Deutsche Lufthansa AG

Andreas Hagenbring - Head, IR Carsten Spohr - CEO

Oliver Sleath - Barclays Jarrod Castle - UBS Stephen Furlong - Davy Research Damian Brewer - RBC Capital Markets Neil Glynn - Credit Suisse Anand Date - Deutsche Bank Michael Kuhn - Societe Generale Jack Diskin - Goodbody Stockbrokers Alexia Dogani - Goldman Sachs Johannes Braun - Commerzbank Andrew Lobbenberg – HSBC James Hollins - Exane James Goodall - Redburn

Thanks, Emma, and good morning, everybody. A warm welcome also from our end for the presentation of Lufthansa Group’s full Q3 results.

I have with me, Carsten Spohr, CEO of the Lufthansa Group, and he would take you through the initial presentation and will then ready for Q&A as Emma said afterwards. Let's get immediately into the presentation.

Well, thank you, Andreas, and ladies and gentlemen, very good morning to you all. Most of you already know the key figures that show our good economic performance in the third quarter, so please allow me to give you only a brief summary.

The adjusted EBIT for the Lufthansa Group came to almost €1.2 billion. Despite notably weaker demand in long-haul traffic, this was only slightly below last year's record figure.

Unit revenues at the airline performed better-than-expected mainly due to the short-term bookings in September. This is partly due to stable volumes of corporate travel, however it is also because we have taken specific steering and capacity measures to manage bookings over the summer.

And here we can see clearly, our business with its broadly diversified European-end global hub structure enables us to take flexible counter measures such as adjusting regional traffic flows, for example, on altering frequencies and of course deploying other sized aircraft. In a volatile market environment, our company therefore I think is in its very robust position.

In addition to the better-than-expected revenue developments, we again reduced our unit costs successfully. For the third quarter now in a row, we have cut our absolute costs by more than the falling fuel costs.

All of the major cost positions at the passenger airlines are down and therefore contributing to the successful reduction in unit costs. On the back of lower fuel costs and improved earnings in our service companies, we have achieved the results after three quarters which is almost on par with last year’s record earnings.

The adjusted EBIT margins, indeed was and is stable at 7%. From the fourth quarter, we have decided to trim capacity growth at the passenger airlines by another percentage point.

This will support stabilizing the pricing environment. Altogether we have reduced our capacity planning for the fourth quarter by some 5 percentage points compared with our initial planning at the beginning of the year.

This too shows how determined we are to keep securing our revenue. Under these circumstances, we have revised our forecast for the year 2016 back up again.

We are now expecting adjusted EBIT to be approximately on last year’s level. Let's take a more detailed look at the development of the financial figures.

This quarter, we see a big difference between our forecasted figure, the adjusted EBIT and EBIT. The latter figure performed significantly better.

This is finally due to the successful tariff agreement with the flight attendant union in August. We have switched the system of retirement and traditional payments that benefit - from a defined benefit to a defined contribution pension scheme.

We will change our system also for benefits accumulative in the past. We have reduced our liabilities by some €900 million and recognized a one-off gain of €730 million in the profit and loss statement.

By contrast, we have recognized impairment losses on a total of 14 Airbus 340 and 737 aircrafts that we made available for sale. So you will now not see the entire impact in the reconciliation between the two figures.

Operating cash flow was 3.4% down on the year. Since we cut capital expenditure by around 20% in the first nine months, it nevertheless increased free cash flow significantly.

In fact it is even higher than last year’s record. For the full-year 2016, we are now expecting capital expenditure of €2.5 billion.

It is €200 million less than planned. Some investments have been postponed until next year.

For 2017, we are currently planning on capital expenditure of €2.7 billion. A reduction next year would not make economic sense because it would cause follow-on expenses.

As for 2018 and 2019, we will be cutting back our investment budget. Furthermore, we are already looking actively at buying used aircraft in order to reduce our capital expenditures.

Already now, our financial stability has improved. Despite the fall in the IFRS discount rate to 1.5%, our equity ratio went up from 10.4% to 14.1% since we have published the half year’s numbers.

This was mainly thanks to the reduction in our pension liabilities but also due to the lower debt. I’m pleased that we have reached an agreement with UFO, our flight attendant union on a full switch in the pension system.

Reaching a similar agreement with the pilot union remains important to make our balance sheet less volatile in the future. The passenger airlines improved their earnings by €56 million in the first nine months.

Lufthansa Passenger Airlines and Austrian Airlines even increased their earnings compared with last year’s record. Adjusted EBIT at Swiss and Eurowings was down from last year.

Swiss kept its earnings stable in the important third quarter. However despite the economic challenges airline in Switzerland obviously is currently facing on being based there.

Eurowings has high set-up cost this year for the set-up of the new companies and for the launch of the long-haul operations. But its earnings were also burdened by the difficult market for local airlines in Europe.

This includes past competition and a shift in demand for holiday travel to southern Europe. Lufthansa Cargo again reported a year-over-year decline in earnings as a result of a steep fall in prices.

However you can see that its earnings performance in the third quarter was less negative than the previous quarters but we expect it to stabilize further in the important fourth quarter. Lufthansa Technik was unable to match last year’s results.

It performed particular well in the first half of 2015, thanks to the refit of the long-haul cabins for Lufthansa Passenger Airlines. We are more than pleased with the current performance.

In the third quarter, Lufthansa Technik reported year-on-year earnings growth. The catering business at the LSG Group was again stable compared with last year.

Despite recognizing initial restructuring costs, its earnings were up on the year. In the fourth quarter, the restructuring costs are expected to have a much greater impact however.

The performance of the other segments improved again significantly on last year, which was marked by significant exchange rate fluctuation. The operating KPIs of the passenger airlines developed better-than-expected.

The constant currency unit costs adjusted for fuel and non-recurring effects declined by 2.1% in line with our forecast range. Unit costs are down by the same amount for the first nine months.

This shows that the reduction is not a one-off event but rather a continuous process of increasing efficiency. It will strongly continue to drive this process.

Constant currency units on revenues fell by 6.7% in the third quarter. This is of course not satisfactory.

