Deutsche Lufthansa AG

Andreas Hagenbring - Head of IR Carsten Spohr - CEO Ulrik Svensson - CFO

Neil Glynn - Credit Suisse Stephen Furlong - Davy Daniel Röska - Bernstein Jarrod Castle - UBS Damian Brewer - RBC Andrew Lobbenberg - HSBC Michael Kuhn - Societe Generale James Hollins - Exane Ruxandra Haradau-Döser - Kepler Cheuvreux Mark Simpson - Goodbody Johannes Braun - MainFirst Anand Date - Deutsche Bank

Thanks Emma, and good morning everybody. Welcome to the presentation of our nine months results and thanks for dialing in a little bit earlier than usual.

With me today are as your expected Carsten Spohr and Ulrik Svensson, our CEO and CFO. The two of them will give you an overview of current developments and of course the numbers for the third quarter and the nine months.

As always and Emma said, you have the opportunity to ask questions later. I'll turn it over to Carsten now.

Well, thank you Andreas. Ladies and gentlemen warm welcome from myself here from Frankfurt as well.

We're pleased to present you the Lufthansa Group's to be honest best nine month results ever. But before we get to the figures, let me go through some highlights from recent months and weeks.

At the beginning of October and after three indeed difficult years for our customers, shareholders and staffs, I'm thinking it's better to say, we settled the longest and hardest wage dispute for the Lufthansa pilots. In the same week, we signed agreements for the acquisition of significant parts of the Air Berlin Group.

We have improved our airlines' competitiveness and have continued to work on the cost reduction measures. In German, difficult English word apparently.

We have pushed forward the commercial organization of our network airlines and added further improvements to the product experience for our passengers. As a result we were awarded just a few weeks ago as Europe's best airline.

We continue to work on integrating Brussels Airlines into the Eurowings Group at the same time we have started to build up a Eurowings short haul and long haul fleet in Munich. Now our service companies we have above all been pushing forward with our efficiency programs and opening up further growth potential.

Ladies and gentleman I think it's fair to say the Lufthansa Group is taking the lead again. This is also demonstrated by the figures we present today.

We have continuously improved our results in a stable environment. We have increased profits and further strengthened our balance sheet.

After eight years we now have an investment, sorry, an additional investment grade rating from Moody's again, finally. Already after nine months we have generated an adjusted EBIT of EUR2.6 billion.

Revenues have grown to EUR26.8 billion. These are record numbers which are once again significantly higher than the previous two years.

We have again reduced our net financial liabilities to a level we last saw before the financial crisis of 2008. And this despite an increase of our capital expenditure for this last year.

We are again well on the way to generating a very strong result this year. The overall economic situation certainly supports current results.

But the improvement in the results is primarily an outcome of the hard work of our staff. The structural change within the company and the long-term changes across the entire aviation industry which we are actively pushing forward.

Monetization of the Lufthansa Group is gaining momentum. The results are clearly visible.

However we will not lean back, we continue to pursue our course consistently, resolutely and with all our strength. With that I will like to hand over to Ulrik to go into more detail about the financials.

Thank you, Carsten. Well good morning to all of you.

I'm happy to report that the third quarter results comes as a continuation of the strong development we have already seen in the first half of the year. And an adjusted EBIT of EUR1.5 billion we have achieved the best quarter results in our history.

The last quarter saw the same positive trading environment as the previous one. All major traffic areas performed well and that against an increasingly challenging comparative base.

You may remember that we were the only major European airline to deliver on its original full year forecast last year when most other European airlines were falling short of that. At that time, this had been mainly a result of our successful active steering and our ability to redirect traffic flows with our dense network in an environment burdened by terrorists and geopolitical uncertainty.

The major driver of the good development this year is actually a normalization of demand especially from Asia and North America. Also beyond this we see a number of structural and thus sustainable improvements that support our training.

Increasing joint venture activity in Asia and our joint ventures with Air China and Singapore Airlines in particular, also the agreement with the Lufthansa pilots provides reliability again to our customers that other airlines are currently lacking. The absence of strike risk drives customers back to using the Lufthansa brand and that of course strengthen the demand in our home markets.

The improved joint commercial steering of our group airlines and of course also the slowdown of Middle East carriers' growth is helping us. In the third quarter, load factors have improved by 1 percentage point on a capacity increase of 11.8%.

As in the past quarters, the growth was largely driven by the consolidation of Brussels Airlines and the Air Berlin wet lease at Eurowings. 3.3 percentage points of the total came from organic growth.

Seats and load factors improved in all major traffic areas partly strongly. On a group level, constant currency unit revenue increased by 4.5% and that despite diluted effect from the inorganic growth of 1.1 percentage points.

We still see no change in booking trends. The outlook for the remaining months of the year is good, but will of course dependent on short term bookings.

We expect unit revenues to be slightly positive in the fourth quarter. Constant currency ex-fuel unit cost increased 0.2% in the third quarter.

The increase was in particular from 1.1 percentage point adverse impact from accruals for variable pay elements due to the good result development. Another 0.2 percentage point negative effect came from customer compensations from operational irregularities at the Air Berlin wet lease in the past weeks.

Cumulative for the year, unit costs are now down by 0.8%. As expected, fuel cost excluding Brussels Airlines provides a tailwind of EUR56 billion [ph] in the third quarter.

Including Brussels Airlines they increased by EUR20 million. The adjusted EBIT for the quarter increased by EUR370 million to 1.5 billion.

