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Edited Transcript of LHA.DE earnings conference call or presentation 7-Nov-19 8:15am GMT

Q3 2019 Deutsche Lufthansa AG Earnings Call

Frankfurt / Main Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Deutsche Lufthansa AG earnings conference call or presentation Thursday, November 7, 2019 at 8:15:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Carsten Spohr

Deutsche Lufthansa AG - Chairman of the Executive Board & CEO

* Dennis Weber

Deutsche Lufthansa AG - Head of IR

* Ulrik Svensson

Deutsche Lufthansa AG - CFO & Member of Executive Board

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Conference Call Participants

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* Andrew Lobbenberg

HSBC, Research Division - Head of the European Transport Team

* Carolina Botacini das Dores

Morgan Stanley, Research Division - Equity Analyst

* Daniel Roeska

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* James Edward Brazier Hollins

Exane BNP Paribas, Research Division - Senior Transport Analyst

* Jarrod Castle

UBS Investment Bank, Research Division - MD, Head of the Travel & Leisure Sector and Co-Head of the Global Transport Sector Team

* Johannes Braun

MainFirst Bank AG, Research Division - Director

* Malte Christoph Schulz

Commerzbank AG, Research Division - Equity Analyst of Industrials

* Michael Kuhn

Societe Generale Cross Asset Research - Equity analyst

* Neil Glynn

Crédit Suisse AG, Research Division - Head of the European Transport Team and Global Transport Sector Coordinator

* Ruxandra Haradau-Doser

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Stephen Furlong

Davy, Research Division - Transport and Logistics Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thank you for joining the conference call of Deutsche Lufthansa AG. (Operator Instructions)

I would now like to turn the conference over to Dennis Weber, Head of Investor Relations. Please go ahead.

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Dennis Weber, Deutsche Lufthansa AG - Head of IR [2]

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Yes. Thank you. And good morning, ladies and gentlemen. Welcome to the presentation of Lufthansa Group's third quarter 2019 results.

My name is Dennis Weber, and I head up Lufthansa's investor relations activities. In today's call, our CFO, Ulrik Svensson, will review the group's performance in the third quarter and discuss our financial outlook for the rest of the year. Afterwards, Carsten Spohr, our CEO, will present a number of strategic initiatives targeted at improving profitability in underperforming businesses and exploiting further opportunities for profitable growth. He will also start the call with a short introduction.

Carsten?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [3]

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Well, thank you very much, Dennis. And ladies and gentlemen, good morning, and thank you for joining us here from Frankfurt.

As mentioned, the Lufthansa Group achieves an adjusted EBIT of EUR 1.3 billion in the third quarter of this year, something I wouldn't have expected myself just half a year ago. And indeed despite the difficult market environment, our result is only slightly below that of the previous year. After 2 weaker quarters in the first half of the year, the trend is now pointing in the right direction again. Although we continued to face major challenges in the third quarter, we held our ground well. The headwind again came from, one, the downturn in the global economy, also in our domestic markets; and the continued overcapacities in the European market. The result was massive price pressures that made it impossible for us to fully compensate the rising fuel costs with higher ticket prices.

Profits have clearly stabilized compared to the first half year. This was a result of, a, reduced capacity growth compared to the original planning; b, the initial successes of the Eurowings turnaround plan with a 40% improvement in earnings; c, the unit cost reductions of more than 2% in the third quarter, 2.1% to be exact, at the Network Airlines. And last but not least, we have improved our operational performance, which resulted in 21% reduction in the costs of flight irregularities. Based on this, we can confirm our financial guidance for the full year 2019.

The economic environment will remain a challenging one. That is something that we cannot influence. It is therefore all the more important that we do our homework and, first, continue to improve our cost efficiency; secondly, improve our performance in those business segments that are currently not covering the costs of capital; and thirdly, seize growth opportunities in areas where we are still relatively small, for example, in the touristic traffic.

I will come back to the development of the individual businesses segments and the homework in the second part of my remarks, but first, I will hand over to Ulrik, who will walk you through the financial results in more details.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [4]

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Thanks, Carsten.

Let me start my financial review with the Network Airlines, where performance continues to differ by region. Europe continues to be the most challenging traffic region. Especially in our home markets, corporate demand is under pressure and very price sensitive. Despite lower growth compared to the previous winter season, market-wide overcapacities remained also in summer. As a result of this and the economic slowdown, closing bookings were weak, continuing the trend we had witnessed over the course of the second quarter and flagged in July already.

Performance in the Americas continued to be split. The transatlantic business developed very positively also in the third quarter. Volumes and yields continued to grow, driven by solid demand on both sides of the Atlantic, especially nonpremium. In contrast to the North, South America continued to be burdened by high market-wide capacity growth and the potential and economic situation -- and the political and economic situation in Brazil.

In Asia, performance in the third quarter was not as strong as in the first half year. As expected and visible at the end of the second quarter already, China weakened due to a decline in group business, weaker corporate demand and the political situation in Hong Kong. Other Asian markets remained strong, in particular India.

Finally, the Middle East and Africa developed solidly in the third quarter, especially from a volume perspective.

Overall, better long haul performance only partly offset the pressure in short haul. As a result, total Network Airlines RASK decreased 2.2% in the third quarter and 2.8% in the first 9 months. SWISS continued to be the best-performing network airlines and kept unit revenue stable in the third quarter and year-to-date, while declines in their home markets affected Lufthansa and Austrian Airlines.

Against this backdrop, we are focusing even more on managing costs tightly. In the third quarter, we reduced the Network Airlines CASK by 2.1%, excluding fuel and currency effects. Lower personnel costs and the reduction of irregularity costs made an important contribution to this development. In addition, the negative impact from technical issues at various engine types deployed throughout our fleet was much smaller in the third quarter compared to the first half year. Fuel cost increased 16% or by around EUR 0.5 billion to EUR 4 billion in the first 9 months. The increase in the third quarter was higher compared to our expectations at the same -- at the time of our half year reporting largely because of the appreciation of the U.S. dollar.

Total adjusted EBIT of the Network Airlines declined by 23% to EUR 1.6 billion in the first 9 months, reflecting a margin of 9%. In the third quarter, profits were only slightly below the previous year largely because of better cost performance. SWISS even reported a profit increase in the third quarter, while Austrian Airlines continued to be challenged by the tough market situation in Vienna.