However the figure is better than we originally expected, and proves that the steering and competitive measures we had initiated over the summer are having a positive effect. Nevertheless the decline in fuel prices was about half of the number I just showed you and the particular geopolitical situation had been high adverse impact.

In the more stable environment and with slightly higher oil prices, we are expecting the decrease of unit revenues to slow significantly as we go into the next year. In the third quarter, in the month of July and in particular September were better than expected.

The strong performance in September was due to the higher proportion of corporate traffic, which came back from the summer break with a positive trend. We also supported the yield development for example with targeted and successful marketing activities for our Premium Economy class.

Performance varied again from one traffic region to another. Essentially the trends from prior month continued however.

Europe remains the most stable region. Competitive growth in the hubs is moderate and yields are relatively stable.

Major trends that are making life harder for some of our European competitors does not have the same impact on our network airlines. Our stable network of primary destinations with higher frequency flights for business traveler is paying off.

At Eurowings on the other hand, overcapacity especially because of Southern Europe did burn both low sector and pricing. Yields are still under pressure on routes to-and-from America.

The decline is again most apparent on routes to South America with traffic on North Atlantic routes still comparatively stable. In North America, ticket sales were up again after the summer.

Revenue peaked up a bit in leisure traffic too. Declining yields in the third quarter were rather due to the particularly good performance last year from structural weakness this year.

The development on routes to Brazil and Argentina are currently less negative than the first half-year, thanks to our focused capacity management activities. Asian traffic remains under pressure.

This is primarily due to a decline in Group bookings, and we are not expecting any improvement here in the next few months because tourist demand in Asia is a less spontaneous business. A recovery is only anticipated from next year, and sub-side to the geophysical situation being perceived as somewhat less tense.

We do however expect the new joint-venture with Air China to have a positive impact. The seat-low sector in the African and Middle East traffic region remains stable.

Constant currency pricing was slightly down in the first half year, mainly due to the weakness of the oil and energy sector. For 2016, we are now expecting adjusted EBIT to be approximately on last year’s level.

This forecast is based on the following key assumptions for the fourth quarter. First, a slightly better development of unit revenues from minus 7% to minus 8%, instead of the minus 8% to minus 9% originally assumed.

Second, a decline of 2% to 3% in constant currency unit costs excluding fuel. Third, tailwinds from fuel costs of about €140 million.

And last but not least, the slightly weaker year-on-year performance from the other segments. The fourth quarter result last year was burdened by some €100 million negative impact from strikes, which should provide a further relief this year.

We continue to operate in an environment that is determined by short-term bookings. This makes forecasting more difficult than usual.

We do however stay confident from the fact that we have very quickly found the right response for dealing successfully with the situation as we were able to show you today. Let's talk about strategy.

In strategic terms, we are continuing to consistently develop the Lufthansa Group based on three pillars; the network airlines are concentrating on increasing their profitability. The focus here is on pursuing specific revenue and cost activities and improving margins across the cycle.

Future fleet growth depends on competitive cost budgets. In direct traffic, we are growing significantly and strengthen our position in our home markets.

The aviation services are working in parallel and growth projects and on successful measures to increase efficiency. In the last quarter, we again made great progress in implementing this strategy.

Let us now take a look at the individual operating segments. At the network airlines, we continuously improved our revenue quality.

Following the successful product offering, we are now concentrating further on digitalization and building the track record of being the most digital airline. The official launch of broadband internet on board the short-haul fleet at Lufthansa Passenger Airlines is just around the corner.

Our passengers have already been able to test the system on the first two Airbus 320s for a few days now. On long-haul routes, this technology has been available for years.

Customer feedback is very positive. 40% of our customers say they intent to fly more frequently with Lufthansa if internet is available on board.

We’re also making significant progress with our distribution strategy. We now have individual direct connection with Siemens and we have developed one with Preussag.

In total, more than 1,500 agencies worldwide on top of these two biggest customers at the corporate side I just mentioned, are already connected directly to the Lufthansa sales functions, with our teams in the aviation intimidation of one of the global distribution systems. That means lower cost and a greater range of services for our partners.

And for us, it opens up much greater potential for ancillary revenues. The new Air China joint-venture will also strengthen our revenue.

We now have joint-ventures in the five biggest global markets generating revenue of almost €7 billion. This secures our long-term position in these markets and sustainably improves our unit revenues.

With the new partnership, our network airlines now serves around 30 routes between China and Europe, representing a joint market share of some 35%. At the same time, we’re cutting costs sustainably with a wide range of activities.

In the first nine months of the year, we have successfully integrated an average of one new aircraft a week into our fleet, including two completely new aircraft types; the Airbus 320neo at Lufthansa Passenger Airlines and the C-Series at Swiss, for which we were both the first global customers. The 777 also went into service for the first time at Swiss.

And in the current winter schedule, another new aircraft type will enter service at Lufthansa Passenger Airlines, the Airbus 350. Our flight operations teams have handled this great operational challenge smoothly, professionally and without any disruption.

Every one of these aircraft cuts our unit costs by average of 20% compared with the aircraft it replaced. You all would see there is probably no other airline group in the world that can handle this operational challenge as professionally as the Lufthansa Group does on a regular basis.

We’ve also made progress at our collective bargaining. Agreements have now been reached for about 90% of our staff in Germany or 95% globally.

The settlement we signed with UFO, our cabin flight attendant union in August to modernize our pension systems will save roughly €60 million a year from 2017. Next year, we again intent to cut our unit costs at the network airlines.

Planned capacity growth is less than 3%. The size of the fleet will remain unchanged, and growth will come exclusively once again from additional seats to aircraft.

Now to the second pillar of point-to-point traffic. Eurowings is already the market leader in direct traffic in our home markets.

It is a clear number one in almost all relevant German airports, of course apart from our Lufthansa hubs in Frankfurt and Munich. 30% of capacity is currently flying within Germany.

The decentralized structure of the German markets with its high quality customer potential and to simple locations of our home market in Europe, played important role for our positioning. We fly a large number of short but high revenues.

For this reason, but both our unit revenue and our unit costs are higher than those of our competitors who fly by average longer routes. So we are doing a good job compared with our competitors and we will see unit costs come down more through an attrition-based shift of the platform, Eurowings’ combination of market positions, competitiveness and market potential.