This equates to a margin of 15.5% for the Lufthansa Group in the third quarter and this despite a profit contribution EUR94 million below last year from the non-flying businesses. The adjusted EBIT for the first nine months is 883 million higher than for the same period last year and the margin has improved by 2.6 percentage points to now 9.6%.

The EBIT and the net result for the first nine months are basically on par with last years. We booked a major positive one-off from the agreement with the flight attendant unions of Lufthansa in the third quarter of 2016.

Once they agreement with Lufthansa pilots will be booked in December, we should see a positive one-off effect of approximately EUR600 million from that in the EBIT in the fourth quarter this year. Exact figure can only be calculated with a discount rate applicable at a time once the members of the Pilot Union have voted in favor of agreement.

The strong result development continues to support the strengthening of our balance sheet. The equity ratio has increased to 22.3%.

We have generated a strong operating cash flow of 4.5 billion in the first nine months. This is 46% above previous year and is supported by a positive working capital effect from the better forward bookings.

Capital expenditure increased by 10% and free cash flow came in at EUR2.8 billion, 84% higher than last year. This has allowed us to reduce our net financial debt by 2.2 billion from the end of last year to now EUR521 million.

The pension provisions have decreased by 476 million despite a stable discount rate. This is the result of a good performance of the pension plan assets.

The pension provisions of 7.9 billion will come down further this year by 1.6 billion from the announced transfer of cash into the newly set up flight attendant defined contribution scheme and by another estimated 1.1 billion from the union agreement with the Lufthansa pilots probably in December. The cash flow development is particularly strong certainly very much driven by our good result development.

Correspondingly our return on capital employed after tax has been constantly increasing over the last year. Reaching 10% for the last trailing 12 months.

Calculated on a pretax basis, return on capital employed would amount to more than 13% for the same period. The reason we showed you this slide today is to share with you that our main focus areas beside tight cost management are the optimization of working capital and active management of our capital employed.

That is why we for example have been looking much more intensively at sourcing used aircraft and other means to start working on the capital base. Coming back to quarterly numbers, the airlines both passenger and cargo are again the main contributors to the strong result in the third quarter.

All of them have increased their margin significantly. The network airlines strongly increased their adjusted EBIT by EUR353 million to 1.2 billion.

The majority of this improvement came from Lufthansa German Airlines which contributed an additional EUR275 million. But also Austrian in particular SWISS has seen strong margin improvements.

The network airline segment increased the margin by 4.6 percentage points to 18% in the third quarter. The point-to-point airlines also showed a good development.

Revenues increased by 96% due to the first time consolidation of Brussels Airlines and the Air Berlin wet lease. And adjusted EBIT doubled by EUR111 million to 222 million.

Constant currency unit revenue at Eurowings alone went up by 2.1% but came down for the entire segment by 2.8% on a different mix. At the same time, constant currency non-fuel unit cost were down 9.9%.

All these resulted in a slight margin increase to 17.6% in the quarter. Lufthansa Cargo has seen the continuation recovery of demand across all regions and the consistent implementation of the C40 cost saving program.

Constant currency yields were up 10.6% in the quarter. Adjusted EBIT increased by EUR44 million to 20 million.

Lufthansa Technik saw adjusted EBIT decrease by EUR51 million to 111 million in the third quarter. This development was driven by a number of factors including the closure of the overhaul site in Hamburg and redundancy payments as well as increasing material expenses.

LSG group adjusted EBIT decreased by EUR3 million to 53 million. The margin was virtually stable at 6.3%.

This development is mainly an outcome of the ongoing restructuring, underlying profitability would have improved more visibly. Altogether we are expecting a very strong year for the Lufthansa Group.

Our review of the development in the fourth quarter has improved. With the advanced visibility we have on forward bookings, we now expect unit revenue of the passenger airlines to be slightly positive in the fourth quarter.

At the same time, we still expect the ex-fuel unit cost to be slightly negative. Organic capacity growth would be 5.5% in the fourth quarter and correspondingly we expect fuel cost to increase by EUR50 million.

This is excluding the first time consolidation of Brussels Airlines. A negative impact of EUR100 million from strike in the fourth quarter last year we've of course not see again this year.

The contribution of the other segment would be on par with last year. With that I give the word back to you Carsten.

Well, thank you Ulrik. Ladies and gentlemen even more important than looking backwards is looking forward.

We are now all familiar with our three strategic pillars. These are the premium network airlines, the leading point-to-point airlines centers around Eurowings and our world leading aviation service companies.

It is our aim to profitably expand our market leadership in all three areas. Not long ago we had to accept questions on how sustainable our tickets were against the background of weaker margins in some areas of the company.

This is all modestly has significantly changed. Our original goal was to become competitive again and to regain the ability to invest sustainably.

This goal has already moved further along. We now have been taking a shaping role in the rapidly advancing consolidation in Europe.

And we are able to invest again in profitable growth in many parts of our company. Basis for the sustainability of our business is and remains to consistently reduce our cost.

Reducing complexity, leveraging efficiencies and continuously lowering unit cost are essential to continued successful development. I will take you through our three pillars to give you an impression of how we intend to successfully continue our path.

Our network airlines are continuously working on optimizing their revenue potential like expanding their premium positioning and for offering new products including more and more digital services. At the same time, we are continuing to work on the cost base.

And literally this is a significant challenge. The airlines of Lufthansa Group flies from highly attractive whole markets to the rest of the world, but they also operate from high cost locations.

Given these circumstances it is absolutely essential that our airlines position themselves as quality leaders in their respective sectors. We must be at least as much better as we are more expensive.

