Capital Markets Day 2019
24th June 2019 Frankfurt Agenda Capital Markets Day 2019
11.00 am – 11.05 am 12.30 am – 01.30 pm 02.35 pm – 03.00 pm Welcome by Dennis Weber, Lunch Presentation Ulrik Svensson, Head of Investor Relations Chief Financial Officer 01.30 pm – 02.10 pm 11.05 am – 11.55 am Presentation Thorsten Dirks, 03.00 pm – 04.00 pm Presentation Carsten Spohr, Chief Executive Officer Eurowings Q&A Chairman of the Executive Board & Chief Executive Officer 02.10 pm – 02.35 pm 04.00 pm – 06.30 pm Presentation Dr. Detlef Kayser, First-hand Product Experience, 11.55 am – 12.30 am Chief Officer Airline Resources Simulator Experience / Cabin Training / Presentation Harry Hohmeister, & Operations Standards Product Stands / Networking Chief Commercial Officer Network Airlines 06.30 pm End of event Capital Markets Day 2019 Group Strategy Carsten Spohr, Chairman of the Executive Board and CEO
24th June 2019 Frankfurt #1 for all stakeholders – committed to drive sustainably higher returns
. ROCE doubled since 2014; further improvement through the cycle
. Free Cash Flow to exceed EUR 1bn medium-term
Shareholders . Dividend payout increased to 20% to 40% of net income #1
#THEREISNOBETTER Customers Employees #THEREISNOBETTER WAYTOFLY PLACETOWORK
CMD 2019 Group Strategy Page 2 Lufthansa Group has become a structurally more profitable company
7to1 program Key achievements Adj. EBIT margin & Adj. ROCE started 2014
Customer centricity and quality focus Lufthansa: Europe’s first 5 Star Airline
New concepts 14.2% for growth Eurowings: #3 P2P carrier in Europe ~ x2 Effective and lean organization Removal of an entire management level 7.9% Innovation and Digitalization of key operational and 7.1% digitalization customer processes
Culture and Performance culture: 3.9% leadership Bonus 100% linked to financials
Value based steering Doubling of Adj. EBIT margin & Adj. ROCE 2014 2018 Constantly improving efficiency CASK reduced in four consecutive years Adj. EBIT margin Adj. ROCE (before tax)
CMD 2019 Group Strategy Page 3 We have further solidified our competitive advantages
The strongest brands The best product The market leader The industry‘s in our home markets in Europe in key European hubs leading innovator #1
CMD 2019 Group Strategy Page 4 Lufthansa Group is increasingly focusing on its core airline business
Airline share of group Adj. EBIT Shareholders
Customers #1 Employees
78%
Network Airlines and Eurowings’ share of group profit Share vs. 2014
1 Airlines are primary investment focus
2 Portfolio review performed in 2018
3 Decision to divest LSG Cost Focus & Operational Quality
CMD 2019 Group Strategy Page 5 Shareholders
Network Airlines Customers #1 Employees and Eurowings: Two leading airline groups
Cost Focus & Operational Quality
CMD 2019 Group Strategy Page 6 In a fast growing industry, our airlines operate in Europe’s most attractive markets
GDP per capita in USD thousands Growth of European aviation industry vs. GDP [2018] [Average 2014-2018]
CH 83 6.8% NL 53 7 AT 52 6 DE 48 5 BE 47 FR 43 4 UK 43 x3.6 3 IT 34 1.9% ES 31 2 PT 23 1 CZ 23 EL 20 0 HU 16 GDP Growth RPK Growth PL 15
CMD 2019 Group Strategy Page 7 Lufthansa Group is clear market leader in its home markets
2018 market shares [by number of passengers]
Intra DACHB DACHB – EU DACHB – World 1 Unrivalled brand strength and yield premium 80% 36% 34%
2 Maximum connectivity due to largest destination network and portfolio of attractive slots
3 Strong negotiation position with key suppliers and
Market share vs. 2016 system partners
CMD 2019 Group Strategy Page 8 Our airline strategy is tailored to the decentral structure of our home market
Regional distribution of GDP in Germany*
HAM LON 1 Multiple smaller catchment areas BER require bundling of demand for intercontinental traffic DUS/CGN
2 Strong (also corporate) demand for FRA 40% decentralized point-to-point traffic
MUC STR 3 Direct competition with hubs in neighboring markets for ex-EU transfer traffic
* City codes include metropolitan area
CMD 2019 Group Strategy Page 9 Accelerated turnaround plan will turn Eurowings into a valuable asset
1 2 3 Improving non-hub Driving consolidation From growth to profits profitability in home markets 2019 - 2014 - 2016 2017 - 2018
. Refocus short-haul network Result European non-hub traffic . Increase of productivity . One AOC in Germany . Exit long-haul (shift to Network Airlines)
2010 2011 2012 2013 2014 2015 2016 . Fleet modernization
CMD 2019 Group Strategy Seite 10 Our two airline groups complement each other
Network Airlines Eurowings
1 Hub and spoke model 1 Point-to-Point model
2 Premium positioning & product innovator 2 Value positioning & lower cost
3 Moderate capacity growth 3 Focus on turnaround, renewed growth afterwards
CMD 2019 Group Strategy Page 11 Integrated business model, individual setup where value-creating
Capital allocation Full integration Fleet management, standardization & allocation
Infrastructure, procurement, fuel Resources
Customer loyalty, product design Sales & distribution
Network & revenue management Commercial
Operations standards Lufthansa SWISS Austrian Airlines Eurowings
Platform A Platform B … Platform A Platform B … Platform A Platform B … Platform A Platform B … Individual/airline specific Operations
CMD 2019 Group Strategy Page 12 “Challenging monopolies”: Competition maximizes quality and lowers costs
Purchasing Airport Infrastructure Operations Distribution
Multi-Supplier Multi-Hub Multi-Platform Multi-Channel
Airbus / Boeing Frankfurt Network Airlines / Eurowings GDS Distribution RR / GE / P&W Munich Lufthansa / Cityline Direct Distribution … Vienna SWISS / Edelweiss Zurich …
CMD 2019 Group Strategy Page 13 Lufthansa Group holds attractive market positions in its hubs
Slot allocation at group hubs
Slot share other airlines Slot share Lufthansa Group
67% 63% 68% 59%
Frankfurt Munich Zurich Vienna
Expected average growth of runway capacity until 2024: 0-1%
CMD 2019 Group Strategy Page 14 The German market has proven difficult for competitors
fly dba
/ ?
