Deutsche Lufthansa AG

Andreas Hagenbring – Head-Investor Relations Carsten Spohr – Chief Executive Officer Ulrik Svensson – Chief Financial Officer

Stephen Furlong – Davy Neil Glynn – Crédit Suisse Damian Brewer – Royal Bank of Canada Jim Hollins – Exane Andrew Lobbenberg – HSBC Anand Date – Deutsche Bank Michael Kuhn – Societe Generale Daniel Roeska – Bernstein Research Ruxandra Haradau-Doser – Kepler Cheuvreux Malte Schulz – Commerzbank

Thanks, Emma, and good morning, everybody. Thanks for your patience.

Actually we had so many people coming into the conference date, we gave it another few minutes. Thanks for your patience here.

Clearly, a warm welcome to the presentation of our group results for 2017. I've got Carsten Spohr and Ulrik Svensson with me and, of course, both will be giving you an overview of the current developments and, of course, the financial statements 2017.

As always, there will be an opportunity for Q&A later, but first we start with the presentation. Carsten?

Well, thank you very much, Andreas. Ladies and gentlemen, a warm welcome on my behalf as well.

It is indeed and this year even more than usual, a pleasure to take you through the results of the last financial year. The financial year 2017 represents the continuation of the development that started, indeed, several years ago.

The modernization of the Lufthansa Group is paying off and today we are reporting the third record results in a row. Last year, we carried more passengers once again than ever before and basically all financial end-operational KPIs are showing in the right direction.

The Lufthansa Group continues to develop dynamically and you see this very good financial performance rather as a starting point and a facilitator for the further modernization of our company and our leading role in – with global airlines industry. 2017 was an equally good year for our customers, for our employees and for our shareholders.

The stakeholder triangle, which I also personally consider so important, is in balance again. We continue to invest in our products for our customers with great success.

Lufthansa, SWISS and Austrian Airlines were awarded the 3 best European airlines by 18 million customers worldwide in 2017. In addition, Lufthansa became the first and only airline in Europe to be awarded 5 stars.

At the same time, we achieved long-term collective agreements with all our major unions. I think it's an achievement led by my colleague Bettina Volkens and her team, which is outstanding and we are particularly pleased that staff service and customer's feedback show that our employees engagement continues to rise.

That is of special importance because our employees in all areas of the company are our face to the customer and the main driver of the Lufthansa Group's success. Obviously, shareholders also benefited from the modernization of the company.

The share price, as you all aware, has significantly increased. The dividend portfolio is higher today and our profitability has improved and we show a much stronger balance sheet.

Very important, we have managed to increase quality and cap cost at the very same time. But before I give you an overview on our future initiatives, I will now hand over to Ulrik, who will present the figures for the past financial year in more detail.

Thank you, Carsten, and also from me good morning to all of you. As Carsten said, 2017 was a very good year for the Lufthansa Group.

We showed a much greater rate of improvement than our peers. Basically, all our relevant metrics developed positively.

Starting with the second quarter, the trading environment and demand situation for the airlines turned positive. This was partly due to the settlement of the labor dispute with the Lufthansa pilots at the time as well as the fact that the terror attacks that had happened in March the year before.

From April onwards, demand seemed to return to normal levels. Load factors indeed improved.

It was further helped by structural changes in the competitive environment en route to and from Asia and, in particular, by the accelerating consolidation in Europe at the end of October. Altogether, we benefited strongly from better unit revenues.

In the fourth quarter, Europe and Asia continue to outperform on the traffic regions, trading in South America improved strongly. These regional trading trends of the fourth quarter also continue into the new year.

Looking at costs. Underlying ex-fuel cost at constant currency had decreased by 1.8% in 2017.

This is, however, not fully visible in the reported number for the very best reasons I should say, better demand and unexpected consolidation opportunities. Some of the underlying cost reductions have been offset by crews for higher variable pay, additional passenger-related cost and irregularity cost associated with the failing Air Berlin operations.