This is why we will continuously work on improvements for example in cabin interior and in our services. For example, with its new 777 fleet on long-haul and its C-Series of short haul routes SWISS offers an even higher quality onboard experience for their passengers.

Austrian Airlines had its maiden flight with its new premium economy class just yesterday. And at Lufthansa, a third of all aircraft in the short haul Airbus fleet is now fitted with broadband Internet.

By next summer we will be offering this on all aircraft on both short haul and long haul routes. All of our network airlines occupy the top positions of the most recent Skytrax rating.

As a matter of fact, in Western Europe Lufthansa, SWISS and Austrian are the top three in terms of quality of product and services. Demonstrating that premium service and cost reduction are not necessarily mutually exclusive.

We will also not lean back in the future and we'll be further reducing our costs. This agreement - so the agreement we have now signed with the pilots of Lufthansa, Lufthansa Cargo and Germanwings alone will lead to annual savings of EUR150 million.

Following the successful reached settlement with Lufthansa pilots we are pleased to redefining our labor agreement partnership and rebuilding the very important mutual trust. Now that this new tariff agreement has been signed, we're able to again offer our pilots career and development prospects.

A new class of pilots have started their training at our flight school in September. As a matter of fact it looks that we have behind us painful lessons in managing labor relations that some of our competitors are yet to learn.

In different matters, we have agreed tangible cost reductions and for the next year stability in fees and charges with that. Beyond this, it is essential that the air force fees need to be reduced over the coming years.

We will now be conducting a strategic dialogue on the future development of our important partnership. We're working with our colleagues on further developing the Frankfurt location in the interest of our customers and shareholders in the best possible way.

We indeed want Lufthansa to grow again at its largest hub in Frankfurt. But until that's the case and costs have come down, we will continue to grow at other more efficient locations.

Now the second pillar, our point-to-point business segment. The Eurowings group is independently managed outside the existing structures, the focuses of integrating flag operations, leveraging synergies and further significantly reducing unit cost.

Above all we intend to grow rapidly and profitably in this area. With the agreed takeover of parts of Air Berlin, the Eurowings group is consolidating its position as Europe's third largest point-to-point airlines.

Europe soon will operate a fleet of two out of ten aircraft and carry around 40 million passengers a year. Revenue will grow by more than EUR1.5 billion to a total of over EUR5 billion.

The probability of Eurowings Group is also increasing. We already been recording a positive EBIT this year, earlier than planned and despite significant project costs Following the successful integration of the Air Berlin segments by the way parallel to the integration of Brussels Airlines we will see positive earnings contributions from the transaction as of 2019.

Let me take you through the most important facts regarding the acquisition of parts of Air Berlin. Eurowings has signed purchase agreements for NIKI and Luftfahrtgesellschaft Walter.

Both of these companies have competitive cost structures and will be managed in future as additional operating platform within the Eurowings Group. Furthermore we have agreed the acquisition or lease of further 24 aircraft with former Air Berlin lessors.

To crew these aircraft Eurowings is currently advertising around 1,300 jobs for which over 2,500 applications have already been received from Air Berlin and other airline staffs around Germany and Europe. We are also taking on seven other aircraft on wet leases from to be at standard market - to be flied at standard market trends.

In the course of 2018 we are taking on a total of 81 operational aircraft which we're really integrating into our flight operations at existing locations during 2018. This is the first for the entire airline industry in this magnitude and it will be a major operating challenge for Eurowings.

Even though we'll of course do everything we can to ensure that flight operations remain as stable as possible during this process. The entire transaction has financial scope of EUR1.5 billion to capital expenditure of around EUR1 billion for the acquisition of up to 61 aircraft.

And now onto service companies. Lufthansa Cargo is developing well thanks to the currently strong market trend, are continuing to consistently implement the restructuring measures they had started last year.

The focus of further growth on the expanding partnerships and increasing digitalization. Lufthansa Technik is making major progress in modernizing the current locations and further increasing the company's competitiveness.

This was secured entry into the maintenance business for the next generation of aircraft and engines. LSG Group making major progress in restructuring its European business.

LSG is growing profitably all regions outside Europe. In summary, I'm able to say that all service companies are indeed developing dynamically.

Ladies and gentlemen we are making progress in many important areas. The labor relations and the negotiations with airports and our digitalization and distribution strategy and very important in further reducing our cost.

They're implementing the necessary measures systematically and boldly to make the Lufthansa Group even more competitive, more capable to invest and grow profitably. This growth is not an end in itself, it's rather necessary to take the lead in changing the industry - in shaping the changes in our industry.

That is indeed our aspiration. With the good development of all results, the reduction of financial debt, modernization of the pension landscape and the strengthening of the balance sheet we are on the best way to achieve this goal.

Ladies and gentleman I'm proud to say Lufthansa Group is taking the lead again. We are increasingly living up to our goal of becoming Number One for our customers, employees, partners and shareholders.

We will embrace our leading role in this industry and I promise you I will not rest when it comes to making the Lufthansa Group even more modern, more efficient and more successful. Thank you very much.

We are happy to take your questions now.

If I can ask three quick questions please. First one with respect to pricing developments, into the fourth quarter the comp seem easier year-on-year than the third and we seem to have seen some acceleration on the transatlantic and also within European short haul.

So just interested is there a key reason why pricing growth should slow significantly into the fourth quarter. And the second question in terms of appetite for used aircraft, just interested can you frame your tolerance to let the fleet age rise and can you be specific in terms of aircraft types you're interested in whether they be maybe 777 or A330s where there's a lot of them coming off lease globally over the next couple of years.