/
1980 1990 2000 2010 2020 and beyond
CMD 2019 Group Strategy Page 15 Continued consolidation will increase industry profits in Europe
2018 passenger share of top 5 airline groups in Europe and USA
Average industry EBIT margin 6% 10%
86% Top 5 Top 5 50%
Market share vs. 2008 +12pts. +19pts.
CMD 2019 Group Strategy Page 16 M&A strategy is based on clear objectives and criteria
Complementary to regional footprint ROCE accretive
Meaningful size Maintain investment grade rating
Revenue and cost synergy potential Competitive cost base which can be further leveraged in other parts of the Group
CMD 2019 Group Strategy Page 17 Consolidation is not limited to M&A
Forms of integration 1 Full toolbox available to cooperate with other airlines
Interline Codeshare JV M&A
2 Continuous optimization Low High of existing partnership models
SPA Blocked Seat Wet Lease Agreement 3 Design of cooperation tailored to the specifics of every partnership
CMD 2019 Group Strategy Page 18 Shareholders
Logistics & Customers #1 Employees Aviation Services: Every business must contribute to sustainable and profitable growth
Cost Focus & Operational Quality
CMD 2019 Group Strategy Page 19 Non-passenger businesses must offer high level of synergies
1 Leading market position
2 Structurally growing market
3 High level of synergies with core business
2018 Revenues (in bn EUR) 2.7 5.9 3.2
2018 Adj. EBIT margin 9.9% 7.2% 3.6%
CMD 2019 Group Strategy Page 20 is highly synergetic with passenger airlines
. Market leader in air cargo, global market share around 10% 1 Leading market position . Unrivalled network, based in the world third largest export nation
. Market growth of c. 3% p.a., more cyclical than other businesses 2 Structurally growing market . Demand for fast shipments increasing due to structural e-commerce growth
. Cargo offers half of its capacity through passenger aircraft bellies 3 Synergies with core business . Joint operations, consolidating cargo business of LH, LX, OS as well as EW and SN
. Expansion of strategic partnerships/joint ventures and digital transformation Strategic focus . Ongoing efficiency improvements . Flexibility to quickly adjust freighter capacity when necessary (~10% adjustment within four weeks)
CMD 2019 Group Strategy Page 21 will remain core to Lufthansa Group
. The world’s leading independent provider of MRO services, 1 Leading market position services one out of five commercially operated aircraft worldwide
. More sophisticated technology & digitalization requires specialized know-how 2 Structurally growing market . MRO market CAGR of c. 7%, above avg. growth in OEM after-sales business . LHT participating in OEM business via co-operations: c. 15% CAGR
. Privileged access to flight data and OEM IP rights 3 Synergies with core business . Airlines benefit from in-house engineering competence
. Expansion of strategic partnerships and joint ventures Strategic focus . Expansion of data-driven business models such as AVIATAR
CMD 2019 Group Strategy Page 22 Lufthansa Group has initiated a process to divest
1 Leading market position . 2nd largest provider of airline catering globally
. Average market growth of c. 3% 2 Structurally growing market . Growing importance of food & beverages: key differentiator in long haul
. Limited synergies 3 Synergies with core business . Limited capex resources of Lufthansa Group
Decision for Divestment . Decision driven by lack of synergies and our desire Strategic focus to focus even more on our core airline business . Divestiture as a whole or in parts possible . Divestiture will consider future catering supply of Group airlines
CMD 2019 Group Strategy Page 23 Lufthansa Group strengthens its focus on its core business
Initiated divestment process due to lack of synergies between LSG and group airlines
Shift of line maintenance activities to airlines to generate higher synergies and increase flexibility
Focus on creation of synergies with airlines and generation of customer value instead of expansion of third party and non-airline business
CMD 2019 Group Strategy Page 24 Shareholders
Stakeholders: Customers #1 Employees Group strategy balances the interests of all stakeholders
Cost Focus & Operational Quality
CMD 2019 Group Strategy Page 25 Sustainable management is the base for long-term success
Environment . Main focus on improving fuel efficiency
We are committed Employees Economical to sustainability . Focus on maintaining high employee #1 We consider sustainability as our motivation and engagement Sustainability “license to operate”: the base for long-term financial stability and our perception by stakeholders Social Social Environmental . ‘Help alliance’ enables people to lead a self-determined life
CMD 2019 Group Strategy Page 26 Balanced approach creates value for all stakeholders
allows
Strong financial performance & Investments in own employees & shareholder return best product
Shareholders
generates #1 improves
Customers Employees
Customer loyalty & strong revenues Customer experience
drives
CMD 2019 Group Strategy Page 27 The execution of the Group’s strategy will drive strong financial results
Market-wide infrastructure constraints improve demand/supply ratio
Best positioned to Clear focus on leverage brand, product cash flow generation and market strength Industry Converging consolidation cost position of legacy and LCCs Committed to disciplined In control of major capital allocation profitability drivers
Structural demand growth & focus on sustainability
CMD 2019 Group Strategy Page 28 Capital Markets Day 2019 Commercial Strategy Network Airlines Harry Hohmeister, Chief Commercial Officer Network Airlines
24th June 2019 Frankfurt Global market presence and new premium positioning create unique value proposition
Global Market Presence New Premium Position
Customer Business Operating Reach Flexibility Consolidation Centricity Growth Model
41k 4 Multi 30 104m Fast O&Ds Hubs Airline Integration Top Awards Passengers Processes
Commercial Development Commercial Performance
CMD 2019 Commercial Strategy Network Airlines Page 2 Three strongly positioned brands
Multi-Brand
Strong Brands Strong Positioning Network Airlines Customer recognition
Best Airline in Europe Best Business Class in Europe
#1 most trusted brand (Germany)
Aligned Business Model #5 strongest brand value growth (Airlines) Common Governance Joint Steering Recent Awards
CMD 2019 Commercial Strategy Network Airlines Page 3 Multi-Hub strategy generates benefits for customers and flexibility for production Multi-Hub
Network Airlines Multi-Hub System Commercial Benefits 549 aircraft Customer
19,000 . Maximum connectivity weekly flights . Broad range of choices 273 . Strong identification with local brand Long-haul 74 Short-haul 140 destinations Production Long-haul 31 Short-haul 108 86 countries . Increased reliability Long-haul 35 Short-haul 81 . Risk diversification 104m Long-haul 12 . Flexible capacity management Short-haul 68 Passengers in 2018
Joint commercial steering 53% transfer share as key success factor
CMD 2019 Commercial Strategy Network Airlines Page 4 Joint Ventures expand the Multi-Hub system to a global network
Multi-Hub
Multi-Hub + JVs form Network of Networks Joint Ventures
. Joint capacity management . Joint pricing . Joint product strategy A++ . Mutual market access J+ . Revenue sharing C+ JV share of long-haul revenues
S+ 70%
EUR 28 airlines 13bn >1,300 airports
>18,800 flights per day
CMD 2019 Commercial Strategy Network Airlines Page 5 Multi-Hub system offers customers maximum choice and flexibility
Multi-Hub “I would like to fly from Berlin to New York. I can select one out of 14 options that best suits my tight schedule.”