Our focus on cost reductions, of course, continues. We feel very confident with our guidance of 1% to 2% unit cost reduction for the Passenger Airlines in 2018 and we'll continue to cut costs at this rate also in coming years.

The major drivers for cost reductions in 2018 will be, well, first the labor dues with our pilots and cabin crews. From the agreement with the pilots alone, we anticipate €150 million cost reduction.

Secondly, the organization of the group, which started in September 2015. This will contribute €200 million to adjusted EBIT in 2018.

Thirdly, the initial short-term agreement on cost reduction with Frankfurt Airport, which will deliver an initial benefit of a 2-digit million euro amount. Furthermore, the joint maintenance cost-reduction effort between the group airlines and Lufthansa Technik, which will lower MRO cost by a low three-digit million amount in 2018 and in the coming years.

Also the increasing share of direct sales and hence reduction in distribution costs. And finally, of course, the continuing phase in of new and more efficient aircraft with approximately 20% less operating cost each.

Fuel cost increased by €350 million in 2017. It is very much in line with our original expectation of some 12 months ago.

Aviation Services showed a very strong performance. Lufthansa Cargo alone increased our profit contribution by €300 million.

The success story of the year is, however, the €900 million profit increase from the Passenger Airlines resulting from those higher revenues and lower costs. In total, the adjusted EBIT for the year increased by €1.2 billion to almost €3 billion.

The operating margin has improved by almost three points to 8.4%. The even stronger increase of EBIT was due to the formal settlement of the tariff negotiations with the pilots at Lufthansa German Airlines.

The respective positive P&L effect of €582 million was booked in December after the members of the union had broken in favor of the agreement. The strong result development continues to strengthen our balance sheet.

In line with our expectations, net financial debt has increased in the fourth quarter mainly due to the cash payment into the new defined contribution plan for the flight attendants as well as the acquisition of aircraft in the context of us taking over parts of Air Berlin. Total investments in 2017 amounted to €3 billion that is €300 million more than expected at the beginning of the year.

But this number includes €900 million for the acquisition of 42 former Air Berlin aircraft. Adding up the numbers, you can see that some €600 million of originally expected investments have shifted into 2018 and later years.

Consequently, we are now expecting gross investments of €3.4 billion for 2018. The average organic investment for 2018, excluding Air Berlin, however, remains on average at some €2.7 billion per year.

Despite increased capital expenditure, we have improved our adjusted return on capital employed after the tax by 4.6 percentage points to all in all 11.6%. Pension provisions have come down by €3.2 billion in 2017.

The cash contribution to the flight attendant scheme cost is €1.7 billion reduction in the liability, the pilot agreement reduced it by further €1.3 billion. We're pleased with the development of cash flow and the balance sheet in 2017.

Free cash flow has doubled and we are now firmly investment-grade rated again, despite investing as much into inorganic growth last year. On the back of this, we are very happy to propose a dividend of €0.80 this year.

This is an increase of 60% on the amount we had paid out for the last year. This constitutes a 3.1% yield on yesterday's share price.

We firmly believe in paying regular dividends as stability of the company is continuing to improve. And due to the valuation in the sector, we can generate very decent Gs at an acceptable amount of cash to be distributed.

Overall, we are taking a balanced view on the development of our balance sheet. Apart from dividends, we'll use the liquidity very diligently to invest into the existing and growing business.

We will continue to invest into the modernization of the fleet, the products and into the required infrastructure. The aircraft orders up to 2025 are mostly aimed at replacing older and less efficient aircraft.

The spend on CapEx relative to revenues remain in line with our best-in-class peers even though with increase in absolute terms with the growing size of the business. Debt capacity expressed in adjusted net debt over adjusted EBITDA will, however, be managed very tightly.

And we are expecting consolidation to continue in Europe and the first time implementation of IFRS 16 to come next year, our priority in 2018 remains to further strengthen this ratio. We will improve our working capital management.

We will spend our resources on investments carefully. We will manage the balance sheet, risk for fuel, currencies and infiltrates very diligently.