At Eurowings, performance differed significantly between short haul and long haul. Yields in short haul remain under pressure, although the decline moderated to 2.6% in the third quarter after a 4% decrease in Q2 and an almost 9% deterioration in Q1. The domestic business continued to be a significant drag on unit revenues primarily reflecting lower demand and high price sensitivity among corporate customers, which are disproportionately important on German trunk routes spread into the rest of the Eurowings business. Remember that Eurowings will focus on short-haul point-to-point traffic only as part of its turnaround.

The long-haul business will be managed separately, as Carsten will discuss in a minute. We will report it as part of the Network Airlines from the first quarter of 2020 onwards. In the third quarter, performance in long haul improved from a low base, benefiting from the discontinuation of low-yielding leisure routes, better performance on key North American routes operated out of Düsseldorf and the shift of the first 2 long-haul aircraft to the Network Airlines. Just a few days ago, the Networks Airlines organization took over the commercial responsibility for another 5 Eurowing long-haul aircraft. So this quarter's trend will continue or even accelerate in the fourth quarter.

As a result of the operational improvement in long haul, the shift of long haul aircraft and high single-digit growth in ancillary revenue, the total Eurowing RASK increased 3.5% in the third quarter. Just considering the short-haul business, the sole focus of Eurowings going forward, it was still down at a low single-digit rate. Unit cost in Eurowings short-haul business declined at a mid-single-digit rate, driven by significant reduction of irregularity costs and first benefits from the implementation of the turnaround plan which we announced in June, especially in the areas of crew productivity and aircraft utilization.

For the overall segment, however, unit count -- costs were flat in the quarter. Negative mix effects from the shrinkage and shift of the long-haul business, which has lower unit costs relative to the short haul, had a negative impact. In addition, MRO and charter costs at Brussels Airlines increased because of technical issues in its long-haul fleet.

Factoring in a slight rise in fuel costs, Eurowings adjusted EBIT increased by 39% in the third quarter, a clear sign that execution of our turnaround plan is starting to show success. Year-to-date adjusted EBIT decreased 6% to a negative EUR 104 million, with around half of the loss relating to the long-haul business.

Turning to the nonpassenger business. The Logistics business of Lufthansa Cargo continues to suffer from the ongoing decline of the air cargo market, especially on the routes between Europe and Asia. Despite further capacity cuts compared to original plans in the third quarter and substantially cost savings in operations administration, adjusted EBIT amounted to a negative EUR 33 million in the first 9 months.

Lufthansa Technik recorded a 10% profit growth in the first 9 months. The increase was largely due to the engine and aircraft systems divisions. Profits of the catering business around LSG amounted to EUR 93 million in the first 9 months. Profitable growth in the international business, particularly in North America, was offset by effects from the ongoing transformation of the European business.

Finally, adjusted EBIT of the other business and group functions declined by EUR 61 million year-on-year and mainly reflecting IT investments at AirPlus and in central functions.

In sum, the group's adjusted EBIT amounted to EUR 1.7 billion in the first 9 months, 30% below the prior year level. The adjusted EBIT excludes extraordinary effects based on a clearly defined set of criteria. While the net effects of adjustments had been very small in the first half year, adjustments amounted to EUR 77 million in Q3. They are largely related to the impairment of a catering joint venture primarily serving the Thomas Cook business and of long-term receivables.

Turning to the nonoperational items. The group's financial result was increased by the reclassification of U.S. hedging instruments related to the change of fixed aircraft orders into options. This effect amounted to EUR 413 million. Provisions in an amount of almost EUR 350 million made for a tax risk in the second quarter largely offsets this effect, so the overall impact these one-off items had on the 9 months net profits were limited. Those effects will become cash effective in the fourth quarter.

Turning to the cash flow statement and the balance sheet. Investments were down slightly in the first 9 months due to lower expenditure for new aircraft. Excluding prepayments for aircraft [only] to be delivered over the next few years, the decline would have been even larger.

Adjusted free cash flow including the IFRS 16 related amortization of operating lease obligations shown in the financing cash flow, it decreased 42% to EUR 685 million. Operating cash flow was down 9%, impacted by the profit decline and tax payments made in the first half year. This was [still] related to 2017 and to a lesser extent 2018, when profits turned out to be much higher than reflected in the prepayments at the time to the tax authorities.

Net debt increased to EUR 6.1 billion at the end of September. The increase was largely caused by the first-time application of IFRS 16. Considering pension provisions as well, financial leverage increased by 1.2 points to 3.0 at the end of September. 1/3 of the increase was due to IFRS 16. Another 0.5 points related to a significant increase of pension provisions. Pension provisions reached EUR 7.9 billion at the end of the quarter. The increase was a consequence of the market-wide interest rate decline, which meant that the discount rate dropped from 2% at the end of 2018 to 1.1% at the end of September. Every 0.5 percentage points decline increases the pension obligation by around EUR 2 billion. However, plan assets showed a positive performance, limiting the provision increase.

In this context, let me highlight 2 important points. First, we changed almost all pension system in the group to defined contribution plans in the last few years so the deficit will not grow structurally. Second, the growth of pension provision doesn't impact operating profit and cash flows, as the year-to-date performance demonstrates. Because of the absence of funding requirements, cash outflows will remain limited to payments to current retirees as well as mandatory contribution to planned assets related to defined contribution plans. Service costs and contributions were even below the prior year level in the first 9 months due to one-off effects in the prior years.

Before concluding my remarks with our financial outlook, let me review our expectations for capacity growth in our relevant markets in the upcoming winter season. In European short haul, we expect capacity offered in our home markets to decline 1%. Market-wide seat growth in our key long-haul markets will be very moderate too, although the flat outlook for the North American routes is partly driven by the retreat of the low-cost competitors. Growth of the flag carriers on this route is projected to be around 4%.

Looking at our key hubs specifically, we are encouraged by the fact that the capacity of low-cost competitors is set to shrink. In Frankfurt, we expect them to offer 31% less capacity compared to the prior winter season. Declines in Munich and Zurich will amount to 20% and [13%,] respectively. In Vienna, low-cost capacity will continue to grow also in the winter but at far more moderate pace compared to previous seasons. This is proof of success of our strategy to offer high frequencies and attractive leading fares, especially on contested hub-feeder routes. We will continue this strategy based on a route-to-route approach, [the adoptions] possible on routes when competitors are retreating.