Berlin
New York
LH.com, UA.com, TXL-NYC, 16.9.19
CMD 2019 Commercial Strategy Network Airlines Page 6 Flexible commercial integration models allow quick reaction to market dynamics
Capacity Growth Rate Integration Models Own platform (existing segments)
2014¹ 2019 2029² 10% Own platform (new segments) 7.5% 5-25% . Focused growth ex hubs 5.6% 0-15% . White label platform(s) 7.6% 6-8% . Secondary platform(s)
8.2% 5-7% Growth flexibility of 3rd party platforms (new regions) +/- 3pts. 2.4% 2.3% . Capacity provider . Commercial integration 1.3% 0-1% + . Joint Venture 1.0% 0-1% . M&A 0%
¹ CAGR 2014 - 2019 EU – World, Source: Flash ² ASK growth 2019 – 2029 based on fleet orders, Source CAPA
CMD 2019 Commercial Strategy Network Airlines Page 7 Network Airlines’ business built on a diversified customer base
Revenue share by point of commencement Revenue share by segments
10% DACH Touristic 43% Rest of Europe 28% North America 12% Asia Pacific 10% 30% 50% Africa & Middle East Leisure Premium South America 4% Corporate 3% EU 10% Premium Leisure
CMD 2019 Commercial Strategy Network Airlines Page 8 Customer segmentation enables tailored products and services
Multi-Customer segments Traditional Premium New Premium Premium = Travel Class Premium = defined individually by every customer
46% Efficiency-Seeker 14% Convenience-Seeker 10% Individuality-Seeker
Business Trip Business Trip Business Trip
Short-haul Long-haul All Routes
Economy & Economy Class Premium Eco First & Business
5% Exclusivity Seeker 19% Adventure Seeker 6% Care Seeking Family
Leisure Trip Leisure Trip Leisure Trip
All Routes Long-haul All Routes
Premium Cabins Economy Class All Classes
CMD 2019 Commercial Strategy Network Airlines Page 9 Digitalization drives the perfect customer experience along the travel journey
Customer Journey
Inspiration Compare Book Plan & Get to airport Take Arrive at Get to & stay Get to airport Take Arrive at Stay Connect Get to home & Planning & Select Travel Prepare & await flight outbound flight Destination at destination & await flight return flight Home airport involved
Check-In via voice Personalized bundles Trip assistant Digital baggage service Trip related notifications Social servicing (chatbot)
Inflight entertainment Biometrics Inflight Connectivity Purchase goods with AR Experience Portal & App Seamless payment
CMD 2019 Commercial Strategy Network Airlines Page 10 Success of Premium Economy continues with roll-out of next generation product in 2020/2021
Premium Economy Class most productive cabin [revenues per square meters]
6% higher than Business Class
33% higher than Economy Class
1st Generation Premium Economy Class fully implemented on Lufthansa and Austrian Airlines
Enhanced New Premium Economy Class to be introduced on: . LH B777-9 (Q3 2020) . LX B777-3 (Q1 2021) . LX A340-3 (Q2 2021)
CMD 2019 Commercial Strategy Network Airlines Page 11 Tailored products represent our USP in a “world of commodity“ – monetarization of added value is part of our commercial success
Robust Ancillary Revenue Growth Tailored Offers & Services [in m EUR]
Flight-related Non-Flight-related Individual food offers
100% +50% New variety of seat options
Innovative retail marketplace
284 585 Dynamic ancillary pricing
2015 2016 2017 2018 2019 2022
CMD 2019 Commercial Strategy Network Airlines Page 12 We are building the foundation for a truly customer-centric retailing model
Traditional Static Offering Future Dynamic Offering
First Business Economy First Business PE Economy
670€ J
580€ Comfort C 529€ 465€ D 325€ Z 235€ P Price Price Family
. Fixed booking classes & limited offer portfolio . Efficient capacity utilization & distribution . Outdated distribution technology & inferior product placement . Tailored offers for customers & trade partners . 26 booking classes clustered with 41k O&Ds . Individual O&D price steering
CMD 2019 Commercial Strategy Network Airlines Page 13 Revenue maximization by bundling the right offers and pricing them according to the customers’ willingness to pay
Today – Static Branded Fares Future – Need based bundles & upselling structure
Economy Light Economy Classic Economy Flex BASE 100 100
1 carry-on bag Seat reservation Earlier flight Efficiency Package +50 150
Bundles Efficiency Package Plus +70 170 Snacks & 1 checked bag Priority boarding Efficiency beverages Priority lanes 1 carry-on bag Seat reservation Snacks & beverages 1 checked bag BASE 100 100
1 carry-on bag Family Package +30 130 Family Snacks & Bundles Pamily Package Plus +60 160 beverages
BASE 100 100
Rebooking Rebooking Rebooking Traveler Package +10 110
Refund Refund Refund Bundles Traveler Traveler Package Plus +30 130
CMD 2019 Commercial Strategy Network Airlines Page 14 Customer access and Multi-Channel push are key to our distribution strategy
Multi-Channel
Growing Direct Distribution Share [by number of bookings] Modern Retail Capabilities >50% . Offer and order control . Product placement 45% . Dynamic cross- and upsell
30%
Multi-Channel Reach & Interaction . Direct customer access . Own platform & digital players 2015 2018 2019 . Chatbot, voice interaction, social selling
Direct Distribution: Own platform & NDC Indirect Distribution: GDS
CMD 2019 Commercial Strategy Network Airlines Page 15 Targeted offers based on the intelligent use of data drive customer loyalty
Data Driven Approach Initiatives along Customer Journey
Product & Services
Communication
Analytics / Segmentation
ID Management (incl. permission)
Integrated Data Infrastructure
CMD 2019 Commercial Strategy Network Airlines Page 16 Europe’s largest frequent flyer program drives customer loyalty
Miles & More
35m Leading loyalty program for members 9 1 Provides direct customer access airline partners 75bn miles issued More than 2 Allows improvement of customer 270 experience 51% non-air partners € higher spend than non-members More than 3 Enables data driven business models 200 and next level airline retail 1.5m e-commerce partners branded credit cards issued