But the ultimate driver for an even better balance sheet remains to constantly growth profitability and return on capital through the cycle. And in this industry, this simply means a very tight cost management.

We have been very successful with this, in particular, with a Point-to-Point Airlines in 2017. Eurowings alone has cut our unit cost by 6.5%, even though the fourth quarter was heavily impacted by one-off cost associated with acquisition of parts of Air Berlin.

Accordingly, the Point-to-Point Airlines improved the results by almost €200 million to €94 million. This is a margin improvement of more than seven points in a very turbulent year for them.

All Network Airlines increased their adjusted EBIT as well. In the full year, the overall profit improvement was more than €700 million and margin expansion of 2.6 points.

Lufthansa Cargo has improved its result by nearly €300 million. This is a margin improvement of 12 points.

Lufthansa Technik assumed flat profits and margins and LSG Group's full year profit decreased by €38 million. The degradation is almost exclusively based on significant cost for the ongoing transformation of the European operations.

Altogether, 2017 was a very good year for the Lufthansa Group. Unit revenues increased and unit costs came down.

The organization continues to modernize and structural improvements in the market became visible. We will use this momentum to further increase the through-the-cycle profitability of our company going forward.

For 2018, we are currently expecting an adjusted EBIT slightly below last year. While we feel confident to offset a significant part of the expected fuel cost increase of €700 million, it will be prudent at this stage to assume we'll be able to fully recover this.

Our guidance on operating KPIs remains unchanged from what we have published in January. The Passenger Airlines will grow their organic capacity by 7% in a consolidating market.

As the share of total growth in this is proportionally high, this should even have a detrimental impact on unit cost. Nevertheless, we are confident to reduce our ex-fuel unit cost by 1% to 2%.

Reduction will be more visible in the second half of the year as significant one-off cost will continue to burden the unit cost development of Eurowings in the first two quarters. At the same time, we expect unit revenues to remain roughly stable in the full year.

We have seen a good start in 2018. January and February both showed slightly positive unit revenues.

We continue to see slightly positive unit revenues for the full first quarter and now also for the first half year. From then onwards, we expect unit revenues to develop less well as the comparable base will be simply more demanding and as more capacities flowing back into the market.

Aviation Services will not have a material different profit contribution compared to 2017. We expect Cargo to see a slight decline in profits from the very strong result last year, whereas Technik and the still heavily transforming LSG should see slight improvements.

The nonorganic growth from the insolvency of Air Berlin will also not have a meaningful contribution in 2018, as one-off cost will offset the underlying profits from the operating business. We anticipate to see a positive contribution from 2019 onwards.

Finally, there will be some technical changes in our reporting, mostly due to the application of rules under IFRS 15 on netting of expenses and revenues. This will shorten the P&L significantly at stable profits.

As a result, RASK will be mathematically reduced by approximately 8% and CASK by around 10%. The adjusted EBIT margin will, hence, increase by approximately, 0.4 points.

As the changes will be profit near growth in absolute terms, we will report these effects separately and retroactively in every quarter so that you can continue to use the non-adjusted numbers for your models and adjust then all in one go at the end of 2018. With this somewhat technical advice, I end my presentation and give the word back to you, Carsten.

Well, thank you very much, Ulrik. Ladies and gentlemen, the Lufthansa Group has become even stronger as shown by Ulrik.

Every single segment made a significant contribution to the earnings improvement in 2017. I think it's fair to say that today our company's strength is more stable on its three strategic pillars, mighty hard works and it's paying off.

As you can see, for example, by the fact that we continuously enhance its customer proposition through increased flexibility in fares and booking. But also operationally, as we're aligning processes while moving aircraft to the best suited hubs by some 380s from Frankfurt to Munich in the next days.

All that helps us to create additional demand and lower cost at the same time. Coming to Eurowings, I think it's fair to say that this is a very serious player in the market by now.

The earnings of the Point-to-Point Airlines and the Eurowings Group have improved significantly and faster than planned. After the first growth of the Eurowings Group in the past month – I'm sorry, the fast growth, not the first – supposed to be the fast growth in the past months, we now see significant synergy and efficiency potentials.