It’s I think unique in Europe. But we also want to grow in other markets, and for that, we need partners.

Two current growth options would take us a great step forward in this direction. One is the acquisition of the remaining shares in Brussels Airlines.

The other is the plan to operate up to 40 aircrafts on a wet-lease from Air Berlin. Both of these transactions will bring Eurowings significant strategic and financial benefits in the short-term.

Both transactions contribute to strengthening our home markets with a clear prospect of further expanding our market share and certainly our efforts. With then 11 stations in Central Europe and 15 aircraft at home base, we will have a much stronger position than our competitors at the operating leverage operated.

While we have comparisons, our competitors operating average of only four or the other one, 10 aircraft per home base. No other point-to-point at Europe can offer the same high network quality from its airports as Eurowings.

You would see the clear number three in the whole of Europe within more than 160 aircrafts and standardized Airbus 320 fleet. This makes the brand significantly more relevant and so increases access to customers across Europe.

However for successful cooperation with Brussels Airlines and Air Berlin, they are clear criteria to be met. The first criteria is that both must make a positive contribution through the value creations in our Group.

In 2015, Brussels Airlines generated an EBIT margin of almost 4% on revenues of €1.1 billion. After the terrible terrorist attack in Brussels in March this year, its earnings will of course be much lower in 2016.

But in the past, Brussels Airlines has shown that it can keep improving its earning positions without losing market share, despite the presence of aggressive new competitors on their market. With the wet-lease from Air Berlin, we will benefit directly by being able to reduce investment in new aircraft initially or to make it more flexible.

The leased aircrafts will be used both for growth and for replacement of existing capacities. The capacity supply to the markets will actually come down with positive scenario showing the benefits of consolidation.

The second criteria, is that the unit cost position of the entire systems needs to improve by new partners. At Brussels Airlines, this is clearly the case.

The airline unit costs are very competitive within the Lufthansa Group, and the wet-lease rate with Air Berlin will also be on terms that cut the current unit costs for the Eurowings book. The third criteria, is that the transition must open up new or attractive markets.

Belgium market has one of the biggest catchment areas in Europe with significantly above average purchasing power. Alongside Brussels Airlines short-haul traffic, its long-haul connections mainly to West Africa are also very interesting for us.

This is partly because they are outside the sphere of influence of the Middle East Airlines. The rest is Air Berlin will operate on the routes selected by us.

Here we plan to increase our presence in attractive European markets while where may already be active today. Both transactions are close to be finalized.

Another reason why this step is so important is that it aims us to drive consolidations, and thereby the capacity discipline and it’s so urgently needed in the European airline industry. Let's talk about the aviation services, which are pursuing the targeted growth strategy while maintaining a strong focus on costs.

A few examples, with its adjusted cargo evolution strategy, Lufthansa Cargo, intends to strengthens its core business segments and open up new customer books. To do so, it needs a competitive cost structure.

A corresponding reorganization combined with the elimination of an entire management level and the reduction of 35% in management position is already underway. Then there are product innovations.

Since August, for instance, the My Air Cargo product provides private customers the opportunity to send personal items by airfreight around the world for the first time. Lufthansa Cargo is also driving the digitalization of the industry and investing in the growing segment of e-commerce.

Lufthansa Technik is strengthening its leading market position with additional partnerships. In the middle of the year we signed a memorandum of understanding for joint-venture with MTU in Munich.

At the engine overhaul site in Hamburg, we are now negotiating simultaneously with the labor union partners to find a good solution for our employees there. However jobs can only be guaranteed going forward if the probability of the business is assured.

At LSG, the focus remains on growth. Relevant activities are, for example, the global business expansion but in-flight sales programs from the Retail in Motions subsidiary form the development of additional business opportunities with retailers.

At the same time, as it is transforming its business model by making its production level more flexible. The corresponding pilot project is currently being set up in the Czech Republic.

Ladies and gentlemen, as you can see, we are consistently implementing our strategy. The Group result in the third quarter shows that our business model is balanced and robust.

It also shows that we are able to take action effectively by implementing capacity and steering measures. In view of this, we have raised our forecast again to an adjusted EBIT that is roughly in line with last year.

We continue to make progress on implementing all three pillars of our strategy. We are continuously strengthening our financial profile with good earnings, cautious capital expenditure and progress in changing the systems of retirement benefits.

Next year, we are only projecting moderate growth in order to provide active support for revenue quality. Costs must and will come down further at the same time.

In parallel, we are growing by means of partnerships where it makes sense and we are driving consolidation of the market. Ladies and gentlemen, we see ourselves in a good position to act successfully for our customers, our employees and our shareholders in this challenging environment.

Thank you for your attention so far. But before finally coming to the Q&A part, I should address what in English is probably considered the elephant in the room.

A quite relevant Irish low-cost airlines issued to hold a press conference today here in Frankfurt. It’s of course too early to speculate about what will be presented there.

But I’m happy to make clear advance that we will be watching of course the development with great interest and react as appropriate. Lufthansa has built an unrivaled operation here in Frankfurt that operates probably the strongest network of all European airlines in Europe.

We are certainly not nervous to take on more competition. As a matter of fact we are competing already in many airports in Europe.

We are however happy that the newer entrants has achieved what we have not achieved for a long time. Apparently based on our possibilities to get lower fees from Frankfurt airport and guaranteed short turnaround times for aircraft on the ground.

We are certainly keen to address that we experience this for our own cost and we calculate the benefits of our business is certainly not going to be small. As Frankfurt Airport as you all know is legally obliged to charge all its airline customers equally, I’m happy to hear from Mr.

[indiscernible] on what he has to offer and significantly drive down our costs here in Frankfurt. So as you know well, I look forward to your questions now.

As you know our new CFO Ulrik Svensson will be only be on board from January, therefore I have asked Andreas Hagenbring to assist me in today’s Q&A question and will provide attendance to you as usual. We now look forward to your questions.

Thank you.

Good morning everyone. Three questions please.

Firstly on your overall feeling for FY17 versus FY16. I think I’ve asked this before but obviously you’ve raised your guidance back-end for this year, it was good to see.