CMD 2019 Commercial Strategy Network Airlines Page 17 Our airlines’ premium positioning generates industry-leading yields
Long term unit revenue development Revenue share of premium classes
110 17% 52% +8pts. 105
100 Short- Long- haul haul 95 -8pts. 90
85 RASK [in EUR Cent] 80 -23pts. 75 8.1 7.5 6.6 70 2012 2013 2014 2015 2016 2017 2018
Network Airlines Premium Network Airlines Total Market Network Airlines AF/KLM IAG
CMD 2019 Commercial Strategy Network Airlines Page 18 Strategic initiatives will continuously increase our revenues
New capabilities Ambition 2022
1 Tailored Products Contribution to RASK 2 Dynamic Offering +3% 3 Direct Customer Access
CMD 2019 Commercial Strategy Network Airlines Page 19 Key messages
Innovative product, Multi-Hub and New Premium pricing and Multi-Brand enhances customer distribution strategy strategy optimally experience through significantly caters to specifics customer contribute to future of home markets centricity revenue growth
CMD 2019 Commercial Strategy Network Airlines Page 20 Capital Markets Day Eurowings Turnaround
Thorsten Dirks CEO Eurowings
24th June 2019, Frankfurt Eurowings at a glance: Leading point-to-point airline in home markets
Key facts Eurowings short-haul 2019 Our ambition
442 13 Focus on point-to-point short-haul Routes Bases Strengthen number one position in home markets and achieve a 140 139 Destinations Aircraft sustainably positive EBIT margin Complement Lufthansa Network >27 m >35 Airlines for joint market approach Customers NPS and value creation
Note: Eurowings short-haul excluding Brussels Airlines 2 CMD 2019 I Eurowings Turnaround Clear number one in prime European point-to-point markets
Market Share 2019 Eurowings operative fleet EW LHG U2 FR Other
DUS HAM
38% 31% 37 14 Market leader in core home bases 14% 26% High-value CGN STR catchments, e.g. 47% 41% purchasing power, corporate accounts 19 20 9% 10%
PMI PRN
Note: Capacity data based on full year 2019, inbound & outbound seats intra EU
3 CMD 2019 I Eurowings Turnaround Eurowings builds on a strong market footprint and well established commercial approach
Eurowings' capacity deployment Eurowings' commercial strengths
63% of Eurowings' 25% Loyal business customers: capacity in Share of loyalty Highest share of business customers in markets with customers # of aircraft Point-to-Point segment in home markets high market deployed 33 18 88 share >35% 111K #1 leisure and tour operator airline: 83% of Tour Ops. Profitable channel leveraging best in Eurowings' seats per week class IT solutions Profitability / 20-35% capacity in flight <20% highly utilized airports #1 in digital: Best rated Mobile App, #1 top 10 German eCommerce website Eurowings market share
Capacity focused on high share in Strong track record leveraging commercial attractive and highly utilized airports strength in wing-to-wing competition
4 CMD 2019 I Eurowings Turnaround Eurowings achieves significant yield premium
Yield premium € per passenger
89 86 9 Significant yield premium 10 77 despite strong competition 67 16 Ancillary 54 Current competitive 451 28 17 environment increases 80 76 pressure on fares 61 Fare2 37 39 Growth of ancillaries to largely offset potential future
2018 2019e yield declines
1. Exact fare and ancillary split not available for Lauda; 2. Net revenues without fees and taxes; annual reports of respective airline: EW Jan-Dec18, FR/OE Apr-Mar19, U2 Oct17-Sep18 (GBP/EUR 1,15), W6 Apr18-Mar19;
5 CMD 2019 I Eurowings Turnaround Past years' growth came at the expense of increased complexity
New Germanwings Long-haul expansion Air Berlin assets
Expansion at DUS/TXL/HAM Long-haul operations, Replace Air Berlin capacity Brussels Airlines acquisition 2014 2015/2017 2018
Market position / . Comprehensive coverage . New long-haul business . Improved market relevance of German market . Strong position Belgium position at key airports
Cost . Spill over of Lufthansa . Long-haul operations: . Heterogeneous fleet competitive- cockpit crew costs distraction and . Multiple AOCs ness . Old aircraft complexity . High integration costs
Focus on following pages
6 CMD 2019 I Eurowings Turnaround Focus on simplicity: How we manage the turnaround
Our focus 2019-2022
Business model adjustment Structural cost improvement Digital and ancillary push and dimensioning
Exit long-haul business and Reduce to one AOC in Germany Eurowings Digital focus on short-haul only Increase productivity Enhance ancillary portfolio Re-focus short-haul network Modernize and harmonize fleet Improve digital sales channels Decrease overhead costs
7 CMD 2019 I Eurowings Turnaround Exit long-haul business: Eurowings will focus on short-haul only
Refined long-haul strategy Way forward
Transfer commercial responsibility for . Focus Eurowings on short-haul long-haul business to Network Airlines business only
. Increase connectivity and benefit from . Develop detailed plan for synergies in sales, distribution and IT realignment of Brussels Airlines – . Start in Frankfurt and Munich: # of aircraft until end of Q3 2019 winter flight schedule 2019/2020 DUS #4 BRU . Present turnaround plan for #10 Realignment of Brussels Airlines FRA Brussels Airlines – #4 end of Q3 2019 . Discontinue integration into Eurowings
. Closer embedding into Network Airlines as a whole MUC #3 . Define turnaround plan for Brussels Airlines
8 CMD 2019 I Eurowings Turnaround Re-focus short-haul network: Focus network on profitable core and strict capacity discipline
Refocus network Restrict growth
Strategic . Grow in core markets via productivity and/or Apply capacity discipline: 1% ASK CAGR growth aircraft, e.g. DUS, STR, CGN, HAM core . Grow moderately in coming years markets . Defend position in strategic markets . Adapt growth per market in line with local needs