In the coming months, Thorsten Dirks and his team will focus on realizing this potential in order to make the Eurowings Group an even more efficient and even more powerful airline with an even lower cost base. At Brussels Airlines, against the backdrop of unsatisfactory results, we have already taken necessary measures, as you know.

Next to the airlines, our Aviation Services are also performing well. Tradition and innovation are important across all of our segments.

And as the crane, the symbol of our airline, in our group is celebrating its 100 years' birthday this year. We are demonstrating that modernization can be possible even for a so-called legacy carrier.

And we are staying on our course. We will continue to develop and improve our performance in each of our strategic pillars: our premium Network Airlines, Eurowings and our Aviation Services.

In recent years, we have become significantly more competitive, thanks to our three-pillar strategy. We are now able to invest and grow again in all pillars.

We're particularly pleased that Lufthansa, our core brand and the heart of the group, is taking top form and providing direction and strength for the entire group. We have, as you know, decided to refresh our brand appearance with the 100th anniversary of the crane in this year after 29 years.

This is also meant to be understood as the most visible sign of our modernization and underlines our premium positioning even more clearly. In order to remain Europe's best airline, we'll also be making further improvements to the cabin layout and customer services.

Lufthansa will be presenting a whole new business class in 2020, will take delivery of its first 777-9X. But there will be already numerous new features in the existing business class this year that will also further improve customer comfort.

Under the leadership of my colleague, Harry Hohmeister, we are harmonizing the sales structures of our Network Airlines. Rebooking between airlines will be even easier.

New digital offerings will make the travel experience even more agreeable. This can be automatic check-in 23 hours before departure, for example, or baggage checking across all Star Alliance airlines in just one hand.

Digitalization contributes to greater customer loyalty and at least it helps us to generate significant additional revenues. All these activities improve the customer experience on the one hand and supports the further reduction of unit cost of the airlines.

Fleet renewal also plays an essential role in this respect. In 2017, we integrated almost one new aircraft per week into our fleet.

And every new aircraft has approximately 20% lower operating cost than the one it replaces. Moreover, we are increasingly harmonizing our fleet, as lately with the specifications for the 320 family for the whole group.

We are, therefore, more flexible in deployment of aircraft within the group and can reduce both modification times and cost by more than 50%. The latest wage agreement with Verdi for our ground staff is another proof for the long-term labor settlements.

Moderate pay increases imply that unit cost will also decline further over the long-term. Also, with Fraport, we have agreed on lower cost for 2018.

We have at least made a start. Now the aim is to enable growth in our large space in the long run.

This will be only possible, however, if we jointly bring cost back to competitive levels. In 2018, we will again see strong growth in Eurowings.

By 2019, we plan for Eurowings to have around 210 aircraft. This makes it the fastest-growing airline in Europe.

The company has proved in the past that it is capable of delivering growth at such pace. In the wake of the Air Berlin insolvency alone, the fleet grew by 20 – sorry, 77 aircrafts.

Eurowings will be the second largest airline in the group very soon. It is the largest point-to-point airline in the German-speaking markets and the number three by now in Europe.

No other point-to-point airline in Europe has nearly as many aircraft per day in a comparable market presence as Eurowings in the home markets. We’ll also be advancing the integration of Brussels Airlines in 2018.

We will use its unique experience in Africa for the benefit of the whole group. And we will be seeing significantly greater convergence with Eurowings on short-haul growths.

Eurowings already reduced its unit cost by 6.5% this year. We are confirming our target to reduce unit cost by 20% compared with 2016 by the year 2020, even though we’ll initially see significant additional expenses in 2018 for one-off project and integration costs.

Eurowings is and remains our platform for further consolidation in Europe and we’re looking forward to lot more dynamic in the point-to-point segment. Aviation services companies reported significant success in 2017.

Lufthansa Cargo has never rated as much revenue with special and express rate as last year. Never before, Lufthansa Technik has served with as many aircraft and never before has our catering company, LSG, prepared as many meals as it did last year.