I mean, given your confidence on the improving revenue environment as you look out into next year for the concentration easing, etcetera, I mean, do you continue to think that overall with the cost initiatives you have you can keep your adjusted EBIT in FY17 kind of in line or even above the result for ‘16? Secondly, could you just give us a feel for the overall growth rates for the Group next year?

So if we just exclude obviously inorganic acquisitions with the Air Berlin capacity and Brussels Airlines, am I right to be thinking that overall you’ll be seeing around 4% to 5% expansion for the Group, I guess, biased towards Eurowings with a relatively lesser growth at the hub airlines? And finally just to touch on the elephant in the room.

I mean, does Ryanair arriving in Frankfurt actually give you a greater mandate at some point to potentially bring Eurowings into Frankfurt as well, or is that something that would still be very much a sticking point with the unions? Thank you.

Well, thanks for the questions. When it comes to the EBIT of 2017, I think it’s too early to tell.

We will give you the first KPIs as always beginning of the year, and then in March we’ll give you whatever we can in terms of the outlook. I think I made some comments about next year’s development where we see the unit pressure and the pressure in terms of yield somewhat be released, and obviously we continue with our unit cost reductions.

The overall growth was your second question. We’ll see about 3% in the network airlines, and therefore another 20% in Eurowings not counting for an organic growth, so it gives us about 4% to 5% for the whole Group.

In terms of Eurowings, we don’t need any reason to bring Eurowings to Frankfurt if you wanted to. There is no limit in our union contracts to bring Eurowings to any airport.

We have, as you know, decided to bring them into Munich initially next year. We put them into Vienna on our hub in ‘16, Munich in ‘17, and of course if there is a need to bring them into Frankfurt, we will.

That’s why we focus so much on growing Eurowings organically and inorganically.

Great. Thanks very much.

Good morning, gentlemen. Firstly, any updates in terms of conversations with the pilots and how that’s progressing?

Secondly, anything in terms of top-up payments relating to the pension deficit? Although there is obviously the €700 million reduction, the debt looks like it’s gone from about €10.8 billion to about €10.5 billion between the half year and the end of the Q3, so obviously some of that €700 million reduction got chewed up there.

And then just in terms of your North Atlantic, obviously South Atlantic has been weak. But as you’ve gone through the quarter into the Q4, are you seeing any kind of slight improvement because some of the data we’re seeing for December suggests things might be getting a less severe in terms of the rate of decline on yields?

Thanks.

Yes, thanks. On the corporate union issue, as you know, we only talk about the pilots of the main line, which are now less than 50% of the overall pilot group including Brussels and Air Berlin pilots, it’s even going to be somewhere around 45%.

And there we basically agreed to move away from the complex overall solution package to a regular negotiating of productivity and salaries, which I think are easier to solve and which could end up in a mediation process which we weren’t able before due to the complexity of the overall requirements, including those who were legally not allowed to justify strike as you know a year ago. On the debt, Andreas will give you the exact numbers in a minute.

And North Atlantic, I think we are seeing some underlying stability in North America in also the leisure flights. So at this point I think lot of - and it is still our more profitable part of our global network and continues to do so.

Yes, Jarrod, just to add up, you know that there is no mandatory cash payment into the pension funds that continues to be the case. It is regular part of our financial planning as you know to put €600 million a year voluntarily into the fund to support our financing that sits in the planning for this year as well, but a final decision whether or not we will do it actually will be taken in December.

Okay. Thanks very much.

Hi guys. I was just wondering, firstly, maybe about the CapEx plans.

So, maybe Carsten you can talk about a little bit more in terms of rationalizing in the coming years maybe looking to buying used aircrafts. Is it a balance between that and what you’ve been very good at before in terms of fleet renewals and your focus on reducing the cash offering costs with the newer aircraft?

You might just talk about that. And then secondly, do you think with the better performance in Cargo in September, is that a trend or it’s just hard to say really at this point in time, it’s obviously [indiscernible] market cargo?

Hi Stephen. Well, on the used aircraft issue, there is all the capital expenditures.

There is couple of things. First of all, we’re obviously moving some aircrafts from this year to next year due to delivery issues in Airbus and Bombardier.

Secondly, with the fuel prices where we are and with the new life extension programs for aircraft available, some of them actually introduced by Lufthansa Technik, and the market situation being very preferable for used aircraft, we will have more used aircraft especially on the short-haul side in the future than we had in the past. It’s not unknown to the Lufthansa Group.

We have used aircraft in Austrian. We have used aircraft in Eurowings.

So I think we see a stronger trend to that. This will enable us to do two things; lower the investments overall and also stabilize investments over the next years and we’re talking many years here because that way we can ensure that we don’t have whole fleet coming out of their maximum life phase in whatever 2030 and so on and we kind of flatten the requirements investments in the future in case you and I are still there then.

Of course we talk long way out here. And so that is why we are doing this, and again the markets in that regard in used aircraft is very preferable for big customers like us at this point.

And with Cargo, I think at least we understood that in Q4, Cargo will definitely benefit from a strike which we had - while the comparison to Q4 last year will definitely benefit from the strike we had as an effect last year. Also we all know it’s strongest season in the cargo business and a lot of capacity has been taken out not only by us but also by other full-freighter operators.

So I would say that I wouldn’t talk about optimism but I would talk about less pessimism here.

Okay, great. Thank you, Carsten.

Good morning. Three questions from me, if I can.

First of all, beyond the organic growth in Eurowings, could you give us some feel for what the Berlin and Brussels additions would do to the Eurowings growth? And also just within that, would that include the Brussels Airlines long-haul business or how are you thinking of that in the Group context, particularly that the premium positioning of the Group?

And secondly just you’ve given us the suggested RASK numbers by market. Can you say a little bit anything more about was there any particular markets that varies [ph] which are in a more positive position whether it’s the market or the product like Premium Economy and how much of the Group that accounts for?

Thank you.

There were two questions, right? You talked about three or…

Yes, I guess the long-haul Brussels accounted as the third.

Yes. Well, in terms of aircraft, Eurowings is now about 90 aircraft.

We’re at 40 with Air Berlin short-haul 320s and other 40 short-haul aircraft in Brussels, and then seven long-range aircraft now in Eurowings fly next year. There will be nine additional ones in Brussels.