. Develop profitable markets/routes ASK development CAGR +1% Other . Review network portfolio markets . Close unprofitable smaller bases +19% . Discontinue unprofitable routes
2015 2016 2017 2018 2019 2020 2021 2022
9 CMD 2019 I Eurowings Turnaround One AOC in Germany: Reduce complexity and enable higher productivity
2018: 4 AOCs 2019 transition: 2 AOCs Way forward: 1 AOC
. Multi-AOC structure: Four own short- . One AOC per base implemented . One AOC in Germany – haul narrow body AOCs in Germany in DUS and TXL implementation starting immediately DE . Transfer of Eurowings Europe HAM DE base in MUC to a German AOC
HAJ . Sale of LGW and wetlease-back with turboprop operation DTM TXL DUS DE CGN NUE
DE STR MUC EU
10 CMD 2019 I Eurowings Turnaround Increase productivity: Improve crew productivity to competitive level until 2022
Crew productivity ambition Way forward
Situation today: Target Block hours (BH) per crew p.a. . Transfer of “CLA” pilots to Lufthansa . Low crew productivity and high complexity, e.g. 2018 530 . Reduce crew redundancies . Pilots with Lufthansa Crew redundancies . Reduce proceedings from contracts (“CLA”) and inefficient stationing by strict crew redundancies Proceedings "home base" principle Optimization: Duty days . No consistent home . Increase days of duty and daily base principle: Increased Optimization: BH/day flight hours crew proceedings 2022 750 . Implement via natural . Multi-AOC structure: fluctuation and social plans, Higher standby quota if needed
Impact (CASK) -€0.20cts. Note: Cockpit and cabin crew 2019-2022 11 CMD 2019 I Eurowings Turnaround Increase productivity: Improve aircraft productivity up to 15 percent
Aircraft productivity ambition Way forward
Situation today: Target BH / A/C p.a. . Reduce number of reserves and transitions – . Heterogeneous fleet ~3,000 >3,300 start in Q4 2019 configuration with Aircraft + 10-15% several sub-fleets productivity . Increase gauge size by (asset) 15-20% . 11 years average fleet 2019e 2022 age, with high age spread . Increase aircraft of 25 years 139 productivity of asset fleet by 10-15% and . Complex maintenance - 10-20% program fleet by 5-10% home base structure leading to inefficiencies Short-haul . Implement new in planning and execution fleet size maintenance concept – 2019 2022 start in Q4 2019 Aircraft reduction ≠ capacity reduction Impact (CASK) -€0.10cts. Note: Aircraft productivity target of 3,600 BH / A/C p.a for program fleet 2019-2022 12 CMD 2019 I Eurowings Turnaround Modernize fleet: Return wetleases and roll-over oldest aircraft
Fleet roll-over plan Way forward
Short-haul fleet 2019 Phase out 70-seat turboprops . Phase-out of 9 oldest/most . Return Dash 8 wetleases 15 expensive A320 aircraft – . Increase gauge size to lower unit cost to be completed in 2019 . Return wetleases – Reduce narrow body wetleases started in 2019 . Substitute by own Eurowings operated aircraft 9 . End turboprop wetlease – . Future focus for wetleases: Summer only beginning of 2021
. Phase-in A320neo – Roll-over of oldest own aircraft 4 in 2021 and 16 in 2022 . Today, oldest aircraft with 28 years 115 . Substitute by A320neo from Lufthansa Group order book
Impact (CASK) -€0.30cts. 2019-2022 13 CMD 2019 I Eurowings Turnaround Overhead cost: Focus on simplicity will decrease overhead cost significantly
Towards competitive overhead costs Way forward
Complexity reflected in overhead Developed target cost via . Apply target costing based costs benchmarks with LCC on benchmarks – Cost increase due to competitors completed . Expansion into long-haul business . Right-size overhead cost to . Initiate codetermination . Air Berlin integration new market focus and size of process – . Multi-AOC setup production start in Q3 2019 . Usage of external labor force . Remove complexity and non- . Reduce external labor force – value added activities until 1st half of 2020 Eurowings overhead cost: Planned development . Standardize processes and increase level of automation >30% . Optimize internal vs. external staff cost
Short-haul 2019 Short-haul 2022 Impact (CASK) -€0.15cts. 2019-2022 14 CMD 2019 I Eurowings Turnaround Eurowings Digital: Push all digital sales channels and ancillary revenues
New services and partners along customer journey Way forward
. New catering concept: Full Buy-on-Board since June 20191 . Leverage Eurowings Digital – since 2018 . Focus on entire travel chain and become a 9% leading travel companion 11% CAGR . Extend ancillary pipeline: new services, categories, partners – . Leverage and unlock ancillary revenues since 2019
. Boost sales in all direct channels 2018 2019e 2022 . Launch digital self-service features to lower costs – . Personalize and automate services Ancillary revenue per passenger in 2019
1. Except for business class
15 CMD 2019 I Eurowings Turnaround Eurowings short-haul CASK: 15% reduction until 2022
CASK in €cts. 2019 development . Short-term turnaround measures . Elimination of integration cost . €50M investment into operational stability 6.60 0.50 Higher productivity . One AOC in Germany . Productivity increase . Right-sizing short-haul 2019 6.10 0.30 measures Fleet harmonization Higher 0.30 . Pure Airbus operations productivity . Reduced wetleases 0.15 . Fleet roll-over Fleet . Reduction of reserve A/C modernization 0.15 Overhead cost Overhead 5.20 cost . Lean organization Other . Process automation
Other, e.g. . Sales channel shift CASK 2018 CASK 2019e CASK target 2022 . Further product alignment
Note: Short-haul CASK excluding fuel
16 CMD 2019 I Eurowings Turnaround Overview turnaround plan
2019 2020 2021 2022
Business model Exit long-haul business adjustment and dimensioning Re-focus short-haul network
Reduce to one AOC in Germany
Improve productivity Structural cost improvement Modernize and harmonize fleet
Decrease overhead costs
Digital and Improve digital sales channels ancillary push and enhance ancillary portfolio
17 CMD 2019 I Eurowings Turnaround Key messages