Let’s start with Lufthansa Cargo, who achieved an impressive increase in results. Despite this, the logistics business does remain volatile.

Our Cargo Airline, therefore, continues to consistently implement its efficiency program and to invest into its future. At the moment, there primarily needs investment in ground infrastructure for the highly profitable special freight business and invest in digitalization.

Technically, Lufthansa Technik is growing by means of new partnerships and in this context, it’s also modernizing its existing sites that makes the company more competitive, but at the same time, secures its entries into the maintenance business for the next-generation aircraft and engines. At the LSG Group, last but not least, the transformation of the European business will remain the defining topic.

Its results will improve, again, however, in the years ahead. Ladies and gentlemen, the modernization of the Lufthansa Group proves successful.

We will continue consistently on this path. Three record results in a row do indeed confirm our strategy.

The group results make Lufthansa Group even stronger and offer further possibilities to go ahead with even more determination. We are clearly not leading back.

It’s our motivation not to slow down, but to become even better. Therefore, we will continue to increase quality.

Therefore, we will continue to relentlessly cut cost. And therefore, we will continue with our fleet renewal also in the years to come.

There’s no alternative to continuous improvement. But looking left to the right confirms success is only sustainable, if it will ensure a balance between the interest of customers, employees and shareholders.

That’s long-term, the only way to go. Market contributions remained demanding in 2018.

We are well prepared also for an active role in European in further developments. Now the aim is to keep extending our strong position throughout the entire cycle of our industry.

The figure we showed with – all the figures we showed you today are evidence that in this respect, we are on the right track. And having said all this, I think one thing also remains clear and obvious, there are still enough challenges out there.

Therefore, we remain keen and eager to work on increasing our flexibility to face future volatility and foreseeable events, which sometimes can happen in our industry. Of course, we’ll do that from a position of strength, but also with all that strength, there still needs a room for humbleness, which I show you has not disappeared from this company.

Thank you very much for your attention. And now Ulrik and I are happy to answer your questions.

Good morning and congratulations on the results, Carsten. And two kind of conceptual questions I just want to ask.

Could you just go back and just talk about where your focus would be on capital allocation? It sounds to me even though, obviously, you deleveraged the loss and the pension as well; the focus is very much going to be and continuing on CapEx and maybe also be prepared and ready for consolidation.

Just maybe if you could just go through that again? And on the second question; you talked a lot about Eurowings and I see it’s – I appreciate it’s kind of in growth mode.

Do you see any reason why structurally Eurowings should not be able in a mature state of margin similar to other kind of point-to-point airlines within Europe? Thank you.

Well, thanks. Let me start with the second question on Eurowings, and Ulrik will reflect on the CapEx focus.

It’s obvious that Eurowings has to be forced into an organic and inorganic growth mode at the same time by us, by the group, over the last three years because we were behind when it came to point-to-point traffic. We were in a danger of losing significant market share in our home markets.

That’s how we pushed growth in Eurowings and in that particular period, growth was more important than efficiency. I think now we entered a new phase.

There’s huge efficiency gains to be made in Eurowings over the next years. We have too many AOCs, the aircraft are not specified in a united way yet.

We, of course, have significant one-off costs to bring aircraft in training costs and all that. So that’s why we do believe, to answer your question, that there is no reason not to come to the margin levels of at least our competitors in England or those in other parts of Europe once we have taken all the efficiency buffers out of the company, which will basically start this year after, again, being in a mainly growth mode for the first three years.

When we said initially we want to be number three in point-to-point in Europe, I think many laughed at us. Nobody laughs anymore.

And now it’s time to correct the efficiency.

Okay, thank you.

In terms of capital allocation, we expect long-term CapEx to be around 8% to 10% of our revenues, which typically is our best-in-class PSR. In this year, we expect around €3.4 billion because you heard some of that is due to postponement of investments due to delays of the manufacturers from 2017 to 2018.