The Brussels model, I think is a hybrid model. Of course we have some transfer there but we’ll focus the model more on the point-to-point to be competitive against the point-to-point competitors we have in Brussels.

But Brussels has been very successful into Africa and we believe both Brussels Airlines and Eurowings have developed a hybrid model over the last years and things. They very well go together and we develop both further over the next year.

The overall capacity of Brussels, that was your question, is 6% of the Group capacity. And the second question on the product on the yield situation.

We have, as you know, done the biggest investment ever in product quality in the history of Lufthansa, and I’m very glad to say that it’s paying off, both in new business class but in more the new Premium Economy class has proven to be profitable beyond what we expected in the business case. And of course operating in and out of Germany, the quality leap is what you need due to the market we’re operating in.

So I’m happy to say that there has been impact even beyond but we initially expected when we made the decisions for them a few years back.

If you look one level deeper, Damian, you would find that the success is biggest or is bigger the more capacity is a certain market. That means in particular the Asian routes, where our largest capacity is there between this region and Europe, like customers actually have the choice.

The good product pays off very well and we can see really on a route-by-route comparison a positive impact there.

Okay. Thank you.

And can I just clarify, if you added Air Berlin, the 40 Air Berlin wet-lease aircraft, then another 6% on capacity or would those otherwise replace growth that you’d otherwise had been putting into the Eurowings’ business?

Well, we are currently finalizing those questions. This thing I would point - I would think that at least 10, maybe more of the Air Berlin aircraft were exclusively used or rollover of existing growth plans and only the other whatever this then, 20 to 30 aircraft, will be used as an organic growth.

And as I said, we want to participate in the consolidation of the European market also with this transaction.

Okay. Thank you.

And just - sorry, just to come back just on the other question about yields. Are there - is there any part of your business where you’re actually within those RASK numbers actually your positive, and if so, how much of the business does that account for at the moment?

Maybe that’s a little bit too detailed at this stage. Clearly we have seen the Business Class and First Class and Premium Economy Class has been put on to the aircraft over a certain time period.

It was there at once. So that makes it difficult to compare all at once but we have seen in particular to routes to Southeast Asia and a significant increase in RASK underlying.

Okay. Thank you very much.

And we’ll have to wait see Premium Economy rollout in Austrian. Thank you.

Good morning, everybody. If I could ask three quick ones please.

The first one on Eurowings. Given the integration of Air Berlin aircraft and Brussels, Eurowings will attain scale far more quickly than it would otherwise had been the case.

Just interested in terms of how this impacts your view on the timeline to properly judge it as to whether Eurowings can cover its cost of the capital because clearly for some peers, let's say, Transavia, the fact that its taking so long to achieve scale and so being a little bit of a justification for loss making or poor profitability levels. The second question, Carsten, you mentioned clearly strong degree of interest in terms of lush potential Ryanair tariff at Frankfurt would mean for Lufthansa tariff at Frankfurt.

Do you think this may end up delaying the timeline to negotiate the 2017 tariff? Just interested in terms of how logistically you move on from here with Frankfurt.

And then the third question, the Air China JV. It seems from this vantage point that leaves at the Air France-KLM, and its Chinese partners JVs hasn’t been working out that well perhaps due to contrasting ambitions in terms of capacity growth, et cetera.

Just interested in terms of how you avoid some of those challenges and ensure that the Air China JV can more closely mirror your success with United relative to what seems to be happening with Air France-KLM and its partners? Thank you.

Yes. Well, as you rightly said, of course both transactions, Air Berlin and Brussels, will significantly increase the scale of Eurowings.

We’ll actually be at the number three position of point-to-point Airlines in Europe by next summer, which to be honest is beyond our expectations when we kicked off the deal only two years ago. When it comes to cost of capital, we would need about €50 million to €60 million next year to cover our cost of capital without the new transactions.

Are we going to be there in ‘17 or will it be ‘18? I don’t know, but it’s in somewhere in that range.

We’ll get there and that is where we of course always had our ambitions. We only operate the aircraft division will cover the cost of capital.

That’s basic of our business model. On the Frankfurt situation, it’s the following.

They are currently in the process of applying new term structure which has to be approved by the local government at the local ministry. So first of all, I will - because we’ll look what the ministry will do, I can't imagine that they will approve something where Ryanair is paying less than Lufthansa or the other German airlines.

But even if they disapprove such a structure, we would just be paying what Ryanair is paying in the future, which would give us about €200 million to €300 million discount per year from the numbers we have heard for the Ryanair deal. So that of course is significant.

And I think we have an interesting story ahead of us here. The joint-venture with Air China.

China is a complex market, as our vice chancellor who is there today, but don’t forget Lufthansa has now 28 years of partnership with Air China. 28 years we’re jointly doing the MRO.

We have been co-training for more than 10 years, members of Star Alliance for many years. So I think we have quite a bit head-start here in regards to how we work with each other.

When I met my counterpart, I think we are now the fourth generation of CEOs between Air China and Lufthansa meeting frequently and breaking frequently together. So I feel quite comfortably that this partnership has a basis, which is much stronger than the other ones we have seen in the industry.

Okay. Thanks for your help.

Good morning, everyone. I just had a couple of questions.

Firstly on staffing, why is it that you’re ramping up in catering now? I just wanted to understand the logic behind that.

I think on Brussels, you were saying that the West African routes are attractive and that is not to influence that the Middle East in carriage. I was just wondering exactly what you meant, and whether you think that position is actually sustainable?

Thirdly, aside from nothing exciting happening, what gives you confidence at the rate of revenue decrease will actually slow next year? Is there anything in particular you would point out?

And then finally, at Frankfurt, if we’re saying that Ryanair entering is potentially going to bring fees down, do you think you need to act preemptively because that may mean that actually Ryanair is just a precursor for other highly aggressive carriers to increase capacity or to set up new bases there as well? Thank you.

Well, on the idea on the - first of all, catering. We are very successfully expanding our business in North America.

That is why LSG is hiring staff in North America for our kitchen for building huge new kitchen in Chicago for - with our partner United. So that’s where the statistical effect of growth and staff and energy comes from.