The positive capacity trends support our confidence to achieve our full year targets despite a deterioration of economic conditions in our home markets. We forecast the group adjusted EBIT margin to reach 5.5% to 6.5% in 2019, reflecting an absolute adjusted EBIT between EUR 2 billion and EUR 2.4 billion. For the Network Airlines, we expect the regional trends I discussed to continue also in the year -- into the year-end. The outlook of a 7% to 9% margin, therefore, remains. It remains unchanged despite the expectation of a slightly higher fuel cost increase compared to previous expectations.

For the group as a whole, we expect fuel -- total fuel cost to increase by around EUR 650 million, including a decline in the Logistics business where fuel costs are not hedged and directly passed on to customers. We expect the group's fuel cost to increase slightly also in the fourth quarter primarily because of the strengthening of the U.S. dollar. In 2020, however, fuel costs will remain broadly unchanged to 2019 levels based on our current hedging position. Keep in mind, however, that this expectation may change even though we have hedged more than 7% of our exposure. This is because our hedging strategy is based on options and not forwards.

At Eurowings, we update the RASK and CASK outlook for the upcoming shift in the long-haul business, which had not been reflected in the guidance for the segment yet. Unit revenues are forecasted to decline at a low single-digit percentage rate in the full year now. Unit cost by 4% to 5% and the outlook of a negative 4% to 6% margin remains unchanged. However, we have lowered our expectations for the Logistics business based on performance in the first 9 months and the outlook for an ongoing challenged market environment. We expect the segment to achieve between 0% to 2% operating margin based on a mid-single-digit revenue decline. Finally, we have updated the revenue outlook for the MRO and catering business for the appreciation of the U.S. dollar. In both cases, the margin outlook remains unchanged.

Investments are expected to amount around EUR 3.6 billion in 2019. Around 90% of total investments will relate to aircrafts and engines. Given the long-term nature of aircraft orders, we are currently reviewing the phasing of future aircraft deliveries considering the present outlook of more muted market growth compared to historical levels. With regard to the short-term investment outlook, we no longer expect to receive the 4 Boeing 777s scheduled for delivery next year on time, so investments will decline in 2020 compared to 2019 levels.

With this, let me hand over to Carsten, who will update you on our strategy agenda.

Carsten?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [5]

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Yes, thank you, Ulrik.

And I would like to continue on the financial outlook just presented by Ulrik. Let me start by telling you about our measures to strengthen the business segments which have to improve their profitability. I would then like to talk about our strategy for the future development of the group; and finally, conclude with a topic that has been in top of mind for us for quite some time, the responsibility for our environment we are living in.

Well, let me start with Eurowings, where turnaround is showing first signs of success, particularly in this third quarter. Earnings are up nearly 40% compared to the third quarter of 2018. This shows that signs are moving in the right direction. Our operational performance is also at a consistently good level through the current financial year. Eurowings is one of the most punctual and reliable airlines in Europe by all statistics available.

The capacity discipline of Eurowings is set to continue. We will grow modestly during the next [1, 2 years]. The capacity in 2020 will even be below that of 2019. However, central to the Eurowings turnaround is the reduction of operational complexity and cost. And the expansion course of the past years and obviously the integration of parts of Air Berlin have come at the expense of efficiency. Especially in Germany, we were and, to a certain degree, we still are too complex. In order to change that, the business model at Eurowings will focus on its core point-to-point traffic on the European short-haul routes.

The commercial responsibility for the long-haul routes will be transferred in full to the Network Airlines at the turn of the year. The discontinuation of unprofitable routes and the phase-out of older aircraft has allowed Eurowings to increase its productivity by 6%. In addition, we have also defined numerous measures to reduce fuel costs by 15% until 2022. We are already expecting a positive result for Eurowings by 2021, though. The long-term goal is and remains a profit margin of more than 7%.

Ladies and gentlemen, in this context, let's take a look at our home markets. Germany and Austria in particular are currently the scene of a completely irrational price war. Competitors in the lower-price segment are operating with irresponsible offers and losing many millions per aircraft in the process. I will say it again: Tickets for EUR 10 turned our industry into a target for criticism and that's rightly so. In addition, this artificially created demand blocks our airspace which is already operating on its capacity restrictions, and nevertheless, of course, we will not allow our competitors to force us out of our home markets. They may have succeeded with this tactic in other European countries with weaker home carriers, but they certainly will not succeed against us.

The capacity reductions of our low-cost competitors at our hubs in Frankfurt, Munich and Zurich for the current winter schedule show how successfully we are standing our ground. It is also in the interest of our shareholders that we strongly defend our home markets because they are amongst the strongest economies in Europe and the world, and our leading position in these markets is the basis for sustainable value creation of this company.

Let's turn to Austrian Airlines, which is currently facing the toughest competition, with Vienna Airport fiercely contested. Next year, 32 low-cost aircraft will be flying out in -- of Vienna, in addition to our group airlines. As in Frankfurt, this is partly also the result of fee initiatives of the local airport. As a result of this, Austrian Airlines and Eurowings are repositioning themselves in Austria and working together more closely. Their common goal is to strengthen the Vienna hub and expand the central traffic. Austrian Airlines will thereby assume the full commercial responsibility at Vienna Airport for all flights.

The drive to 22 -- sorry, #DriveTo25 strategy program is being consistently implemented. This includes the start of the fleet restructuring process this year. The 18 turboprop Dash 8-400 aircraft will be replaced by 10 Airbus 320s by 2021. And in addition, Austrian Airlines is working on significantly reducing costs in all areas. Further details will be announced today in Vienna. And in total, as of '21, the airline plans to save an additional EUR 90 million.

Let's turn to Brussels Airlines, which has grown by an average of 10% over the past 4 years. That indeed came at the expense of profitability. The company will now be restructured with a reboot program. As of 2022, Brussels Airlines plans to achieve an adjusted EBIT margin of 8%. In order to accomplish this, Brussels Airlines will significantly lower unit costs and reduce administrative expenses. The decision to integrate Brussels Airlines commercially into the Network Airlines also will create further synergies.

In addition to these earning improvement measures, we are working on the development and expansion of the airline business. This includes in particular the expansion of our touristic segment. The increase in demand in this area is especially strong. And the transfer of the Eurowings long-haul routes to our hubs in Munich and Frankfurt means that we will be introducing another product line with presently 11 aircraft on the long-haul touristic routes. This will allow us to open growth opportunities. And we are bundling our long-haul offer that way and flying to new destinations as -- Barbados or Anchorage.