Long term, the European market will probably consolidate as well and then, of course, that could be an opportunity for Lufthansa to have a strong balance sheet, but that is nothing happening overnight.

Okay, great. Thank you very much.

Good morning, everybody. And if I could ask three questions.

They’re all actually focused on growth, just trying to understand your strategy better. The first one, just focusing on short-haul growth, clearly a big number for the Network Airlines.

I’m just interested in terms of your rationale there. To what extent is that an investment in ensuring sustainability of an enlarged position versus buying real growth opportunities?

With that, how much of that do you see as being actual point-to-point demand into your hubs versus an opportunity to see long haul better? And second question, interested what this growth also means from a total network perspective for the ways of premium revenues in your business.

I guess, it’s going to be difficult to grow premium volumes by 7%. So is there likely to be a mix effect where leisure grows more than premium or corporate?

And then finally, the 7% organic growth again, obviously, a high number and, Ulrik, you listed a number of cost initiatives. But just interested how reliant is your unit cost guidance on this growth?

And is it fair to think it might have been more, more flat were you to grow more modestly because I think it’s important to understand your view on that certainly beyond 2018, in particular?

Yes, let me start with the first two and then Ulrik can give you some more detail in terms of numbers. When you look at the short-haul growth, one should not – in our hubs, one should not underestimate that our disappeared local competitor had significant capacities also into our hubs, be it from Düsseldorf to Munich, be it from Berlin to Munich and Frankfurt so, of course, our hub airlines were already parked over the last month has been what Eurowings reaction to the evolution.

Of course, has been significant responses from the hub airlines as well, including Zurich, including Vienna where we now, of course, strengthen our position in our hubs, which, as we all know, is key to be a successful hub airline. And on the premium share, don’t forget the German economy, I think that is something, which in the industry being for 20 years by myself, I’ve never seen that in all directions in and out of Germany, we see significant positive developments on premium.

So that number will not be exactly seven, because with the new aircraft coming in, we tend to have a lower premium share than the aircraft going out. So there will be a mix effect, but I’m very confident that our result will be at capacity as well.

We’ll be sold without decline in RASK due to the local situation of the global economy and it’s reflection to our home markets. It’s not reflection, the connection to the home markets.

Then looking at the cap numbers, Neil, you’re very active at typing on your computer. It’s in fact, all of the words are now obviously around.

And very much looking at the cost reduction, it is indeed only on real activities, which has nothing to do with our growth. I mean, the deal we have done with the pilots has nothing to do with growth at all.

The same with the cabin, the Fraport deal, the optimization we do with Technik and most of the aircraft we’re actually getting in new, the ones which have a 20% lower costs per unit, most of them goes into replacement. So it is not at all depending on the 7% growth number you see there.

Great, thank you. All understood and thanks.

Good morning. I’ve two questions, please.

First of all, coming back to the capital deployment and particularly talk about consolidation in the industry. Could you just give us a feel about would you still be looking at that from a more sort of passive perspective as other carriers fail or whether at some point, given the strengths in our balance sheet, you’d look to be more active?

And if so, what kind of parameters would you be looking at for many future progress in that regard? And secondly, on the Cargo side, it looks like particularly in the second half of last year, you had a significant uptick in pricing, and I appreciate some of that is fuel surcharge that the industry has been generally pretty efficient to pushing that through.

As you get that annualized into 2018, what’s causing the reticence on the Cargo profit outlook? Is there something out there you’re worried about?

And if so, could you elaborate on it, please?

Yes, again, I’ll start with the second and Ulrik will have some data on the first. In Cargo, indeed, we didn’t – if you started, that last year we didn’t see a summer slump as we had seen for decades.

We saw an amazing peak in the fall and, again, for Christmas. And as you know, I’ve been in the industry myself for a few years, I think even those good years I was there, we didn't see that demand of customers for additional capacity as we see right now.

If we had more Cargo freighters, we would have plenty of routes to put them on. So it's basically a fight from customers in Asia or rather customers in Latin America to get extra capacity.