And then the final question, you mentioned Frankfurt bargaining with respect to tariffs, just interested in your take out, does the absorption of parts of Air Berlin significantly improved that bargaining position at Frankfurt and also provide opportunities to other German airports to leverage increased scale.

Good morning Neil, it's Ulrik here. So starting with the first question in terms of pricing.

We see good bookings going into the fourth quarter. Clearly as you know most of our passengers in the fourth quarter are business passengers.

So it's clearly short-term bookings, we are reliant on, so it's too early to say. But so far we see pricing being positive into the fourth quarter.

In terms of the fleet, Carsten are you taking that one?

Yeah I'm happy to do so. A lot of aircraft but to please investors, we also love used aircrafts, so that I think is good news for the investor community.

I think Neil, when it comes to using used aircraft, we very much focus on used 320s for all airlines in the group. The 320 in the meantime we have a fleet on a common certification for all airlines in the group which allows us to move aircraft back and forth and there is quite a market out there in and out for 320s so that's what we focus on.

When it comes to long haul, SWISS and Lufthansa will be very specific, cabin set up we'll focus on new aircraft. When it comes to Eurowings and Austrian which are using 330s and 777 indeed there also is opportunity for us to purchase or lease used long haul aircraft and we'll be doing so.

And in Eurowings expanding our long reach network over the next years. The bargaining position [Indiscernible] is not significantly changed by Air Berlin because they only have I think five or six flights a day to and out of Frankfurt compared to the thousands we have.

But when it comes to other airports, the second part of your question, indeed we are of course significantly improving our market position and negotiating position if you look at Düsseldorf, Stuttgart and Berlin especially where we will be the best.

I mean you touched on this, but I'm just wondering when you said out by region the performance on the KPI of the passenger airlines. I mean it seems you're saying that I mean Asia inbound in particular is very strong.

Do you see that as - is that correct my comment there. And also could you talk about how premium traffic is doing relative to the economy.

The final thing I just wanted to ask is, I mean obviously you've done a lot in the last year in terms of expanding Eurowings with the bid for Air Berlin side or the contract for parts at Air Berlin side, and also perhaps Alitalia or at least a comment on that. But I mean just talk about, Carsten, the processes in place within the business to maybe a project teams for all these teams and how the business actually runs while you're doing all these kind of non-organic things.

I'll start with the trading questions. Yes, indeed you are right, we see strong leisure demand coming back and seeing that the full year out of Asia, but also out of US.

We are seeing leisure demand growing at stronger than the premium demand, but both of them are indeed growing. And that's a trend as we look at today, we expect to continue.

Yeah Stephen, on how do we manage all these inorganic projects, I think when we're talking Lufthansa about HR sometimes people tend to talk only about HR cost. I think what we've seen the last month is HR stands for resource and the Lufthansa Group indeed has intellectual resource I think which is allowing us to maintain projects of that significant size we have seen in the past month.

We had up to 60 people on the case of Air Berlin, some of them working day and night, people love it, it's a very challenging, but of course inspiring project to work on if you work in aviation, of course there were some external support especially becomes legal. But this is not of my concern, I think maybe on the move again, you can see that also in this building it's inspiring people and motivating people rather than complaining about more work.

So I'm very much confirming this current situation than the backside of the power curve situation and we have been through in the last years.

Good morning everybody. And well congrats to the team and to the board for the great progress.

Three questions if I may. One, Carsten you said, you're growing the business again, I think you have a rough estimate of what Eurowings is doing.

Could you give us some more color of how you're thinking about the network airlines? ASK growth as shared was around 3% from the airlines and what is that outlook look like for '18 and '19.

Daniel, if I may, you're very difficult to understand. Could you please try again?

Is this better?

Let's give it a try.

On the speaker phone maybe you need to…?

So it's not on speaker phone. I'm sorry for the connection, but let's give it a try.

So first question is, growth in network airlines for '18, '19. Roughly what are you planning?

Second question is on the positioning of your short haul travel in the network airlines. How do you see the cost pressures in short haul on network, how is your premium positioning helping you on the short haul in the network of the business within Europe.

And last question on the strategic partnerships also in terms of airports have you considered expanding partnerships also at Zurich and Vienna and are you considering maybe possibly increasing the Frankfurt stake or how would you see the Frankfurt relationship develop.

So starting with the network airlines and in terms of capacity, we have this year grown around 3% organically in the network airlines. And I think that's a safe number to continue looking into 2018 and 2019 that's approximately the same level we're going to see going forward.

In terms of short haul network and premium position it sounds like it's your question.

I think of course the German market and the Swiss market being our home market, it is also helping us in terms of our competitive situation on short haul, but these markets do require premium service. And I think we have provided that.

Part of the thing competition between Air Berlin and Lufthansa in the last month or years has been one that Lufthansa do to its premium service. So I think premium also has room in short haul even though not to the same degree of course you can leverage that as in the long haul, but we'll continue to provide that.

As a matter fact on all routes where Air Berlin was currently competing with Lufthansa which are now exiting the market, we'll having Eurowings on the route as a second offer in our tour brand strategy to give the customer a choice between premium and best price. When it comes to your second question on running the corporation with our hubs, I think it's fair to say that multi-hub really starts to work now.

We always said that the multi-hub is an opportunity for us to play quality and cost advantages across the four hubs. And Zurich and Vienna we achieved significant cost savings over last month because they have understood the competition within the hub network.

And when it comes to Frankfurt, they also now I think learned that there are disadvantage versus Munich both on quality and cost and I think that's driving hard now and fully in the dialog with us, but also improving the cost position and quality offer. So I think that has did work like a wakeup call what we have been through in the last month.