The Lufthansa feeder flights will allow our passengers to easily connect to these flights operated under the Eurowings brand. The commercial responsibilities for this operation will be integrated into Network Airlines' organization, and we are therefore transferring a business model now to Germany that has been functioning very well with SWISS and Edelweiss for many years in Zurich. The combination of a hub airline, on the one hand, with a lower-cost operating long-haul touristic airline is a profitable addition to our route network, as we have proven in Switzerland for quite some years now.

Ladies and gentlemen, we're not only investing in a -- new destinations for our customers but also in the improvement of the travel experience. We are modernizing the cabins and the seats in all classes. We're increasing our lounge capacities, and we are tailoring our offers even better to customers' demands. We will also continue to expand our digital services to this end. As of 2020, for example, we will have a consistent noncontact biometric product in Munich, which will save time and money.

Ladies and gentlemen, I would like to talk about our other business segments. The development here was inconsistent. As Ulrik already mentioned, Lufthansa Technik was able to increase its earnings by 10% in the first 9 months and showed a very strong performance. The freight business developed differently. After 2 exceptionally successful years at Lufthansa Cargo, the volatility of the airfreight market is once again coming to light. The general political climate but, above all, the trade conflicts between China and the United States and the uncertainties regarding Brexit have had a great impact on demand.

However, during the past years, Lufthansa Cargo has positioned itself very well and is able to react swiftly and very flexible to these short-term shifts. We are further harmonizing our fleet even faster than previously planned. All of the MD11 freighters will now be retired by the end of 2020. From that point forward, Lufthansa Cargo will operate with a standardized fleet of 9 Boeing 777 freighters only. This will allow us not only to improve our cost efficiency; this is also good news from an environmental perspective.

Turning to LSG. The divestment process is going according to plan. In the first step, a contract for the sale of the European business should be signed by the end of 2019. The divestiture of the non-European business will then follow in 2020. I can assure you that we have, as always, the interests of all stakeholders in mind here. We are firmly convinced that LSG and its employees will have better prospects for the future after its sale and the resulting new ownership structure. Employees will benefit from the targeted investments of the new owner, whose core business will be catering. Our investments in the Lufthansa Group are focusing much more strongly on the airlines in the future. And we also expect a better onboard product for our customers as a result of the sale.

Ladies and gentlemen, a balanced business model determines for many years our actions in all areas. In addition to the interests of customers, shareholders and employees, we increasingly consider the balance between society and the environment. Our famous triangle now has an additional dimension. I would like to talk about our responsibility to protect our environment in a little more detail.

Even if the aviation industry's share in global CO2 emissions only accounts for 2.8%, we still feel obliged to do even more for climate protection. We would like to grow carbon-neutrally, reduce plastics onboard and support the development of alternative fuel production. This year, we will again invest over EUR 3 billion in the modernization of our fleet. Every second week, we receive a new aircraft that reduces CO2 emissions by up to 25% compared to its predecessor. This gives us the greatest possible short-term leverage to fly with a little -- with as little an impact on our environment as possible.

In addition to many other initiatives, we are increasingly investing in the development of alternative fuels such as synthetic fuels because they are indeed the only realistic option for largely CO2-neutral flying in the mid and long term. The individual passenger also has the opportunity to contribute by using the options that we offer for CO2 compensation. In addition to the known and existing CO2 compensation choices, Lufthansa and SWISS will be the first airlines to offer their customers the offset of their CO2 consumption, by refueling their flight with sustainable alternative fuels, via the Compensaid online platform. This will allow our customers to fly as climate neutrally as technically possible if they wish so. Waste and plastic [avoids] onboard also play a key role in our sustainability measures. The aim is to reduce over 50% of today's disposable plastic or replace it with more sustainable products by '21.

As you can see, we are doing a lot. However, our progress would be even faster if more funds were channeled into the development of CO2-neutral fuels or in intermodality where ultra-short flights can instead be operated by railway. We have just expanded our express railway product from and to Frankfurt airport, and we are definitely interested to do more in this field.

But therefore, politics must ensure that the increase in the air traffic tax is used for climate protection. Otherwise, the customer will only be burdened without any effects on the environment. The German air traffic tax already has a volume of EUR 1.2 billion, and the reform will see it increase to almost EUR 2 billion. Imagine what one could accomplish with this amount were it to be used for targeted investments. If these funds would be invested in the development of synthetic fuels, large-scale industrial production would be conceivable within 5 years.

Ladies and gentlemen, in summary, I would like to conclude that the Lufthansa Group performed indeed well in a very, very challenging environment. However, it is also clear that we need to further increase our earning levels, and we will. We will do our homework, especially on the cost side. We will open up new markets and tap growth potentials that are available to us, and we will continue to develop the group in a sustainable way and place it on stable foundations also for the future.

With these measures and projects we pursue one goal: to keep the interests of our customers, staff and shareholders as well as the society and environment around us in balance. We want to be the #1 choice for all stakeholders. So that's the only way that we can maintain our successful course in the long term.

And with that, ladies and gentlemen, Ulrik and I will now answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of James Hollins with Exane BNP Paribas.

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James Edward Brazier Hollins, Exane BNP Paribas, Research Division - Senior Transport Analyst [2]

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Actually just 3 for me, please. The first one is on Alitalia. There's been no mention of this, but there's been an enormous amount of mentions you were about to invest 100 -- EUR 200 million in Alitalia. I was wondering if you could confirm on record that you're going to stick by your policy of only investing in Alitalia if it were fully transformed first, i.e., it's not going to happen.

Secondly, on full year '20 capacity, can you give some guidance on where we are both in Network Airlines and Eurowings? I think you said Eurowings is down but if you could quantify that. And adjunct to that, what you'd expect CapEx to be. It sounds like -- should we be thinking about EUR 3 billion or less?

And finally, maybe just to get an update on the UFO discussions. I think you had a meeting with them yesterday, and in fact all unions. What are the chances, after that meeting, of these strikes disappearing, which were impacting today and tomorrow?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [3]

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Thanks. I will do the first and the last. Ulrik will answer everything in-between. On Alitalia, our position has not changed. We have said numerous times we're not interested to invest into the current Alitalia, but we are interested to look at a restructured, new Alitalia if it makes sense to us and our shareholders, our staff and our customers due to the importance of the Italian market. So nothing new on this, as I stated.