Eurowings plan is to Leverage break even in 2021 strong market position and simplify the business model for Long-term future value creation and profitability: Adjusted EBIT margin >7% . Exit long-haul business and set full focus on short-haul . Re-focus short-haul network Point-to-point . Operate with one AOC in Germany short-haul airline . Increase crew and aircraft productivity addressing the value . Modernize fleet . Reduce overhead cost to segment in home markets benchmark levels . Set clear focus on ancillary revenues Joint market approach and and all digital sales channels value creation with the Network Airlines
18 CMD 2019 I Eurowings Turnaround Capital Markets Day 2019 Resource Management & Operational Excellence Dr. Detlef Kayser, Chief Officer Airline Resources & Operations Standards
24th June 2019 Frankfurt New Board function established to optimize resource management and drive operational standards and excellence
Responsibilities and goals Current focus areas
Resources Operations standards 1. Fleet 4. Operational Excellence . Fleet . Flight Operations . Crew . Ground Operations . Fuel . Technical Fleet Management . Infrastructure . Safety & Security 2. Sustainability 5. System Partners . Operational Excellence . Performance Monitoring
3. Crew 6. Digitalization
Ensure optimal use of resources and maximize performance of operations at Group airlines
CMD 2019 Resource Management & Operational Excellence Page 2 Our fleet strategy aims at maximizing flexibility and reducing complexity
Flexibility in allocation “Corridor planning” and flexibility to shift aircraft within the Group
Flexibility in operation Increase share of smaller/mid-sized intercontinental aircraft
Flexibility in fleet size Maximize (down-)sizing flexibility
Reduction of complexity Enable fleet reallocation through standardization and reduction of aircraft types
Financial stability Respect investment limitations and actively consider used aircraft
Flexibility in procurement Modular approach and active (used) market screening
CMD 2019 Resource Management & Operational Excellence Page 3 Our fleet is flexible to react to changing market demand
Fleet flexibility [number of operative aircraft] # A/C 900 Extending 850 aircraft life 1 Ability to up/downscale 800 base case Shifting of the fleet will increase 750 planned 700 deliveries
650 2 Potential to compensate for delivery delays or irregularities 600 Grounding of of aircraft manufacturers 550 depreciated aircraft 500
450 3 Depreciated aircraft offers high levels of flexibility 350
300 2019 2029
CMD 2019 Resource Management & Operational Excellence Page 4 Reduction of fleet complexity has positive impact on costs and efficiency
Today Long haul fleet [number of aircraft types]
14 744
772
346 1 Seven aircraft types will be removed from 343 the fleet in the next decade 332 New 763 8
MD-11F 789 2 Reduction of aircraft types leads to lower 380 costs for crew training, maintenance and 748 operations 779 773
359 333 3 Newly ordered A350s and 787s are up 77F to 25% more fuel efficient than an A340 Today Phase-out Addition Mid of decade
CMD 2019 Resource Management & Operational Excellence Page 5 Standardized A320 family enables flexible fleet reallocation across the Group
Today
1 Establishment of Aircraft Specification Board has increased standardization
2 Standardization and modernization of Past: 28 A320 sub-fleets MRO-software significantly increased flexibility to allocate aircraft
3 82 A320neo & 46 A321neo ordered with common specification, short-haul order in 2020 based on one standard
CMD 2019 Resource Management & Operational Excellence Page 6 Investment in new technology is a major lever to reduce CO2 emissions
Carbon neutral growth
[CO2 in million tons]
CO2 emissions with planned fleet 40 growth based on current technology -6 million 1 Orders of new and more efficient aircraft tons CO2 p.a. 35 ensure that CO2 emissions remain at current levels
30 CO2 emissions with planned fleet growth based on new engine technology 2 Compliance with industry target of 25 carbon neutral growth beyond 2021
0 3 Increasing supply of sustainable aviation fuels may provide significant further
CO2 reduction potential 2019 21 2023 25 27 2029
CMD 2019 Resource Management & Operational Excellence Page 7 Proprietary flight school secures supply of new pilots
1 Pilot shortages in the industry make pilots a critical resource
2 Ramp up of Lufthansa Aviation Training to train 500 pilots/year
3 New Group-wide approach manages supply based on expected demand
CMD 2019 Resource Management & Operational Excellence Page 8 Operational excellence measures will improve performance and reduce irregularity costs
+15 compared to 2018 200 additional 1 More than 400 measures initiated to 37 reserve A/C mechanics improve operations quality Improved customer information +20k 2 Group targets to reduce irregularity more first wave flights on time costs (EUR 518 million in 2018)
automated 10-15% 3 Process changes will sustainably train reduction of improve our operations rebooking turnaround time 15% 5.5 mio. minutes = faster boarding 10 years process time by new processes
CMD 2019 Resource Management & Operational Excellence Page 9 First results demonstrate significant progress compared to the prior year
Technical Eurowings High cancellations in Eurocontrol arrival punctuality performance reduced by Jan-Apr 2019 up to Easter 2019 52% 5th rank +7.0pts. YTD19 vs. YTD18 from 44th in same period 2018 punctuality vs. Easter 2018
CMD 2019 Resource Management & Operational Excellence Page 10 Operational performance is increasingly dependent on the quality of our system partners
Air Traffic Control
Airports Security
CMD 2019 Resource Management & Operational Excellence Page 11 Healthy competition between the airports drives better quality and lower cost
Airports
Number of aircraft Network Airlines 1 Capacity is allocated to hubs based on Long-haul capacity, cost and quality Short-haul
