moody’s (Baa3, stable outlook) – Sep. 18 1.7 1.8 1.4 1.5 1.8 1.8 3.0 • Scope (BBB-, positive outlook) – Jun. 18 1.8 1.8 2.4 0.7 1.0 1.2 2012 2013 2014 2015 2016 2017 9M 18 Unburdened fleet Depreciation Adj. EBIT • ~ 85% of fleet owned owned & unencumbered vs. 15% leased Free cash flow generation owned • ~75% of fleet 17.0 bn € leased 5.0 financially unencumbered 3.8 3.3 3.4 2.8 3.2 (not used as security for financing transactions) 2.0 2.3 1.4 1.3 1.2 0.8 1.1 Attractive Debt Financing
-0.3 • Dec 2016 / Jan 2017: EUR 1.2bn “Schuldscheindarlehen” 2012 2013 2014 2015 2016 2017 9M 18 (maturity: 5, 7 and 10 years; fix and floating tranches) Operating Cash Flow Free Cash Flow • April 2017: 372m EUR aircraft financing (6 JOLs*)
*Japanese Operating Leases
Page 52 Pension system change has reduced pension deficit and volatility
Pension systematic Development of discount rate and pension deficit
• Flexible funding model Discount rate1 no mandatory funding 7% 6,00% 5,50% 5,50% • Change of accounting standard (IAS19R) 6% 5,00% 4,25% 4,50% 4,50% and decreasing discount rate has lead to 5% 3,50% 3,75% strongly increasing liabilities since 2012 4% 2,60% 2,80% 3% 2,10% 2,00% 2,10% • Current sensitivity (based on FY17 2% assumptions): increase in discount rate of 1% 50bps decreases obligation by c. 2bn EUR 0% • Change of pension system from defined 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q3 18 benefit to defined contribution model for German ground staff (new entrants) and Pension provisions Implementation 8.4 cabin crews achieved of IAS19R 7.2 6.6 5.82 • Agreement with pilots’ union: reduction of 4.7 5.1 4.8 transitional payment period and pension 4.0 3.8 2.7 change from DB to DC significantly reduced 2.5 2.4 2.6 2.2 pension deficit
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q3 18
1 for German and Austrian pensions; based on AA-rated European corporate bonds; 2 restated figures;
Page 53 Material improvement of capital returns
Average 20.441 Capital Employed 17.565 18.195 19.533
WACC 5.9% 5.9% 4.8% 4.2%
2014 2015 2016 2017 Balance Sheet Total 30,474 32,462 34,697 36,297 ./. Non-Interest Bearing Liabilities 12,890 13,657 13,657 15,646 - liabilities from unused flight documents 2,848 2,901 3,040 3,773 - trade payables, other fin. liabilities, other provisions 5,151 5,605 5,464 5,989 - adv. payments, deferred income, other non-fin. liabilities 2,103 2,141 2,121 2,281 - others 2,798 3,010 3,811 3,603 Capital Employed at year-end 17,584 18,805 20,261 20,621 Average Capital Employed 17,565 18,195 19,533 20,441 WACC 5.9% 5.9% 4.8% 4.2%
EBIT 1,000 1,676 2,275 3,310 Interest on liquidity 84 186 64 178 Taxes -271 -466 -585 -872 Cost of capital -1,036 -1,073 -937 -858 EACC -223 323 817 1,758 ROCE 4.6% 7.7% 9.0% 12.8% Adjusted ROCE 5.4% 8.3% 7.0% 11.6%
Page 54 WACC is based on a target capital structure of 50:50
Cost of Debt1 Cost of Equity2
1.7% (FY 2017) 6.8% (FY 2017)
Target Capital Structure 50 : 50
WACC: 4.2%
1 Currently no consideration of tax shield 2 Cost of Equity FY 2017 = Risk-free market interest rate of 1.2% + (Market risk premium of 5.1% x Beta Factor 1.1)
Page 55 Multi-Year financial overview
Lufthansa Group (in m EUR) 2014 2015 2016 2017
Operating KPIs
RASK ex currency -2.5% -3.0% -5.9% +1.9%
CASK ex currency, ex fuel -2.6% +2.4% -6.1% -0.4%
Profit & Loss
Revenues 30,011 32,056 31,660 35,579
Fuel Cost 6,751 5,784 4,885 5,232
Adjusted EBIT 1,171 1,817 1,752 2,973
Adjusted EBIT Margin 3.9% 5.7% 5.5% 8.4%
Balance Sheet
Total Assets 30,474 32,462 34,697 36,267
Net Financial Debt and Pension Liabilities 10,649 9,973 11,065 8,000
ROCE 4.6% 7.7% 9.0% 12.8%
Cash Flow statement
Operating Cash Flow 1,977 3,393 3,246 5,035
Capital expenditure (net) 2,274 2,559 2,108 2,782
Free Cash Flow -297 834 1,138 2,253
Page 56 Lufthansa Investor Relations Contact
Dennis Weber, Head of Investor Relations Phone: +49 (0) 69 696 28000 E-mail: [email protected] Deutsche Lufthansa AG Investor Relations / FRA CW Lufthansa Aviation Center Airportring D-60546 Frankfurt Phuc-Thi Thai, Investor Relations Manager Phone: +49 (0) 69 696 28003 Phone: +49 (0) 69 696 28000 E-mail: [email protected] Fax: +49 (0) 69 696 90990
E-mail: [email protected] lufthansa-group.com/investor-relations Frédéric Depeille, Investor Relations Manager Phone: +49 (0) 69 696 28013 E-mail: [email protected]
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