On UFO there is something new indeed. We had a good talk yesterday with the 2, let's say, competing initiatives we have [vying] for the votes of our cabin staff. And after that meeting, we informed the public this morning that we are now willing to talk to all 3 of these groups, including UFO. And the aim is to -- indeed to find an agreement with UFO on the arbitration process which they offered yesterday.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [4]

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Okay. Looking at capacity into 2020. It will be around the same numbers as we indicated in connection with our Capital Markets Day. We are speaking about 2% to 3% for Networks Airlines. And in terms of Eurowings, indeed it is going to be a reduction. It is too early to say or to give you more a clear guidance, but it will be a mid-single-digit decline for 2020.

In terms for CapEx, yes, we estimate to have around EUR 3.6 billion in CapEx this year. It will be a number of EUR 100 millions lower in 2020, but it will not be below EUR 3 billion, as your question was. It's more likely to be around EUR 3.2 billion, something like that.

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Operator [5]

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The next question comes from the line of Jarrod Castle with UBS.

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Jarrod Castle, UBS Investment Bank, Research Division - MD, Head of the Travel & Leisure Sector and Co-Head of the Global Transport Sector Team [6]

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Three as well. Will there be any write-downs of the MD11s as you phase them out? Or are they fully depreciated, firstly? Secondly, it seems like some good progress with regards to the catering disposal in Europe. Any other thoughts about any other divisions such as either through disposals or demergers such as MRO, for instance? And then lastly, you're transferring the long haul from Eurowings into the network. Can you talk about how profitable that business is or isn't at the moment; and if it isn't, how long it will take to achieve profitability?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [7]

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Yes, thank you. I'll start with the last two. After the current known initiatives to sell off LSG, there is indeed no other current plans on portfolio adjustments. Obviously, we always look at our portfolio as you would expect us to do, but no plans. On the long haul, it's no secret that we are not making money currently on the Eurowings long haul, but indeed we believe that after a transitional year in 2020 we'll be able to make money in '21.

MD11, Ulrik will refer to.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [8]

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Yes. MD11, there will be some further [repairments] in 2020 when we are ultimately phasing out these aircrafts, and we are in the tune of around EUR 60 million.

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Operator [9]

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The next question comes from the line of Daniel Roeska with Bernstein Research.

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Daniel Roeska, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [10]

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Three, if I may. I'll stay on consolidation for the first one. And could you comment a little bit on Condor and what you see going on, kind of what the options for that airlines -- or airline are and how you would think about it? Looking at your intensified, let's say, efforts to pivot towards more leisure travel, it would seem that Condor could have quite some interesting capabilities you could use in the group. So any chance for Condor ending up with Lufthansa? And how would you think about somebody else like Wizz or so grabbing them?

Secondly, is it right to say that kind of more parts of the Eurowings Group are now being controlled again by kind of the individual larger organizations throughout the Lufthansa Group? If I understand, understood you correctly, there is also some parts in Vienna moving over to Austrian's control. And what does that do kind of to the Eurowings setup within the group in the medium term if kind of bits and parts are moving away from that entity?

And then a technical question maybe for Ulrik: If that's the case on Eurowings and more and more is being controlled kind of not by the Eurowings people out of Cologne but other parts in the group, are we to expect some changes to reporting again kind of reflecting that strategy change also in the numbers?

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [11]

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Yes. So starting with the reporting question. No. Clearly, Eurowings will indeed be a separate reportable segment going forward but, of course, only short haul, as we said. The short-haul business in itself on, of course, a much smaller business than we discussed a couple of months ago is indeed very much run by the Eurowings management. So I think it's more on the long haul side where you are seeing what you were alluding to.

In terms of Condor and as we said in the Capital Markets Day, there are many reasons why we didn't already in spring acquired Condor. It's a low-margin business. It has large CapEx in front of itself. And of course, for cartel issues alone, we could not buy Condor as it stands today.

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [12]

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I guess, your question, is there more, whatever, commercial impacts of other parts of the group on the Eurowings capacity: that was always in line with how we've positioned Eurowings. We said this is a second-tier lower-cost production. And we use it in those markets where the higher-cost premium Lufthansa brands, Austrian or SWISS, cannot make money. So I think this is an ongoing process because also market change, but indeed the philosophy has remained the same.

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Operator [13]

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The next question comes from the line of Stephen Furlong with Davy.

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Stephen Furlong, Davy, Research Division - Transport and Logistics Analyst [14]

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Three for me. Can I just go back to Eurowings? And well done on it seems like capacity reductions are certainly helping, but -- for you and the market, but I think you said, Ulrik, mid-single-digit decline in 2020 or maybe something like that. But do you have the ability, if needed, just to keep doing capacity reductions if that's what it takes, maybe frequency reductions, to get the business to profitability and then up to positive margin development?

The second thing, just a general question. I wanted to ask Carsten on basically consolidation again, but maybe just have a comment on Latin America, IAG, Europa and just that market.

And thirdly, I just wanted to ask about MRO because I know you said at the Capital Markets Day no one asked a question on MRO. So another good performance today. Maybe just talk about your views of that market and that business over the next couple of years.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [15]

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With, so starting with Eurowings. The major drivers for the Eurowings turnaround going forward is the self-help in terms of cost reductions. It is not that we're going to decrease the size of this business. I mean then we have a very little fleet but that little fleet is actually making nice margins. That is not the case. It is taking out complexity, increasing the productivity of both aircraft and the people and reducing irregularity costs as we already have seen here now in Q3. So that is the main driver for it. It's not actually the capacity reductions into 2020.

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [16]

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Yes. Stephen, on your question pointed towards me, Latin America. As you all know being experts, historically due to the Northerly positioning of our hubs, we never had the exposure to the Latin American market as our friends in Spain, in France or in the U.K. have. So of course, we watch with interest what's going on there, but this is not as strategically important to us as it is to our main European competitors.

Nevertheless, of course, we grab opportunities like the recent opening of Munich, São Paulo or our cooperation with Avianca. And indeed, an announcement just a few days ago on Air Europa. You know my view. Overall, what our industry needs in Europe is consolidation. So we welcome consolidation moves. A particular one raises obviously very interesting questions on the regard of antitrust. So our lawyers have to look at that not only here in Frankfurt but also in Brussels and Madrid.

MRO, indeed another good quarter, as we announced. Industry, as you all know when it comes to the OEMs, is running on its limits of production capacity, of innovation, of technology. And that alone, I think, shows that our unique positioning in that market is the USP of the Lufthansa Group. We're expanding there all over the world. The more complicated airplanes get, maybe even sometimes too complicated for the OEMs, they surely are too complicated for many airlines. And that's where Lufthansa Technik has its strategic positioning to take advantage of.

