ANNUAL REPORT 2017 lufthansagroup.com lufthansagroup.com/investor-relations Business segments NETWORK AIRLINES T002 NETWORK AIRLINES 2017 Change The Network Airlines segment comprises in % Lufthansa German Airlines, SWISS and Revenue €m 23,317 6.6 Austrian Airlines. With their multi-hub strategy, of which traffic revenue €m 21,538 6.6 the Network Airlines offer their passengers Adjusted EBIT €m 2,263 45.5 a premium product and a comprehensive route Adjusted EBIT margin % 9.7 2.6 pts network combined with the highest level of Adjusted ROCE % 17.1 6.0 pts travel flexibility. EACC €m 1,622 48.9 Segment capital expenditure €m 1,738 19.7 Employees as of 31.12. number 50,190 0.4 POINT-TO-POINT AIRLINES T003 POINT-TO-POINT AIRLINES 2017 Change The Point-to-Point Airlines segment is made in % up of the flight operations of the Eurowings Revenue €m 4,041 96.2 group (Eurowings, Germanwings, Eurowings of which traffic revenue €m 3,927 91.7 Europe) as well as Brussels Airlines and the Adjusted EBIT €m 94 equity investment in SunExpress. The Point- Adjusted EBIT margin % 2.3 7.3 pts to-Point Airlines provide an innovative and Adjusted ROCE % 4.2 12.2 pts competitive offering for price-sensitive and EACC €m – 63 – 49.2 service-oriented customers in the growing Segment capital expenditure €m 939 134.2 direct traffic segment. Employees as of 31.12. number 7,501 114.7 C01 Business segments’ share of Group external revenue in % Additional Businesses and Group Functions 0.8 Logistics 7.0 Catering 7.2 MRO 10.0 Point-to-Point Airlines 11.4 63.6 Network Airlines 2017 figures LOGISTICS T004 LOGISTICS 2017 Change Lufthansa Cargo is the logistics specialist in % 35.6 within the Lufthansa Group. The freighter fleet Revenue in EUR bn Revenue €m 2,524 21.1 consisted of five Boeing 777F and twelve Boeing of which traffic revenue €m 2,373 19.5 MD-11F aircraft as of the end of the financial Adjusted EBIT €m 242 year. Lufthansa Cargo markets capacities on Adjusted EBIT margin % 9.6 12.0 pts its own freighters and chartered cargo aircraft, Adjusted ROCE % 15.5 18.9 pts along with belly capacities on passenger aircraft 2,973 EACC €m 128 operated by Lufthansa German Airlines, Austrian Segment capital expenditure €m 39 34.5 Adjusted EBIT in EUR m Airlines and on Eurowings long-haul flights. Employees as of 31.12. number 4,511 – 1.2 3,005 Capital expenditure in EUR m MRO T005 MRO 2017 Change Lufthansa Technik is the world’s leading in % independent provider of maintenance, repair Revenue €m 5,404 5.1 and overhaul services (MRO) for civilian 2,253 of which external revenue €m 3,568 1.5 commercial aircraft. The portfolio covers Free cash flow Adjusted EBIT €m 415 1.0 a variety of different product structures and in EUR m Adjusted EBIT margin % 7.7 – 0.3 pts combinations, from the repair of individual Adjusted ROCE % 7.7 – 0.9 pts components to consultancy services and the EACC €m 147 3.5 fully integrated supply of entire fleets. Segment capital expenditure €m 233 7.9 Employees as of 31.12. number 21,502 3.2 11.6 Adjusted ROCE in % CATERING T006 CATERING 1,758 2017 Change EACC in EUR m The LSG group offers a complete portfolio in % of products related to in-flight service. Its Revenue €m 3,219 0.8 established LSG Sky Chefs brand, the world’s of which external revenue €m 2,556 0.2 largest network of catering facilities and its Adjusted EBIT €m 66 – 36.5 expertise make the group the market leader for Adjusted EBIT margin % 2.1 – 1.2 pts high-quality in-flight catering. The company 154.4 Adjusted ROCE % 3.9 – 2.1 pts is present at 205 airports around the world, Total Shareholder EACC €m – 17 13.3 with 198 plants and several partnerships. Return in % Segment capital expenditure €m 84 15.1 Employees as of 31.12. number 34,563 – 2.7 Key figures Lufthansa Group overview Lufthansa Group The Lufthansa Group is the world’s leading aviation group. Its corporate portfolio consists of Network Airlines, Point-to-Point Airlines and Aviation Services. T001 KEY FIGURES LUFTHANSA GROUP 2017 2016 Change in % Revenue and result Total revenue €m 35,579 31,660 12.4 of which traffic revenue €m 28,399 24,661 15.2 EBITDA €m 5,362 4,065 31.9 EBIT €m 3,310 2,275 45.5 Adjusted EBIT €m 2,973 1,752 69.7 Net profit / loss €m 2,364 1,776 33.1 Key balance sheet and cash flow statement figures Total assets €m 36,267 34,697 4.5 Equity ratio % 26.5 20.6 5.9 pts Net indebtedness €m 2,884 2,701 6.8 Pension provisions €m 5,116 8,364 – 38.8 Cash flow from operating activities €m 5,035 3,246 55.1 Capital expenditure (gross) €m 3,005 2,236 34.4 Free cash flow €m 2,253 1,138 98.0 Key profitability and value creation figures EBITDA margin % 15.1 12.8 2.3 pts EBIT margin % 9.3 7.2 2.1 pts Adjusted EBIT margin % 8.4 5.5 2.9 pts ROCE % 12.8 9.0 3.8 pts Adjusted ROCE % 11.6 7.0 4.6 pts EACC €m 1,758 817 115.1 Lufthansa share Share price at year-end € 30.72 12.27 150.4 Earnings per share € 5.03 3.81 32.0 Proposed dividend per share € 0.80 0.50 60.0 Traffic figures 1) Flights number 1,130,008 1,021,919 10.6 Passengers thousands 130,040 109,673 18.6 Available seat-kilometres millions 322,821 286,555 12.7 Revenue seat-kilometres millions 261,156 226,639 15.2 Passenger load factor % 80.9 79.1 1.8 pts Available cargo tonne-kilometres millions 15,619 15,117 3.3 Revenue cargo tonne-kilometres millions 10,819 10,071 7.4 Cargo load factor % 69.3 66.6 2.7 pts Employees Employees as of 31.12. number 129,424 124,306 4.1 Average number of employees number 128,856 123,287 4.5 1) Previous year’s figures have been adjusted. Date of publication: 15 March 2018. CONTENTS 2 To our shareholders 2 Letter from the Executive Board 6 Report of the Supervisory Board 9 Lufthansa share 12 Combined management report 13 Principles of the Group 13 Business activities and Group structure 14 Goals and strategies 20 Fleet and route network 24 Employees 25 Research and development 25 Legal and regulatory factors 26 Economic report 26 Macroeconomic situation 27 Sector developments 29 Course of business 32 Earnings, assets and financial position 40 Target achievement and overall statement by the Executive Board on the economic position 42 Business segments 43 Network Airlines business segment 50 Point-to-Point Airlines business segment 53 Logistics business segment 56 MRO business segment 59 Catering business segment 62 Additional Businesses and Group Functions 64 Opportunities and risk report 78 Forecast 83 Corporate Governance 97 Notes to the individual financial statements of Deutsche Lufthansa AG (HGB) 101 Consolidated financial statements 201 Combined non-financial report 217 Further information 218 Ten-year overview 222 Glossary 224 Chart and table overview 226 Credits / Contact Financial calendar 2018 / 2019 and Disclaimer 2 TO OUR SHAREHOLDERS LUFTHANSA GROUP ANNUAL REPORT 2017 Letter from the Executive Board The Executive Board Deutsche Lufthansa AG HARRY HOHMEISTER DR BETTINA VOLKENS CARSTEN SPOHR ULRIK SVENSSON THORSTEN DIRKS Member of the Member of the Chairman of the Member of the Member of the Executive Board Executive Board Executive Board Executive Board and Executive Board Hub Management Corporate Human and CEO Chief Financial Officer Eurowings and Resources and Aviation Services Born in 1964, diploma in Born in 1966, industrial Born in 1961, B.Sc. Legal Affairs commercial air transport, engineer, Chairman of the in Economics, Born in 1963, chartered Executive Board member Born in 1963, lawyer, Executive Board and Executive Board member engineer, member of the since 2013, with the Executive Board member CEO since 1 May 2014, since 2017, with the Executive Board since 2017, Lufthansa Group since 2013, with the Executive Board member Lufthansa Group at the Lufthansa Group since 1985 Lufthansa Group since 2011, with the since 2017 since 2017 since 2012 Lufthansa Group since 1994 TO OUR SHAREHOLDERS LUFTHANSA GROUP ANNUAL REPORT 2017 3 Letter from the Executive Board Ladies and gentlemen, The Lufthansa crane that has always symbolised our brand celebrates its 100th anniversary in this year. Such a jubilee presents a good opportunity to reflect on the past and to look into the future. Behind us lies a long, often varied and always highly eventful past, which has been defined by continuous growth and our aspiration to combine tradition and innovation. We have driven change at all times and simultaneously held on to tried and tested practices. We took the 100-year anniversary of the crane as the opportunity to freshen up our image. This is perhaps the most visible sign of modernisation at the Lufthansa Group. In accordance with this, in 2017 we concluded the most successful year in the history of the Lufthansa Group. Never before as many passengers have flown with our Group’s airlines and never before have we generated as much revenue from special and express freight. Never before has Lufthansa Technik serviced as many aircraft and never before has our catering company LSG prepared as many meals.