But doesn't stop with the hubs also in Düsseldorf we are now starting talks about potentially engaging further than what we're doing today, we have 50% of the passages in Düsseldorf, they all look at Munich and understand how well that works. So I think we'll be seeing more integration between airports and Lufthansa Group, our Eurowings of course in those airports outside of the hubs in the next years.

Three from me as well please. Just any comments kind of looking into 2018 in terms of the outlook for the service companies and in particular kind of MRO and catering which have seen some pressure.

Do you think basically on MRO there's anything to worry about in terms of potential kind of cost pressures that are being seen in the industry? And then secondly, just on the balance sheet, have you kind of got to the point where you can kind of give a pro forma kind of cap rate, relating to IFRS 16, a number of airlines have.

So I'd be interested to hear what - what were kind of cap rates you'll be using and what you'll be putting on your balance sheet, even though it's starting obviously in '19? And then lastly, just on pensions, I mean should we be thinking about a year end number closer to 5 billion now at the end of Q4.

Thanks.

Yes. Starting with service companies, I think you could approximately expect that EBIT of MRO and LSG will be more or less the level as it is in 2017.

So there's not going to be any major changes going into next year. On the balance sheet, no, we do not have a number already.

We are slightly different. We have slightly different setups compared with many of our competitors.

We do not have a large number of leased aircraft, so that will not have a larger impact on our balance sheet. However, we do have a number of leased buildings around in the world and we're speaking about very large numbers.

It just takes a long time to get a grip over this. But we do not have that major impact as you have seen with some of our competitive issues and the leased aircraft.

In terms of pension liabilities, yes, indeed, our pension liabilities will decrease towards the end of the year, around 5 billion is a good assumption that is the 1.6 billion on the full effect with unions, with a cabin attendance beginning to find towards the end of the year and the effect with the pilots, which we expect to see in December.

First, we talk about the external rankings of the airlines in the group. Could you give us a little bit more flavor on what's happened with the internal rankings, either, net promoter scores and how they've trended and how correlated or not those have been to what's happened with the pricing development.

Secondly, as no one's asked it, more profitable now, but you're also a bigger group, could you give us an update on what your thinking is in terms of the sort of how the organic CapEx in the group for this year, next and continuing and also could you clarify your comments on Air Berlin there. I think you mentioned about a sort of a one and a bit billion transaction.

So if you could sort of just clarify how much of that is cash. That would be great.

Thank you.

Yeah. I'll start with the quality aspect and Ulrik will answer the CapEx and [Technical Difficulty] Indeed, we have in the new organizational setup of the airlines introduced a couple of years ago, we now have agreed on KPIs for all airlines in the group, which by the way is more complicated that you would think probably from the outside.

And one of them is the NPS, net promoter score. And of course, external rankings like the one Skytrax used to help to motivate us, help to give us the guidance where we are compared to others, but it's not how we daily manage our airlines.

And we indeed see that quality pays offs and of course, Swiss and Lufthansa are the premium brands in that regard, two very strong markets. When it comes to Austria and I think there is premium offered, but the Austrian market of course doesn't have the same potential as Germany and Switzerland, so we don't see quite the same correlation between the yields and quality measured internally or externally as we see in Swiss and Lufthansa.

In terms of CapEx, we expect to end up this year of around 2.7 billion in total CapEx. That is a number I think we can model with also going forward in 2018, 2019.

It is a slightly higher number than we had seen earlier, but as you rightly said, it reflects the larger group. It's around 8% of revenue, which is often the case in many of our competitors as well.

I think that's a safe number to go forward with. In terms of the Air Berlin so to say, one off CapEx, we are earlier speaking about the total investments of 1.5 billion.

Out of that 1.5 billion, we have already purchased 200 million in aircraft in terms of the wet leases we put in place early in the year and there is another 1 billion to come, which is for 61 aircraft we are buying from the lessors. Some of that will also be capitalized leases, but it's too early to say exactly how the mix is going to be, but the majority of that will be purchases.

Can I ask a couple on Air Berlin? To what extent, do you think it mattered from your perspective about what happens with what remains at Air Berlin?

What happens, do we do a deal or not? Does that have any impact on how competition authorities will regard the deal?

The second question on the Air Berlin transaction, I mean, it looks to be, I mean, clearly we all see the strategic positives of it, but there seem to be quite a bit of operational complexity coming in with the Q400s at LGW with the 737s coming in on wet lease to be flied? Just looked to be flowing in, throwing in quite a few different aircraft types and even more platforms.

So are you concerned about the complexity and indeed what are you thinking about the fleet? And then my final question would come to Berlin and the airport situation there.

What is your position on whether Tago [ph] should remain open after the final opening when it comes of Berlin Brandenburg and how does that color your strategic thinking?

Andrew, good morning. It's Carsten.

I think when it comes to the remains, as you call, of Air Berlin, this allows me to make a comment on the slot allocation in general. I think the - ex the outcome of our transaction has been highly overestimated in regard to the slot allocation.

Our estimates show that, even there had been no transaction with any parts of Air Berlin, the slot allocation for Lufthansa at least would have been more or less the same, because as you know, the ruling, that half of the slots go to incumbents, maximum 5% each, the other half go to current active airlines at the airport. If you do that modeling, you pretty much come up with the same slot allocation as we now see through our transaction.