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Operator [17]

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The next question comes from the line of Ruxandra Haradau-Doser with Kepler Cheuvreux.

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Ruxandra Haradau-Doser, Kepler Cheuvreux, Research Division - Equity Research Analyst [18]

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Three questions, please. Can you provide some indications on regional premium traffic trends? I think your joint venture partner expects the premium cabin to underperform the economy cabin over the Atlantic in Q4. And Air France-KLM seems to be more cautious on premium traffic as well.

Second, what was your experience with the aviation tax in Germany when it was initially introduced? To which extent were you able to pass it over to your passengers in the first year.

And third, I'm a little bit surprised by the nonfuel cost performance at Eurowings in Q3. Could you please give us a breakdown between the nonfuel cost performance at Brussels Airlines and the rest of Eurowings in Q3?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [19]

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So I'll start with aviation tax, so Ulrik has time to look at the numbers for your specific questions. Most -- well, first, the ability to pass on any tax depends on the market situation. So in those years where the market was tight, we were able to pass it on. When there is overcapacity, there is less a chance to do so.

But if you look at the overall impact the aviation tax increase have -- will have, my view is it will somehow dampen demand in total, but the relative positioning of the low-cost carriers will be hurt more than Lufthansa with its high share of premium and business traffic. So there will be light and shadow of that political decision for us as a company. Our view on a political level, that money should go to really issues which reduce the impact on the environment you heard me speaking about before.

And I will now turn to Ulrik for the premium traffic development on the North Atlantic and the cost differences between Brussels and Eurowings.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [20]

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Yes. So starting with the North Atlantic. As you saw in the third quarter, we are still seeing good increases in our yields moving over the North Atlantic, but they are not as strong as they were in the first half year. And so the trend is indeed trending downwards, but we do expect it still to be positive in going forward in the fourth quarter. And that refers to both the premium and in our economy cabin.

In terms of the cost trends splitting up, as in splitting up Brussels and Eurowings: Clearly, the benefits you are seeing here in Q3 is very much coming from Eurowings, while at Brussels Airlines we actually have seen costs going up. I was alluding to some of them. They were MRO costs. They were charter costs because of technical problems in their long-haul business. So actually, in the quarter, it was going -- the two were going in totally separate directions.

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Ruxandra Haradau-Doser, Kepler Cheuvreux, Research Division - Equity Research Analyst [21]

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Could you please give us some trends in terms of premium traffic also to the other regions?

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [22]

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Yes. So in starting with Asia. We are -- for example, to China, as I already indicated in Q2, we are seeing weakening of the trends, of course, very much driven by the trade war in the world. In terms of Europe, clearly, as I also indicated in Q4, corporate demand is weakening due to different cost-saving programs among large customers. So the best region from a premium demand is actually the North Atlantic and the American business.

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Ruxandra Haradau-Doser, Kepler Cheuvreux, Research Division - Equity Research Analyst [23]

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Maybe one more question on Europe. Comparable basis for short-haul yields in Q3 was significantly weaker than in Q2, but short-haul yields at constant currency declined more in Q3 than in Q2. Given the capacity declines that you highlighted in your hubs during the winter flight schedule, what kind of short-haul yield performance should we expect in Q4?

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [24]

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We still expect a negative short-haul yield decline in the fourth quarter. Of course, we have 2 important factors working here. We have the capacity reduction of the low-cost competitors in all hubs, except Vienna, at the same time as we have the balanced effect of a more deteriorating macro. So of course, it's very difficult to say which one of these 2 is going to be strongest, but we expect the trend to continue in the fourth quarter.

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Operator [25]

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The next question comes from the line of Michael Kuhn with Societe Generale.

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Michael Kuhn, Societe Generale Cross Asset Research - Equity analyst [26]

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A few follow-ups. Firstly, again on the strike, can you quantify the cost impact there? And also in relation to the strike, I think one major issue in the negotiations with UFO over recent months was that you doubt their power -- or their right of representation. Is that an issue for the proposed talks? Or can you somehow overcome that, let's say, legal issue?

Secondly and again more, let's say, globally, on premium versus economy. Was premium still outperforming economy cabin in the third quarter? Or does, let's say, the weakening corporate demands indeed result in an overall outperformance of the economy cabin?

And then last but least, and that was also a topic raised by other airlines, clearly you're lobbying a lot, let's say, for, say, not being burdened too much by additional eco tax, et cetera. Still, again and again we see those taxes rising. Do you expect that to change at some point? And when could we maybe see some more political support for your industry?

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [27]

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Yes. So maybe I'll start with the financial ones and then Carsten speak about the more strategic one. So starting with the strike side. Typically, we say that this kind of strike cost between EUR 10 million and EUR 20 million per day. Now it makes it a bit more difficult, of course, that we had [won] strikes earlier, last week. We are having rumors in the market about more strikes from Eurowings today. Even if these are only rumors, they are indeed impacting our bookings. So it is, as we stand here today in the middle of it, very difficult to say what this will, in all and all, cost us. So that's something we have to come back to. In terms of global premium versus economy demand, it is the non-premium business which is outperforming the premium business as we see it today.

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [28]

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Michael, on UFO. Well, obviously only after last night's summit we now have decided to reenter talks. Therefore, this is a very young process, and this process kicked off today will take time. And during that process, we are confident to find a way to overcome the existing legal issues while finding a way to an arbitration, which we announced this morning.

On taxes and political support, I'm not that optimistic that aviation will come out of the focus even though we all know it's only 2.8%. But I have hope for 2 things, that there is more rational views on where aviation and money going in and out of aviation can really lower the impact on the environment, my favorite topic being synthetic fuels. And also in the relative positioning of Lufthansa, this probably is hurting our competitors more than it hurts us. So they are the 2 more optimistic views I have, overall focused on the industry. I think it will continue, though.

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Operator [29]

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The next question comes from the line of Neil Glynn with Crédit Suisse.

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Neil Glynn, Crédit Suisse AG, Research Division - Head of the European Transport Team and Global Transport Sector Coordinator [30]

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If I could ask 2 questions, please, both with respect to the short-haul business. Just firstly, on the Eurowings side. And I noticed that the net FX gains were up EUR 28 million year-on-year in the third quarter, which accounted for, I think, about half of the year-on-year gain at Eurowings. Just interested. Can you give us some flavor as to whether that was long-haul or short-haul led or how that splits between long haul and short haul so that we can understand the underlying ex-currency developments a little better?