We are bringing down staff numbers in the mature markets including Europe and Germany. Why I was support this about the less impact of the Middle East carriers on the traffic flows of Brussels is the fact that Brussels is very strong in Western Africa.

And just by the pure logic of the traffic flows, these are big traffic flows towards the U.S. and into Europe, so of course going via Dubai or even Istanbul out of Western Africa to go into Europe or into the U.S.

such big detour that we hardly see an impact there. Why are we confident that the push or the pressure on yields is going to be somewhat less next year than this year?

First of all, we see less fuel effects in all airlines including ourselves. Don’t forget half of the yield effect in the last years has purely been based on the fuel costs going down and all of us handing over this cost advantage to our customers, only the other half has to be based on capacity issues.

And secondly after terrible shocks especially for our Asian leisure customers last year with the terror attacks in Europe, we definitely believe that some confidence in visiting Europe again is coming back to those markets in China, Korea and Japan.

And I think you had a last question on Ryanair feed in Frankfurt.

Well, I always said also to well staff and my unions. My preference is to feed our long-haul with Lufthansa.

If that too is not profitable, my second preference is to use Eurowings for it. Only my third preference is to use other partners.

But of course we will feed our long-haul one way or another, so we’ll see how it goes. Also our internal cost pressure, restructuring will of course have an impact here.

But at this point, as we feed our network with our own brand and our partners in start [ph].

Sorry, can I just clarify? On the last question what I meant was presumably Ryanair will look mainly at new routes where it can get pretty major discounts at Frankfurt.

I suppose the issue is if tariffs on all routes come down, is there a risk that actually you get more head-to-head directly on your short-haul network competition, like for example easyJet coming in or Vueling coming in a lot more aggressively, i.e. primary to primary on your existing routes at a Frankfurt main?

Well, speculation - are you - others have tried, like Vueling. You asked about how [indiscernible] Lufthansa into Frankfurt.

We are operating a strong network here and very profitable network, so I think we are not scared of those kind of things we are pursuing there, but of course the European landscape will develop, that’s once again why we are putting so much focus on bringing Eurowings to a critical scale. We will need these tools for the new developments in the markets.

There is no doubt.

We need to move onto the next question, please.

Good morning. Also three from my side.

One on the Air Berlin deal. There has been quite critical media reports as of late that the company could need up to €500 million cash for the upcoming winter season and its loss-making, so how confident are you, let's say, that Air Berlin is still in operation once the deal kicks in next spring, and do you have kind of an emergency plan in case the deal does not fly in the end?

Secondly, on Asian inbound traffic, you mentioned the negative development over recent months but let's say some confidence of a recovery. Would be interested in current booking trends for Asia inbound and to maybe by country, China and Japan.

Japan in my view should also benefit to some extent from currencies. So do you see some recovery patterns here already?

And lastly, on dividend. So the basis for the dividend distribution is the EBIT, not the adjusted EBIT, and now you had a significant non-cash one-off here included obviously, so what’s your view on ‘16 dividend payout ratio and how to treat that non-cash one-off when considering it?

Thank you.

Hi Michael. Yes, on the Air Berlin case, obviously we are in direct talks with Etihad as well, and I am confident that Etihad will one way or another ensure that our deal will come through that we need to right step forward for that part of Air Berlin and also for us.

Is there a backup plan? Of course when we have legal documents signed in the magnitude of €1 billion, we assure that we have securely put into place that will not be caught by a failing company and that I think is what we of course focus on right now in the negotiations which don’t only have a commercial part but also a legal part to ensure that we’re not caught on the wrong foot here.

And of course the other questions to be addressed to Air Berlin themselves. And on Asia Pacific inbound, I think it will need some time to recover, because as I said, this is very much focused on leisure traffic and the Asian tend to travel in groups on leisure traffic.

So by the time the market there will kept confidence again in traveling to Europe, I think we’ll need to give us some more time and also we need all of us to hope that there is no more attacks in Europe, I think that’s even more important. The third question was dividend.

Well, obviously we have a dividend policy in place, which you rightly described and which also has the limitations that by German accounting standards [indiscernible], we need to be able to pay dividends so it’s not quite as easier formula as you described it, but it’s probably fair to say that it’s on the one hand too early to talk about the dividend but at the same time the earnings this year are quite comparable to last year. I think that’s all I can say at this moment in that regard.

Yes, let me tell you that we have confirmed that general ability to pay a dividend within the presentation, so we don’t expect any limitations at least from the Hagebe [ph] results this year.

No, I was rather thinking into the other direction. Of course the EBIT is obviously driven by this one-off which would rather allow for a higher dividend in my view.

Yes, okay. Thanks.

Yes, good morning. Two questions if I may.

Firstly, could you give any indication of what percentage of Q4 capacity is now booked, and by extension any similar figure for Q1 ‘17 would also be very useful. Secondly, Carsten, you mentioned the lower fuel effect into 2017 and the implications for RASK.

I’m just wondering in terms of competitor capacity and competitor schedules that you’re seeing into next year and into next summer, have you seen any material changes particularly in the past eight to 12 weeks on the back of rising spot fuel [ph]? Thanks.

Yes. Jack, we see, at this point, a few percentage points or less of sales in Q4 than this time last year, which is in line with our guide that short-term bookings have increased and long-term bookings have decreased and the trend is very similar to what we have seen in July.

So, again as I replied already, I think our answers have been successful in steering and capacity management, so I’m quite positive it will be successful also for the fourth quarter and for the next year as well. In terms of capacity, not really.

I think the overall market sentiment here is a little bit more on the caution side, so we could see an upgrade in capacity just to counter the fuel price developments over the last weeks.

Okay. Thank you.

Good morning. I just had two questions please.

Just firstly on your capital expenditure adjustments. Can you give an indication of how much you want operating leases to represent as that proportion of your aircraft at the moment?

I guess it’s less than 10%. Do you have an ideal ratio in mind?

And I guess related to that, even your adjustments basically reflect sort of the funding of capacity. We really shouldn’t expect any kind of revision to your medium-term capacity plans and I just want to confirm that.