Hubs FRA 2 74 Shift of long-haul capacity from Frankfurt to Munich 140 MUC VIE 31 3 Munich Terminal 2 Joint Venture best 12 practice example for airport cooperation ZRH 108 68 35 81
CMD 2019 Resource Management & Operational Excellence Page 12 Group has implemented multiple measures to drive ATC performance improvements
Air Traffic Control (ATC)
European en-route ATFM delays Reduction of sector openings due? to staff shortages at Karlsruhe Center 1 Initiatives under way to push automation 35 and upgrade technology in ATC processes
20 + 104% 30 18 25 16 2 Group supports German Air Traffic 20 14 Control (DFS) to increase productivity 12 15
Minutes in million in Minutes 10 10
8 of Number open sectors 3 Close cooperation with the Network 6 5 Manager / Eurocontrol 4 0
2
H000 H100 H200 H300 H400 H500 H600 H700 H800 H900
H1000 H1100 H1200 H1300 H1400 H1500 H1600 H1700 H1800 H1900 H2000 H2100 H2200 H2300 0 2017 2018 2017 2018 2019 June/Sep June/Sep Plan
CMD 2019 Resource Management & Operational Excellence Page 13 Pilot projects and joint initiatives improve security processes at airports
Security
Joint testing of new security lanes in Munich 1 Aim to extend new technology and optimize processes via proposed security control masterplan
2 Take over of responsibility for sub-processes in joint cooperation with airports
3 Implementation of enforced hand luggage controls to reduce screening volumes . innovative conveyor technology . optimized process design . Laptops and liquids may remain in hand luggage
CMD 2019 Resource Management & Operational Excellence Page 14 We will reach a new level of operational excellence by digitizing and harmonizing operations steering & planning processes
Operative Decision Support Use of Artificial Intelligence to enhance planning processes and implement predictive steering New levels of productivity, higher customer State-of-the-art core systems Modernization and standardization of core systems satisfaction and improved steering decisions Harmonization of processes & organization Harmonization of Group standards for processes, data and KPIs
CMD 2019 Resource Management & Operational Excellence Page 15 Operative Decision Support: Use of Artificial Intelligence to enhance planning processes and implement predictive steering
Prediction of rotation robustness Prediction of passenger availability
Flight Ops
Prediction of Ground Ops crew availability
Tech Ops Prediction of aircraft’s technical readiness
Integrated optimization algorithms enable improved steering and enhanced planning, increasing efficiency of operations
CMD 2019 Resource Management & Operational Excellence Page 16 Strategic initiatives will continuously reduce our costs
Focus areas Ambition
1. Fleet 4. Operational Excellence
Reduction of 2. Sustainability 5. System Partners operations costs
-1% to -2% p.a. 3. Crew 6. Digitalization
CMD 2019 Resource Management & Operational Excellence Page 17 Key messages
Digitization and Our fleet strategy Close cooperation the harmonization aims at with system of processes will maximizing partners is key to help us reach a flexibility while optimizing our new level of minimizing operational operational complexity performance excellence
CMD 2019 Resource Management & Operational Excellence Page 18 Capital Markets Day 2019 Financial Update Ulrik Svensson, CFO
24th June 2019 Frankfurt Group growth has gone hand-in-hand with significant profitability improvements
Number of Passengers Total Revenue & Adj. EBIT Adj. ROCE [in million] [in m EUR] 35,844 [before tax; in %]
142 15.9 14.2 129
11.0 22,283 108 110 9.3 104 105 106 101 2,836 7.8 7.1 93 5.7 6.0 4.6 77 130 1.4
2009 2018 2009 2018 2009 2018
Growth of 7% p.a. Total Revenue increased by 61%, Adj. ROCE improved to profitability brought to the next level double-digit levels
CMD 2019 Financial Update Page 2 2019 financial guidance adjusted
Passenger Airlines
Network Airlines Eurowings
Capacity Growth (ASK) c. +4% c. 0%
Unit Revenue (RASK, at constant currency) Down low-single digit Down mid-single digit
Unit Cost (CASK, at c. currency, excl. fuel) 0% to -1% -6% to -8%
Fuel (year-on-year change) +500m EUR +50m EUR Adjusted EBIT Margin 7.0% to 9.0% -4.0% to -6.0%
Non-PAX
Logistics MRO Catering Others
Revenue growth stable up mid-single digit stable
Adjusted EBIT margin 3% to 5% 7% to 8% 2% to 4%
Adjusted EBIT (year-on-year change) -50m EUR
Lufthansa Group
Revenue growth up low-single digit Adj. EBIT margin 5.5% to 6.5%
CMD 2019 Financial Update Page 3 Lufthansa Group is reducing unit costs for the fourth year in a row
Labor Agreements Fleet modernization CASK Reductions [Group airlines CASK excl. fuel, at constant currency; yoy] . Productivity and cost . Fleet roll-over 2016 2017 2018 2019 improvements in cockpit and cabin
Re-Organization Infrastructure
-1.7% . Implementation of . New agreements with -1.8% matrix organization major system partners
. Reduction of . Closer cooperation -2.5% management levels
CMD 2019 Financial Update Page 4 Full pipeline of measures to further improve unit costs
Eurowings Turnaround Fleet and Standardization Staff Productivity Gains
. Reduction of operational . Harmonization of long-haul fleet . More efficient crew staffing complexity – one AOC in Germany and rotation planning . Group-wide standardization of . Improvement of aircraft and A320 family aircraft crew productivity
Optimization of MRO Costs Ops Standardization Procurement
. Shift of Line Maintenance from . Group-wide harmonization of . Professionalization of Lufthansa Technik to Lufthansa Airlines operations across airlines procurement activities . Increasing digitalization
Network Airlines target to reduce unit costs by 1-2% p.a. Eurowings aims at a total reduction of 15% until 2022
CMD 2019 Financial Update Page 5 Further cost efficiency improvements will be enabled by LEAN culture