Then also with respect to short haul but on the Network Airlines side. Obviously, Eurowings, the short haul performance gets a lot of attention. And you highlight the low-cost carrier capacity coming out of your hubs, which is clearly going to be helpful, you would expect. Looking at the yield performance year-to-date at Network Airlines, I can calculate a few hundred millions of euro drag on revenue and presumably EBIT on short haul within the Network Airlines. And it just prompts the question for me: Over time, can that short haul part of the Network Airlines piece get closer to breakeven, which could be quite helpful in terms of thinking about the margin potential of Network Airlines?

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Unidentified Company Representative [31]

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Short-haul.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [32]

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Yes. So starting with the Network Airlines yields. Clearly, this year, the yield drag has been quite substantial, but this is still a positive business. So it's not loss making, but of course, their profits have decreased substantially due to this yield decrease. I think we just have to continue what we have been doing before, to constantly take out costs to compensate for this yield decline. So it's very much self-help agenda, and that will just continue going into next year as well.

In terms of short-haul Eurowings versus long haul and exchange differences, it's very difficult to say how much of that is in Eurowings and how much is in long haul. Clearly, there are the long haul where we have the revenue side of it which is more also external non-euro revenue. So the costs side, of course, is -- when it comes to the maintenance costs, when it comes to fuel and so on, they are both dollar-based. So I think we -- that specific question, we have to come back to you in detail.

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Operator [33]

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The next question comes from the line of Johannes Braun with MainFirst.

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Johannes Braun, MainFirst Bank AG, Research Division - Director [34]

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Can I come back to cargo? You talked about the measures you have taken to adjust to that weakening market, yet when I look at the numbers in Q3, I can still see a 9% capacity increase and a steep decline in the load factor, yields therefore down from 25%, if my math is correct. So can you help me to understand why you increased capacity still currently despite the significant market weakness? And also any improvement on cargo trading in Q4? And also how much capacity will be actually taken out in 2020 once you have phased out all the MD11s. And then just on the Eurowings restructuring, any new thoughts about which of the remaining AOCs will be the surviving one?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [35]

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Yes. On cargo, what we saw in the last months was a significant split between the very weak development on the nonkey routes, which very much hurt our belly loads. And on the trunk routes, the demand was more or less there, so we have -- that's why we had to operate our freighters on those trunk routes, to create a contribution margin there. But we lost a lot on the basically low belly loads on those routes, where we cannot take out capacity because it's just belly only.

But we will see a shift also due to some wide-body changes in the schedule as of this winter on that one, 747, 380 changes; and 777, of course, eventually coming in 2 years from now also having a significant impact on that one. Well, that's why we were not able to perfectly adapt our capacity on those markets where we would like to. It was belly driven, and we had to maintain some freighter operations on those markets where we could make money. The number of capacity, roughly -- was it your question, how the [9 777s] compare to the current MD11 fleets? Was that the question?

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Johannes Braun, MainFirst Bank AG, Research Division - Director [36]

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No. The question was basically how much capacity you will take out in 2020 on, let's say, cargo overall once you have phased out the MD11s.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [37]

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Yes. So for 2020, there will be around 9% decline in the freighters alone, but of course, as Carsten always were alluding to, the total capacity is then mitigated by that you have larger belly capacity into next year. So that is a bit too early to say exactly how much it will be in total that I don't have at hand. All the MD11s, of course, are not going out from the beginning of the year. It is spread over 2020, and some of them are actually going out only at the very end of 2020.

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [38]

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But again our worst problem in cargo by now are the belly routes, also those leisure routes which we alluded to before where we think there is growth potential for us with Eurowings. These, of course, are basically no-cargo routes, not much exported out of Barbados and Anchorage...

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Johannes Braun, MainFirst Bank AG, Research Division - Director [39]

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And the trunk routes that obviously are still performing relatively well. Can you be more specific which routes these are?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [40]

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Well, North America is very strong, Chicago, Los Angeles. These are the strong routes, also in South Africa with the German car industry still. So it's typical cargo trunks where Lufthansa has been strong due to the export nature of our economy. And second question was on Eurowings AOCs. While it's obvious that the one which is shrinking is the Germanwings AOC, and the one which is growing is the Eurowings Germany AOC. Also of course continuing to be of strategic importance for us will be Eurowings Europe AOC, which we operate outside of Germany. And the ones where we have wet lease operations, of course these wet leases are -- as we explained at the Capital Markets Day, there we are moving away and filling it out both at LGW and TUI.

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Operator [41]

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The next question comes from the line of Carolina Dores with Morgan Stanley.

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Carolina Botacini das Dores, Morgan Stanley, Research Division - Equity Analyst [42]

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I have two. First one, on the turnaround of Eurowings, if you can quantify how much of it should depend on agreements with unions. And how much of it is self-help or that you can do it on your own? And second question is just to have an understanding of the trends for the fourth quarter. If I look at consensus, is at EUR 2.03 billion for EBIT, which would imply a 16% decline year-on-year. Is this decline, do you think, mainly due to the effect of the strikes? Or there's any -- or there's some upside from that other than the decline on the strikes.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [43]

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Yes. So I guess if I start with the Q4 numbers. Clearly, the guidance, which is the same as we had announced earlier in the year, doesn't have any strike effect in themselves because, as I alluded to, it's very difficult to speak about what is the strike effect ultimately because of all these unknowns in terms of bookings and so on. We are really in the middle of that as we speak today. And so it means that the guidance we are giving here, EUR 2 billion to EUR 2.4 billion, we are, due to the macro outlook and of course due to the strike situation we are seeing now, more towards the lower range of that EUR 2 billion to EUR 2.4 billion. In terms of your second question, was that the Eurowings union?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [44]

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Union. I think I can say that we are short of announcing agreements both with the pilot union and the cabin union on some agreements on Eurowings. And they both have understood our strategic directions, where we need to get to [of] less complexity because usually the compromise lies in extending the time line for that. But the major initial restrictions will be overcome soon, and then there will be a phasing of those decisions we are jointly taking. So I'm more positive on that than I was probably half a year ago.

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Operator [45]

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The next question comes from the line of Malte Schulz with Commerzbank.