And then just secondly on sort of your Air Berlin discussions. My understanding is that the deal is very much driven by the cost base that that capacity joins the Group but of course the route and sort of air book portfolio is not necessarily linked to that, and therefore once we know your capacity or network decisions for that substitution of capacity, what limits other airlines to enter some of those routes that that capacities coming out of - for example if you decide to take away some of the aircraft of Air Berlin from some of the regional airports, could you see increased competition by others backfilling that capacity?

And I just wanted to get your thoughts on that kind of reallocation of capacity and whether new entrants come in anyway? Thanks.

Hello, Alexia. Yes, on the capital expenditures, just to repeat that, we’ll be going down €300 million in ‘18 and ‘19 by our expenditure compared to what we have in the plan.

As I mentioned, part of that will come from shifting into buying used aircrafts from initially thinking about buying new aircraft. The operating leases, as you know, have always been low in Lufthansa.

You rightly said below 10% and they will stay there. As you know better than me, once IFRS in 2019 changes the accounting structure, even the financial operating and ownership is all the same.

So there is no need for us to change the policy. What this means to others?

It will be interesting to see, but I leave that to you as it’s your job, not mine. We don’t have any serious plans to change our mid-term capacity planning.

We always said that moderate growth is what this industry needs. Lufthansa will do it at-most in terms of consolidation to help with that reduction in overcapacity, and if you have seen this year, we adapt where necessary.

On the Air Berlin deal, if I understood your question correctly, of course we only will be paying for those aircraft as the CEO of Eurowings Mr. Garnadt said at the lower end of our Eurowings structure as of today and also this will help us to bring down unit costs in Eurowings further.

And on routes, we can talk today. Of course we have applied for slots [ph] assuming that you go through and it will be our decision to use these aircrafts.

You rightly say that some routes in airports will be left. I learned about Paderborn and Nuremberg been affected but I had no information if others will go into these markets beyond to what we know in public today.

We will use the aircraft to strengthen our position in selected markets in Europe, as mentioned before, especially of course Germany.

Okay. Thank you.

Yes, hi. Good morning.

Thanks for taking my question. I have three questions, Carsten.

Firstly again on Brussels. Can you update on your thoughts how to integrate Brussels into Eurowings?

You flushed out the details regarding keeping the brand, keeping the local flavor and that stuff. Second question again on the JV with Air China now signed after two years of talks.

In insight, what took you so long to sign the deal? Was it politics and what kind of potential concession did you have to offer to make the deal happen?

And third question. S&P confirmed the investment credit rating agency but post the outlook on negative.

With this in mind, does this change anything to your commitment to your reliable dividend payout going forward? Thank you.

Hello, Johannes. On Brussels, of course we’re now focusing putting the deal through.

There is details to be negotiated and we’re in the process of that but we’re making good progress, therefore I’m positive we’ll come to a solution. And then we already also mentioned to the staff of Brussels and the management jointly that we’ll take the year of ‘17 to jointly analyze the integration that within to Eurowings when it comes to brand, when it comes to overhead which synergies to be realized.

So that is going to be the year where we’re going to take that time. And don’t forget, Eurowings will be busy in ‘17 with the integration of the Air Berlin aircraft as well.

So I think being a leading company, we can only do one thing at a time here and two big steps to be taken. On the Air China joint-venture, the reason why it takes so long, one of course is regulatory approval, which is a little bit more complicated with China, than it is, let's say, with Canada or even with Singapore.

So that still gets time. Concessions and the second challenge in the discussions were the fact that Air China tends to - intends to grow much faster in the next years than Lufthansa.

And of course when you have a joint-venture, it’s always easiest to grow in parallel as we do with United in the way in Canada. If you grow in very different speeds, it makes it complex - it makes a discussion more complex while obviously we find the solution otherwise we hadn't signed and there will of course be more growth in Air China than Lufthansa due to different maturity of the whole markets.

And the last question I hand to Andreas. There was one more question.

Yes, happy to take that. You know that the negative outlook from S&P emerged after the profit warning before the summer.

Clearly I think we should add probably first that do we expect cash flows to be better now for this year than we expected three months ago? So that’s something to put into consideration, as well of course.

But other than that we’ve got to communicated and long-standing dividend policy, I think Michael Kuhn has asked previously about it, and I think it’s pretty clear how we approach things then.

Okay. Thank you.

Good morning there. Carsten, you said you’ve been in close talks with Etihad and then perhaps have been talking about things in Italy.

Can you just clarify whether you guys - whether there is any circumstances in which you would have any interest in working with Alitalia? Further towards Turkey, obviously that market has been very challenged and yet you have a joint-venture with Turkish which is SunExpress, which is obviously having a difficult time and has also just lost its CEO.

What’s the future for that partnership with Turkish, and why wouldn’t that drop into Eurowings? It looks from a product perspective quite logical.

And then just as a final question, can I come back to the pilots. If you’ve simplified the situation to focus on pay and productivity, where does this leave the hopes of finding a solution on pension with the pilots and where does it leave any prospect of getting some agreement to expedite the transition of Germanwings’ pilots to Eurowings?

Hi Andrew. Yes, I said we are in talks with Etihad, you said in close talks, so nice try.

I know you long enough but now Andrew. I know [indiscernible].

Of course they have been a good customer for us in catering and MRO probably - it’s not the first time we talk to each other.

I said they are close talks [ph].

Sorry?

So they are close talks. Sorry, carry on.

I agreed that we focus now on Air Berlin issue which is a complex deal in itself by magnitude, by operational complexities and also by the issue I mentioned before. Of course we need to have safeguarding by Etihad one way or another that we don’t enter into the financial challenge here because of the financial challenges in Air Berlin.

So that at this point is enough, and when it comes to Italy, I have a house in Italy that as much investment as we need right now in Italy. There won't be any Lufthansa investment.

Second on Turkish. We are indeed talking to Turkish about the idea of taking the SunExpress Germany, which as you know an German AOC operating in and out of Germany as an initial step towards Eurowings, but the joint-venture company SunExpress between Turkey and Germany is, also this year, recovering quite nicely and we see as a potential next step to see the business what we believe to be adaptable.