So in answer your question in short, I'm very positive on Cargo for the year 2018 that we see nothing on the horizon.

In terms of capital employment, indeed, the majority of our funds is going to aircraft whereas very much looking at where do – where can we employ aircraft at the highest return on capital employed? And that's basically NOL, a competition between the different airlines where it is most profitable.

Then all the time, there could be opportunities on the consolidation as well in the European market, but that is indeed too early to speak about at this stage. What we are now concentrating, of course, is digesting their companies we bought last year as in Brussels and also part of Air Berlin.

Okay. But just a follow-up, given the bmi episode.

Could you be quite clear on what sort of parameters you would you look for if something came up in future?

Well, it's all about where can you get the best return. I think you will never do another bmi, but is it going to be something we buy with goodwill or badwill as was the case now with Air Berlin, that is impossible to say at this stage.

But it could be both the cases going forward.

Okay, clear. Thank you.

Hi, good morning. Carsten, well done on the new five-year deal.

It sounds like you're a footballer or something, but the two for me are...

If I was a footballer, I would make a lot more money.

Fair enough. I think you've done all right.

Anyway let's see, the first one is on MRO actually, you've guided to revenue significantly above last year in 2018. I don't know if I missed in the presentation concerning what trend is particularly driving that.

And perhaps a little bit more on this, I think you're charging for paper billing now that you do to the GDS. Is that something that is going to be particularly impactful?

Or is it just a little bit around the edges? And then the second one is, I mean, you – clearly with the full year RASK flat, H1 slightly positive guidance, H2 slightly negative, I guess, you're pretty cautious generally.

I was wondering is there any specific sort of capacity trends you're seeing into H2? I think it was referenced actually by Ulrik.

And if it is, any particular regions or players that are causing you to be that cautious? Thank you.

No, the RASK and the trading we saw in last year is, indeed, continuing into this year. So there are no reasons from that point of view to be more cautious.

But we have to bear in mind that in the second half of 2018, we have substantially tougher comparisons and visibility is short as it is. We can only basically see the rest of this first half year.

We haven't – like to take it back and stick out our nose at this stage. That's – well how you should think about it.

Okay.

Which question was open now – sorry, which question was still opened?

The Cargo MRO and maintenance.

Okay. Well, there has been a significant numbers of contracts, which we have been renewed or have been signed recently and that the number of aircraft going up and also the number of, let's say, more complex aircraft, whether it's less competition entering the MRO service environment of Lufthansa Technik.

We, indeed, see a positive outlook. There is 300 something recently, which came up, which was causing some issues there.

It's a shortage of parts for engines, significant shortage of parts for engines worldwide. So I think the Cargo outlook, one way or another, could also be affected by that.

But we all know it's the most stable part of our business. And as I said, with more aircraft in total and with more on modern aircraft, whether it's less competitors who are able to work on those aircraft, that's what's causing our optimism.

Okay. Thanks very much.

Good morning. Can I ask on the cost of assimilating Air Berlin?

Could you perhaps give us a guidance of what the extraordinary costs were in 2017? And what we should expect in 2018?

And equally, what would be the CapEx associated with the project 2017 and 2018? Could I ask for an update on how your holiday villa is and how things in Italy are?

Because I recall you said the only thing you want to buy in Italy was your holiday villa, then it changed. But in current circumstances, where are we?

And then a final question, how is your sort of trading? And how is your strategy for focusing Eurowings there and competition?

And how profitable can this sort of be as a part of your business?

Should I start with the CapEx spend, please?

Yes, please.

So in terms of Air Berlin, we had €900 million CapEx for Air Berlin aircraft in 2017 and there will be another €100 million in 2018. The one-off cost, which we had in Q4 in connection with irregularities and so on, in Air Berlin, was approximately €50 million.

And in 2018, it’s going to also be a two-digit million number.

Yes, talking about Italy, first of all, since I’m not a football player, it’s not a villa, it’s Villata, which is a smaller version of a house, but it’s progressing much faster than the things that Alitalia do because I think the recent election has probably not accelerated the necessary restructuring in Alitalia and you know that it a base for any engagement of Lufthansa at whatever sort. So I think there will be now some time needed for the government to sort itself out and to find a position on Alitalia.