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Malte Christoph Schulz, Commerzbank AG, Research Division - Equity Analyst of Industrials [46]

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Maybe one, a little bit more details on what's your, like, short- to mid-term plan on Eurowings long-haul in your hubs. Do you intend to keep it on Eurowings branding? Or do you follow kind of what BA's doing in Gatwick or also Air France on the leisure routes and kind of rebrand it to Lufthansa but on a high-density configuration? Maybe also on M&A activity: I mean you talked already about Condor and Alitalia. Given in the light of IAG's deals, is there also anything you're particularly aiming for? And would you also look into acquisitions or larger investments outside of Europe? And maybe on the corporate travel demand. You already indicated that there was some weaker demand, particularly in your home market. Is it mostly automotive and manufacturing? Or is there also some other industries which are -- have lower or show lower corporate travel at the moment?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [47]

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Well, on your first question, I think there's easy answer. Surely, we will not operate our second-tier operational long haul with the Lufthansa brand. The Lufthansa brand is a premium brand and we will maintain it as it's so well positioned. And there will be a second brand which currently is Eurowings. If we ever have plans to change that, I think we will announce it when we change it. Consolidation is similar. I think this is something you do and not something you talk about in public.

And you know our overall view on consolidation, but you also know that we will not do any kind of acquisition if it doesn't serve our shareholders and our customers in terms of expanding our market reach. And that restricts, of course, the options which are there. Corporate demand in Germany: I think it's no secret that, indeed the German machinery industry, a lot of it depends on (inaudible) industry in the end. It's showing some weakness. We are partly compensating that with good loads from outside-in, finance industry, consultants. That's a very healthy corporate demand we see there, and we partly compensate what we are seeing as a weak core industry of the German production.

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Operator [48]

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The next, the final question comes from the line of Andrew Lobbenberg with HSBC.

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Andrew Lobbenberg, HSBC, Research Division - Head of the European Transport Team [49]

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Can I come back to Alitalia, please? Because you said you're only interested in buying an Alitalia that is restructured, but I'm kind of interested in the detail there because previously you said you'd only buy Alitalia if it had been restructured. And yet if we look at the people involved in the consortium of the railways and Atlantia, I don't see anyone with any capability of restructuring an airline. And the only people who could do it would be you. So in the past, you said you'd only buy an Alitalia that had been restructured, but that changed now to you'd buy an Alitalia if you are given permission to restructure it.

I think there's a subtle but quite important difference there because otherwise I can't see why you're bothering looking at Alitalia as well because I can't see anyone else who will restructure it. The second question, on the 777s, are you still confident on 2022? Because given everything that plays out of Boeing and the complexities of that with the engines and with 777 as the derivative product. I mean are you planning for a potential rolling delay on that? And then just a final one, back on Condor; you said you couldn't buy it for competition policy reasons, but given your newfound enthusiasm for long-haul tourism, could you, would you take the long-haul business from Condor?

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [50]

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Thanks, Andrew, I'll start with the first two. Again just to be clear. There needs to be a new [co] , as we always have said, in Alitalia to raise our interest to invest, all right? And of course, those elements of restructuring, taking number of aircraft out, taking part of the value chain out, that as I understand is currently discussed in Alitalia in Italy and would be a requirement for us, as we have said for months, to look at that new co afterwards. Indeed, I guess, also for the new co, people want experience. If that comes from Atlanta, if it comes from Frankfurt, I'm sure there is more than just us that know how to run an airline and make it more efficient.

We believe that the overlap of the markets of Alitalia make it more -- maybe more interesting to have a commercial agreement which has to come in line with us than to have a commercial agreement with somebody which only serves one common market which is the Atlantic. That's where I think the Lufthansa maybe expertise comes in. The technical restructuring of taking elements out, people out needs to be done by the current ownership before we can see ourselves getting involved here. That is what we have said now, I think, for a couple years and is not changed.

777, we'll actually be in Seattle in 2 weeks, but of course, if you look at the performance of the OEMs to bring new aircraft to the market in time, of course, we would be ill-advised not to have backup plans for further delays. And actually the further delays are to have additional D checks on our 744s which are partly young enough to have another D check on them. And they would be operated longer if there is further delays or also to cover [the way] we already know about.

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [51]

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And your question on Condor. If we would start -- I didn't quite understand your Condor question actually.

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Andrew Lobbenberg, HSBC, Research Division - Head of the European Transport Team [52]

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You said you thought you couldn't take it for competition policy reasons, but could you take the long-haul business of Condor? Would you want to take the long-haul business of Condor?

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [53]

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Well, I think that's not even an option for the moment. For the moment, they are selling the business as a whole. So I think that's a very theoretical question. And that was also the question that you remember -- last, in spring, they were only selling it as a whole. And they were -- there's no takers of this business. So from that point of view, the analysis is the same as it was then.

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Andrew Lobbenberg, HSBC, Research Division - Head of the European Transport Team [54]

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Then can I just follow up? Watching on the ground in Germany, and I'm sure you have a very close eye on what happens there, do you see a lot of interest in people taking it? Or do you think there's a relevant possibility that there are no buyers and that potentially a breakup scenario could play out?

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Ulrik Svensson, Deutsche Lufthansa AG - CFO & Member of Executive Board [55]

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I mean we cannot really speculate over what is happening on the ground here. You probably know better than us what is happening. So there's nothing really we have anything to add to, I think.

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [56]

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Andrew, that's why I read your newsletter every morning. So I'll learn from you.

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Andrew Lobbenberg, HSBC, Research Division - Head of the European Transport Team [57]

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Good to know that (inaudible).

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Operator [58]

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There are no further -- yes.

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Carsten Spohr, Deutsche Lufthansa AG - Chairman of the Executive Board & CEO [59]

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Yes, everybody, I understand that is the last one of the series of questions. So as always, thanks for your interest to cover us, to discuss with us. And hopefully, we were able to get across the message that we stick with our overall idea of our sustainable and balanced business model, which I am, as you well know from the personal contacts we had, somewhat proud of that this is in the DNA of this company. Because I strongly believe that's what creates long-term value for all shareholders; my staff; and surely our customers, who have given us great ratings over the last couple years.

But also there's no doubt that there are things we have to work on. I think when it comes to the big issue of Eurowings, we were, hopefully, being able today to show the first signs of success. I -- also glad to see that, I mean especially Ulrik, doesn't spend a day in his office without mentioning that numerous times. Our strict focus on unit cost reduction between 1% and 2% every year is paying off also in our results. And it's also no doubt that we are committed to improve those businesses which are currently underperforming, some I mentioned and discussed today. So we'll stick with that.

And for that, I think, thank you very much, [to where] we all are. Thanks for your interest. I'm looking forward to talk to you soon in person or on the phone. Thanks.

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Operator [60]

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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.