At this point we only talk about SunExpress Germany being move closer to Eurowings because of its cost structure is right, the product is right. It’s a long aircraft at point but that’s why we will take our time to look at that.

And on pilots, the first was a little understanding. Of course well I said we simplify the negotiations.

I only mentioned pay and productivity. Also pension is of course what we are discussing, but this by German law a typical as I might want to call it, negotiations, which could end up in mediation and which are not giving the risk to either side that we are discussing some things which legally could - which could end up in a strike which was not legal, which we had last year.

That’s why I talked about simplifying the structure of the talks. It’s not really simplifying the course of the subjects we have.

And as I mentioned in the last Q2 numbers, there is two ways to reducing the pilot costs in the Lufthansa Group. One is without an agreement.

We just bring down the number of pilots in the higher productive labor agreements and only grow those airlines, which has lower collective labor agreements. That’s what’s happening right now and that’s why we are lowering unit costs even without an agreement on the corporate side - corporate unit cost.

The other, preferred by me, solution would be a solution of all these pensions, pay, productivity potentially some concessions on how pilot careers could be optimized for the individual in the Lufthansa Group and then do that in agreement with the union. We’re still open for both, but at this point we have turned towards classical structures of negotiations on pay, pensions, productivity and some smaller issues.

And at the same time, the number of pilots is reduced in the higher cost collective labor agreements by the number of pilots retiring, so about 150 next year and we will be moving pilots from Germanwings into the main airline at that rate.

Okay. Thanks.

I have seen there are three more people on the question list. We will need to close the question list and continue now with the next question please.

Good morning. Three from me, quick ones.

Firstly on North America split with minus 8.7% constant currency yields. I was wondering if you could give a bit more detail on I suppose U.S.

versus Canada? Second one is on cost performance.

You’re going to do north of minus 2% constant currency ex-fuel this year. Should we be thinking that you can do the same again in ‘17?

Can that go deeper, and most importantly, will it be unit cost down across all of the passenger airlines? And then finally just on the CapEx outlook.

Have you actually cancelled or deferred any planned deliveries, or is it just not taking up options as we go into ‘18, ‘19? Thank you.

Yes. Hello, James.

The first one into Andreas, he will check the detailed numbers for you. On the CASK development, I think we will spend a little but on the ASK development of next year, how much will we end up rolling or not, but I think the direction of 2.3 is also what we’re looking at next year.

And don’t forget this has - I think it’s the first time in my 20 years in Lufthansa that we are bringing down the CASK at all is now happening this quarter for the fourth time in a row and we’ll looking to continuing that next year. So the third quarter was the third time.

In this quarter, we also bring them down, so we’re reporting that. And then of course next year we’ll continue.

We have indeed not cancelled aircraft. I think you’re all looking at the manufacturing side of business as well.

Right now it’s the other way around. The manufacturers have problems in delivery, especially with those that we ordered C-Series, 350s and 320neos, so it’s quite easy I think to find agreements while not deferring deliveries.

That’s what we are doing and canceling orders or either by activating orders will be something we look into more details once we have agreed on the strategy with the used aircraft, which is somewhat of a new idea we introduced over the last weeks.

Split between U.S. and Canada, James.

We don’t give specific numbers there but you’re right. I think it can be expected that Canada looks worse that the U.S.

We have seen long-haul growth pretty much above the levels that we know from the U.S., so I think your assumption going in that direction is fair. Again otherwise happy to repeat that the minus 8.7% may sound high for the third quarter but that more or less depends on the very strong comparison from last year’s record quarter structurally an underlying.

We actually see that things are easing a little bit there with leisure demand picking up a little bit.

Thanks very much.

Yes, sorry, just a quick follow-up. On Frankfurt, just remind me - or do you give this, in terms of your short-haul network, what percentage of the traffic growth or point-to-point versus transfer onto long-haul, if you give that, that would be great.

That’s a very good question, Stephen, and we deliberately try not to answer that. Knowing the fact, we do have a relevant share of transfer passenger here in Frankfurt but the catchment of the Ryan line [ph] area where Frankfurt is located is very strong.

We’ve got a very significant point - we have a quite demand as well but not going into details there. Sorry.

Okay. That will do.

Thank you.

Hi there. Just to clarify quickly on the CapEx reduction commentary for the €300 million in FY17 and ‘18.

Is that all coming from second-hand aircraft purchases, or are there any cancellations of options in the outer years? And then also if you could just give a split between what’s in terms of the narrow-body versus wide-body aircraft as well?

Thanks.

Hi James, Andreas again. So just on the details.

€300 million in ‘18 and ‘19 and ‘17 would actually see that CapEx goes up a tiny bit because some things from this year are deferred. It is partly coming from options we are not exercising we had originally planned to exercise them.

Those would typically be found on the narrow-body side. For wide-body you would exercise options earlier in advance and use the aircraft to certainly components that needs to be clarified there in more detail.

With that, we come to the end of the questioners. Thank you very much for your interest.

I’m just passing back to Carsten for a final statement.

Yes. Thanks, Andreas.

I think most things has been said to be honest. Hopefully you agree with our commitment that we believe that we are on a good way forward.

Challenges have not come down, they rather has come up but I think our total portfolio of answers has also grown. It’s very important for us to see that we have finally gained control over our costs and we see them coming down.

We’re obviously still not where we want to be but we are confident that we see continuous progress here. On the revenue side, the market has certainly been difficult so far this year.

Will we see the same rate of deterioration in the coming years? Obviously as mentioned before, we don’t think so.

So fuel prices being little bit higher than before and the relative economic development in Continental Europe and hopefully the geopolitical situation not getting worse, again is good reasons to believe that we have seen the worse given it comes to unit revenues decline. And also once again the business of ours has shown its robustness and our ability to steer traffic across our multi-hub system with a broad coverage of global and European destinations through additional stability.

And I think the key message for me today is that we are confident here in Frankfurt, and as all modesty we believe we have good reasons to be confident. So good.

Talk to you all again. Thank you very much for you interest.

I think I’ll be seeing a lot of you on the road the next week with Andreas in London, in Frankfurt, and in New York. Look forward to that and take all my flights on Lufthansa.

So we’ll see in a good spirit. Thank you.

Bye-bye.