So that answers your question, because I think when it comes to slots, it doesn't make a difference if somebody else buys one way or another, other parts of Air Berlin or it just takes up opening slots, free slots, nobody else into another acquisitions. When it comes to the headlines in the papers, [indiscernible] and this is what I hear from your question, it would look better to have a segment or even third partner of a transaction, when it comes to the lawyers really sitting down, during their homework, I don't think makes much of a difference.

And your second issue, complexity. Indeed, we always said, the price we're paying for the rapid growth in Eurowings, well there is an organic growth of some of our competitors of the last year is short term additional complexity.

We believe it's highly overcompensated by the cost pressure that creates because there is indeed cost pressure within the Eurowings group, which has helped us to bring costs down and secondly of course, other aircraft N320s, N330s in long-haul can only be temporary. Once we are beyond the inorganic phase, we see now we'll be going towards streamline to see it again.

On the other hand, all of us will never forget inorganic growth means buying full aircraft, where there is organic growth usually minus buying MTX, obviously you have to fill against the market pressure. So I think positive reason we're moving ahead so fast in Eurowings in terms of profitability is the fact that we are not pushing others out necessarily competing for the same passenger, but buying aircraft which already have to do onboard kind of.

The 737 by the way has no operational impact, because these are operated by to be flyers as part of their fleet in a wet lease agreement. When it comes to Berlin, all of us will fly to Berlin, love Tago and surely our passengers prefer Tago to the new airport, but we learn from other places like in Milan where there is usually two airports for those cities don't help the airline industry, but rather bring down profitability because of increased complexity and also the legal situation in Germany, especially in Berlin is highly complex, so those people who advise us on this say, any discussion beyond media, legal discussion on keeping open would further delay the opening of Berlin international, which nobody wants.

So that's why I think the price to pay for that further delays, nobody I think should be interested in and therefore, for this very pragmatic, if you want to call it, legal reasons, we believe that closing is right decision. If it of course remains open, we'll keep our dominant slot share there, even now with Air Berlin growing and our passengers will love it even more.

So I think whatever comes out of the discussions in Berlin, we're happy to go along with it.

And also a few questions on Air Berlin. Firstly, you laid out the short term timeline and the expected approval and what can we expect in terms of timelines for the integration for switching the aircraft type because I guess you don't want to fly this forever and what can we expect in terms of integration costs and let's say, a contribution of the new Air Berlin capacities to profit next year, will it already help or will next year rather be a transition year.

And then another aspect of Air Berlin obviously they have now ceased their long haul operation, which was pretty sizable, what share of former Air Berlin passengers do you expect to get into your aircraft and what effect to expect in terms of passenger growth there, also looking at the Q4 forward bookings obviously. Thank you.

Well, yeah, let me answer the first and the last question, Ulrik will take you through our planning for the commercial impact. As I mentioned before, of course, there is traditional complexity and operational challenges.

This is the biggest I think acquisition of inorganic fleet we have seen in Europe. Air Berlin indeed is larger than Swiss Air has been when it was grounded.

Many, especially the young people forget that other thing. We divided the next 12 months into three phases when it comes to operations.

The first phase, we call to ride. We need to make sure that as many passengers who are booked be it on our flights, operated on wet lease deals or on Air Berlin flights are somehow repatriated and taken on board.

There will be significant capacity squeezes in and out of Berlin, in and out of Dusseldorf, because as of next Saturday, out of 140 Air Berlin aircraft, more or less 80 will be on the ground and only 60 will be continuing in the air. So that gives of course a capacity squeeze, even Lufthansa by its size with the load factors we have cannot easily cope with.

The second phase will be called stabilizing, which is the phase of next [indiscernible] where we try to stabilize operation. Aircraft will be repainted, schedules will resume to normal, no more intercon flight will be needed on domestic routes, because we stabilized the operation.

Of course, after from Brussels and then as of next fall, with a schedule of 18, 19, we will go back to optimizing which will include optimizing the fleet structure, optimizing yield and revenue management, back to hopefully then, of course in the future, more profitable business Ulrik will refer to, but also for the passengers, a more reliable situation. On long haul, I would expect that we take additional aircraft into the Eurowings long haul fleet of not more than half of what Air Berlin was operating, probably 6 or 7 aircraft, but additionally, beyond receiving those 50% passengers on board of Eurowings aircraft, there of course will be passengers via our hubs.

So I would think that probably we have a very good chance to receive at least three quarters of the Air Berlin passengers on our aircraft one way for another Eurowings or Lufthansa or Swiss or Austrian. Ulrik will refer to our financial implications on the Eurowings, Air Berlin, Eurowings.

Yes. So in 2018, indeed, it is a transitional year and we will have project cost, I mean, we are thinking about approximately 50 million, it is repainting aircraft, it's training crew and so on.

All in all, we get a total of revenue increase of around 1.5 billion due to the Air Berlin transaction and we are expecting to see positive impact from that in 2019.

Just two from me. I was just wondering on the maintenance division, you were talking about increasing material costs, can you just give a bit more detail on what you're actually seeing there and in particular and whether that's just underlying costs, which we need to factor into full year '18.

I know you've said we're flat year on year on EBIT, just a bit more detail there. And secondly, I don't think anyone's asked yet, can you just clarify your interest in Alitalia, how will you like to proceed and indeed if you will at all?

Thanks.

So starting of the maintenance side, there was a little bit of a dip in the profitability of our MRO business in the third quarter. I think, this is a temporary blip.

Typically, we have made around 400 million in EBIT for techniques and I think that's a good number to see going forward and then of course that will increase as long as we continue to organically grow that business as well. There were also some other costs in the third quarter, like write offs, in terms of accounts receivable for example for Air Berlin.