Mindset Leadership End-to-end view Lead by example Customer orientation Acceptance of failure Challenge what we do Transparent feedback LEAN Culture Enabling Projects Lean methods Continuous Improvement Process Management KPIs On the job Tools/Applications
CMD 2019 Financial Update Page 6 LEAN spans operations and administrative functions
Operations Admin
Lufthansa Hub Munich Procure to Pay Process
Reduce turnaround time Increase automation & process quality
Reduced delay minutes by -35% Target to double degree of automation to 60% Increased punctuality by 12% Increased transparency = Reduced costs = Reduced costs
CMD 2019 Financial Update Page 7 Balance sheet strength is a key competitive advantage
Net Debt Pension provisions Leverage [in m EUR] [in m EUR] % = Discount Rate [Adj. Net Debt/Adj. EBITDA]
2.1% 2.0% 2.0% 1.8% maximum target threshold: 3.5 8,364
3.2 5,830 5,865 6,179 5,116 IFRS 2.4 16 3,489 2,701 2,884 1.7 1.8
3,474
31 Dec 31 Dec 31 Dec 31 Mar 31 Dec 31 Dec 31 Dec 31 Mar 31 Dec 31 Dec 31 Dec 31 Mar 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019
CMD 2019 Financial Update Page 8 Investment grade ratings secure attractive financing options
Credit Ratings Gross Debt by Instrument [in bn EUR] Long-term: BBB Outlook: Stable 6.7
Low financing 1.0 Bonds costs Schuldschein 1.9 Loan Long-term: Baa3 Outlook: Stable &
Aircraft 3.8 Broad range of Financing Long-term: BBB available financing Outlook: Stable sources 31 Dec 2018
CMD 2019 Financial Update Page 9 Disciplined capex focused on enhancing capital returns
Gross Investments & Adj. ROCE [Average p.a. 2014 – 2018] Gross Investments [in m EUR] Adj. ROCE, after tax
. Capital return performance drives 15 % investment allocation 13 % 1,316 9 % 8 % 6 % 6 % . All investments must be accretive to Group Adj. ROCE 632 396 183 172 . 159 99 Higher Eurowings investments reflect unique opportunity to Lufthansa Swiss Eurowings Austrian MRO Logistics Catering consolidate the German market
- 4 %
CMD 2019 Financial Update Page 10 New Management compensation model fully aligned with shareholder interests
Base Salary Targets: . Adj. EBIT growth (42.5%) + . EBIT margin (42.5%) Short-Term Annual Bonus (STI) . Non-financial targets (15%), in 2019: Net Promoter Score (7.5%) + Targets: Employee Engagement Index (7.5%) . Adj. ROCE (42.5%) Long-Term Incentive (LTI) . TSR performance relative to DAX (42.5%) . Non-financial target(s) (15%), in 2019:
+ CO2 efficiency Pension
Targets . Minimum investment of 200% (CEO) / Share Ownership Guidelines (SOG) 100% (other Board members) of annual base salary in Lufthansa shares
CMD 2019 Financial Update Page 11 Majority of aircraft orders are for fleet roll-over
Fleet Size Fleet Additions & Roll-over 2019-2023 [number of aircraft] [number of aircraft]
795 234 202
32 763 Fleet Capex* 3.5bn 32 EUR, average p.a. 2019 – 2023
2018 2019-2023 2023 Addition Roll-over Growth
* Including aircraft/fleet, engines, cabin etc.
CMD 2019 Financial Update Page 12 Outright purchase remains primary choice for aircraft sourcing
Lufthansa Group’s Fleet Structure Outright purchase Leasing
Advantageous when aircraft Advantageous in cases of 6% is used until end of lifetime temporary capacity gaps leased Retirement of fully depreciated More expensive compared with aircraft provides flexibility debt financing
Short-term positive effect at the 763 expense of long-term cash flows Aircraft operating 2018
Preferred choice for core of Suitable option to exploit market 94% Group fleet also going forward opportunities and to bridge owned temporary capacity gaps
CMD 2019 Financial Update Page 13 Higher investments will drive structural improvement of Group profitability
Investments by area 2018 Investments 2014 – 2018 [in bn EUR] [in bn EUR]
0.5 3.8 Other 3.5 (incl. digital) . Step up of investments partly due to accounting change 2.8 2.6 2.2 . Investments expected to amount 3.8 to c. 3.6bn EUR in 2019, Gross similar level in 2020 Investments
. Increase in 2021 due to fleet modernization 3.3 Aircraft, 2014 2015 2016 2017 2018 engines and cabin
CMD 2019 Financial Update Page 14 Group targets to increase free cash flow
Free Cash Flow [in m EUR]
. Group generated average FCF 2,117 of more than 800m EUR in the past five years
1,138 . ROCE-accretive investments 834 will improve Group profitability and cash flow going forward 250
-297 Group confident to achieve > 1bn EUR 2014 2015 2016 2017 2018 of free cash flow in the medium-term
CMD 2019 Financial Update Page 15 We are committed to generate attractive shareholder returns
Dividend per share / dividend payout [in EUR] Dividend payout as a percentage of net income
18 % . New dividend policy lifts payout to between 20% and 40% of 16 % net income* 14% 13 % 0.80 0.80 . Replaces previous policy of payout of 10% to 25% of 0.50 0.50 consolidated EBIT
. New policy aims at dividend continuity
0%
2014 2015 2016 2017 2018 * Adjusted for one-time gains and losses
CMD 2019 Financial Update Page 16 Unique investment case to create value for our shareholders
Best positioned to . Brand and product strength drive sustainably high yields at Network Airlines leverage brand, product . and market strength Focus on profitable growth: capacity up c.2% p.a. at Network Airlines, c.1% at Eurowings
. Commercial strategy innovation at Network Airlines: 3% RASK contribution by 2022 In control of major . Efficiency gains & operations improvements: CASK down 1% to 2% p.a. at Network Airlines profitability drivers . Eurowings turnaround: CASK down 15% by 2022, break-even 2021, >7% margin long-term
Clear focus on cash flow . Strict ROCE focus will drive improvements over the cycle generation . Free cash flow to grow to >EUR 1bn medium-term
Committed to disciplined . Higher returns to shareholders: payout of 20% to 40% of net income capital allocation . Disciplined M&A strategy based on clear set of objectives and criteria
CMD 2019 Financial Update Page 17