In terms of Alitalia, we believe indeed the Italian market is very interesting, however, to acquire Alitalia as it looks today is out of the question. That could potentially be an opportunity to buy parts of the total restructured Alitalia, but that is a very different animal than what is existing today.

Two questions please. First, there were some discussions beginning this year that you might start with Eurowings in Frankfurt next year.

Is this something you still consider or do you focus now on your growth of Lufthansa airlines. I have noticed in the systems that underlying the group will grow seats frequencies mid to high single digit in Frankfurt during the winter flight schedule.

And second, I'm a little bit surprised by the capacity development of the different brands during the winter flight schedule at Geneva airport. Are you happy with the operation here after all of the fleet or shall we expect more restructurings and the CS airplanes at Swiss, we'll receive next year, we'll target again Geneva airport or we'll go to Zurich.

Ruxandra, yes. Our decision has not changed when it comes to Eurowings in Frankfurt as long as Frankfurt is subsidizing our competitor.

We're not going to be replacing our growth engine Eurowings into Frankfurt. Eurowings will be serving Frankfurt in the future out of Berlin with a few flights a day, because as I mentioned before, all the routes where currently Air Berlin is the only competitor of Lufthansa, in the future, will also be served by Eurowings three or four times a day.

Frankfurt Berlin is one of these routes, actually, the only route Air Berlin has been operating on and Frankfurt decides to partner them at Majorca. The growth you see at Frankfurt of course is driven by the fact that a number of movements power has been slowly risen for the winter, of course, maintaining our slot share, we have brought smaller aircraft to Frankfurt to ensure that we don't lose our share of slots.

That's where you see some additional flights within our Frankfurt, more or less slots safeguarding, but also profitable due to the market situation we have here. And when it comes to Geneva, you probably well know that we have been down gauging our aircraft from 320 to the C series.

Very well perceived by customers and by the controllers alike. We've very much increased our profitability in Geneva and the additional C Series coming to Swiss unfortunately slower than we would like, will be split up between Geneva and Zurich, but more will now go to Zurich in the future, because we're not going to increase the number of aircraft in Geneva.

Just got one question, but potentially it's transformational. In terms of your digital strategy, you obviously have data legs pushing a new digital platform across all your brands.

Just wondering if you can tell us the timetable behind that, what you're expecting to maybe achieve over the next couple of years from that improvements in the sort of order and execution management in the ancillary side.

Well indeed, Mark, we have created what we call internally the data hub where we are combining all the data from the various airlines into one system, again sounds easier than it is once you sit down to really do it. But of course, we're well aware of the value of the data we have.

At the same time, we'll remain cautious how to use that data. I think a big element of our commercial success is trust.

Probably nobody knows more about major German people than Lufthansa does, more it does, so we're aware of it, but also cautious, that's why you will see a very disciplined process moving forward using that data to improve offers to our customers, be it offers in terms of services or be it individualized commercial offers. If somebody flies to Majorca twice a year and we know that from our database, why not offer him when we have open seat to Majorca a third or fourth trip.

Those things we do where we don't abuse the data, but offer additional service levels or opportunities commercially and this will be another digital process into the awards, it will be a gradual process over the next few years, improving every quarter.

In terms of timing though, is the assumption being - will brands be on that platform by the end of next calendar year and then the real benefit will be seen sort of '19, '20?

If you talk about airline.com, Swiss will be the first airline hosted next year and then we'll have another 18 months to bring all the other airlines on board by earlier 20. This airline.com is our new kind of inventory commercial management system.

So both way beyond data hub, as we stated before.

Just two for me regarding the Air Berlin deal and the recruiting. Firstly, out of the 1300 employees that you need to recruit for operating the large, the Eurowings fleet after the Air Berlin deal, how many of those are indeed pilots and how comfortable are you that you can recruit sufficient pilots.

And secondly you also mentioned that you recruit not only from Air Berlin, but also from other airlines. Could you may be shed some light which airlines these are and what the take up is here?

Thanks.

Johannes, with your second question, you pretty much also answered the first one. Indeed, people don't seem to understand, also in the German media that we only need additional crews for the 24 aircraft, which we take on as growth, because of course in [indiscernible] we take over the company and by German law, we take over the staff, including crew and pilots through the current CLAs.

So it's only for the additional Airbus 320s which fly to bring it to the air that we need pilots, this 24 aircraft more or less times 10 we'll require 240 pilots only to crew these aircraft. And indeed, there is a market out there in Germany right now that a lot of applications are coming in from other pilots, but Air Berlin.

So to be honest, surprisingly high number. So as we had opened postings out there, we are hiring at this point, already people from other airlines as well as from Air Berlin and basically it's the first come first served basis, of course, assuming qualifications are met.

So it's probably a good position to be in right now as an employer in the German market when it comes to pilots.

And would you be prepared to share kind of a waiting list for these 240 positions?

Waiting list or?

In terms of how many applicants you have already for those?

I will note it's more than 250, so my people in Eurowings are able to have a selection process going on, using the most qualified, but I can tell you if it's 400 or 500, to be honest, I cannot tell you, but it's more than we need for the next month. As you probably know, the people also tend to forget that we need to look here from Brussels before we can bring additional aircraft into the air.

Initially, [indiscernible] will fly part of the wet lease and it's a bit quite complex, but so then additional 320s can only be air borne as of next year. So we have enough lead time and also due to requirements in regards to MRO and the German authorities, it's probably two or three aircraft a week, we cannot do further and there is more than 2500 applications in total by higher number than open jobs we have.

All right. So you do not face the pilot shortage of the airlines currently?

No. I think the pilot shortage is happening on the lowest end of the pay scheme and those, we don't treat the people fairly.

As I always said, as a pilot, in aviation, long term, there is no shortcuts.

Just two questions from me. I think it's right the Austrian and Swiss in 2018 will be moving to the fully flexible pricing.

I was wondering, could you give us a sense of what that will actually look like in practice, what sorts of software capability you have in place to really make the best of the opportunity. And then secondly, I was reading online that you, I think for a couple of months now, you've had a JV with Rewe, if I'm pronouncing that right, R-E-W-E about people being able to buy their groceries on board, could you give us any sense as, is there reluctance to take that ARPU actually or people engaging with it, that will be quite helpful.

Thank you.

Yeah. Thank you.

When it comes to the modern pricing, you need to understand - you do understand there is currently limitation to 26 booking classes due to the GDS restrictions and we're breaking that restriction with our development distribution capacities. So we'll see more than any pricing in terms of price points.

But also more than any price, in terms of timing, so we can adjust our prices much faster and there might be a time when every passenger on a 380 paid a different price in a different fare structure in a different restrictions and so there is an unlimited opportunity to become more and more specific on that. When it comes to our new offer with Rewe, as we pronounce in Germany, the biggest German grocery retailer, it just started, but I can tell you we've already made quite a few bachelors happy to come home from a business trip and find their groceries prepared for them.

It's just a beginning of what we can do in the future. So I cannot give you numbers of transactions, but I think it creates lot of interest and shows that we are the right facility to have additional services, digitalization does not only make our current business better and faster, and cheaper, it also offers us additional opportunities.

So on the option in Swiss, the fully flexible pricing capability, I'm just trying to understand from a customer point of view, what do I actually see this difference. Is there a risk that I'm booking a flight and the person sitting next to me is booking the same flight and he sees a different price?

In practice, what is actually looking like?

Well, I think what it does, it will offer you very wide area of upgrades, be it where you want to sit, be if you want to use a lounge, be it if you want to preorder your meal and which meal, hot or cold, champagne, yes or no, so all these things that will be ion the pipeline. So I think this is - we can have individual deals with corporate customers where we offer for example at this point, our biggest corporate customer, lounge access in for those travelers who don't travel with us frequently enough to have a gold or silver card.

Other corporate customers might want to have champagne for their business people, flying home from successful bids. We have to provide that as well.

So I think it's a huge area of basically upgrade and observing revenues, which we'll be offering to you individually and our corporate customers. But your question if two individuals at the very same time ask for fair to receive same channel, will they be receiving the same offer?

So there will be no discrimination, two individual passengers, be it by age, origin or whatever. I think that is something where I think also morally we have sort of, how should I say, limits of what we can do, even technically, we could do more and of course why we do this for increase our RASK.

We're very convinced it would increase our RASK.

This might be a bit more for Ulrik. Going forward then, is it right that all of that upsell or upgrading, will you be reporting that separately or will that just be sitting in the current revenue line items?

It will probably sit there in the current line item. It will be difficult to view this on an external basis, how much is of what effect.

Of course, you can follow up the champagne, which was Carsten's comment here earlier, but the full effect of this, I think, we will have to just monitor our total RASK development and see how that develops in each individual countries.

I think going back a year or two, you used to have a target of about 40% of the business coming from the service areas, but obviously, the acquisitions are much more in terms of the passenger airline side. Is that target still there and also related to that, there hasn't been any acquisitions in the aviation service side of the business of scale?

Would you be looking to do some acquisitions in that part of the business? Thanks.

Well, thank you. To be a little more specific, what we said I think was three years ago is not that we want to increase the non-aviation business to 40.

We said we want to reduce our hop flying, which at that point was 70% of our business down to 60, which we pretty much achieved on the dot, we have 61 right now. We want to increase from 30 to 40 the non-hop flying, including point to point.

That time was obvious, we are showing Eurowings. We have come to number three and of course, the non-aviation business.

And that achieved, to be honest, we're at 61-39 now, which is good. So the big growth in Eurowings is part of that strategy and contributes to the 39%.

But nevertheless, we've made some acquisitions in MRO over the last years, especially on the digital side. You're right, no large scale execution like the visible thing of Air Berlin, but if there is an opportunity to grow our market position and improve it, will only grow in, be it flight training, be M RO, I think we'll be happy to do so.

It is definitely in our scope and when we allocate CapEx, very disciplined to do that, by the expected return of capital employed, wherever the CapEx is best used, that's where it goes.

That was probably the last question. So thanks, Jarrod.

Maybe Carsten.

Yeah. Thanks as always for dialing in, for listening, for asking interesting questions.

I hope that you've heard indeed today that we are encouraged by the positive result development of the last quarters. I also say, on behalf of our 130,000 staff and also the top management team around me in this building, it's very good to see that the hard work is paying off.

We had difficult years as you well know, overcoming the restrictions on the labor side, living through various days of supply, proving that this time, it's serious and as I've said before, to many of you when I met you at the roadshows, this company is not short of analysis. It's sometimes short of consequent execution, and I think we proved that has been part of what was needed to create additional success.

So at the same time, I can assure that neither Ulrik and I nor others around us are misled by the positive developments as much as we are proud, we certainly know that there's more work needed, bringing down complexity, bringing down costs further and we are very much motivated to go forward with that. In this building, if you were here, you would feel it.

So in that regard, we're also looking forward to see many of you in our roadshow in the coming weeks and have a good time until then and looking forward to further discussions. Thanks again.