I think it’s obvious that without support of Italian government, no restructuring can be pushed through. On the other hand, we believe Brussels will not watch this forever.

So as you know, we’re always well-prepared for opportunities that arise, like we did last year in Air Berlin. But at this point, our position has not changed.

We don’t see a restructuring without that happening. There is no interest in the current Alitalia.

This overall, indeed, is the biggest base for Eurowings and will be in the future. We have a market share of about 50% there.

It is the largest German catchment, people tend to forget that. It’s not Munich, it’s not Berlin, it’s not Frankfurt, Düsseldorf and the [indiscernible] area.

And we have grown our market share there by 5% – more than 5%, including allocating our long-range activities from Cologne to Düsseldorf through Ireland. With that increased market share, I’m very positive on the future of Düsseldorf for Eurowings.

Thanks very much.

Hey, hi. Good morning everyone.

Just a couple from me, please. Ulrik, could you tell us when or if we can ever expect any statistics on the ancillary side of the business?

I think direct distribution that should become a lot more important. So just wondering any conversion rates, any penetration rates, when we could expect those?

And then a bit more on the distribution actually. Do you think there are any first-mover advantages that are occurring to you that the others may not be able to replicate?

And then a more general one. A lot of the carrier seems to be going even in Europe to its basic economy.

I was wondering if you could just let us know your thoughts on that and sort of whether copying the U.S. carriers make sense with that product?

Thank you.

Yes, in terms of statistics of ancillary, that’s something we will have to call back with you. At the moment, we’ve just got something we follow very closely internally, but let me come back on that and see when it’s appropriate to share it in the larger group.

Will we have some first mover advantages as I think, indeed? This is not only product, it’s also the IT systems you have behind to be able to do that and we have spent quite some time and energy on that.

How much will it in the end directly translate into our net bottom line now, that is too early to say.

Basic economies.

Yes. It was just a question on the sort of flat carrier unbundling seems to be happening very strongly in Europe now as well.

And you’ve gone on the transatlantic, hand baggage or any fare that you think would be emerging. It’s just – could you express your view on whether you think it’s a sensible thing to do?

Well, I think it’s a trend of the industry, which even the largest carrier in the world cannot move away from. Eurowings does it very successfully, and you must always remember when you compare digit to digits, Eurowings is having quite double – twice the yields of our friends from Ireland.

So with only half of the percentage of actually revenues, we make the same absolute money. So that – Eurowings is very successful on that and I think also on the main airlines that is a trend, which I think we are prepared for and we are stretching our fares out further and further, we are adding more and more ancillaries to be purchased by our customers also on the hub airlines and it’s working very well.

I think it is a sensible thing to do for the industry to increase profits. And customers want more individual service, so I think there is possibly upside for both sides.

And we’re, indeed, right now running a pilot in Geneva with SWISS where we are upselling and upgrading meals in economy class to be bought by the passengers, so we have a lot more learnings from that soon.

Yes. Okay, great.

Thank you. If any point you could share some stuff on the ancillary, I think that would be very interesting.

Thank you.

Hello. Good morning also two questions.

One, is around cash generation and I think you mentioned, let’s say, a normalized CapEx level of €2.7 billion. Would that be a number to look at beyond 2018, let’s say, when the stretched CapEx years are over?

And also on the cash side, with the capital guidance of €3.4 billion, do you expect to generate a positive free cash flow in 2018? And then different topic.

There was news out over the past few days that a group of SkyTeam Airlines at France, I think, leading it considering a bid for Air India. India, obviously, is a key asset for Star Alliance in India.

So if such a bid should materialize, would you be willing to step up against it and provide India with a cash – with an equity injection?

So starting on the cash side. €3.4 billion CapEx, well, despite of that, we will have a very significant free cash flow in 2018.

So that is not going to have a major dent in that number. In terms of CapEx guidance going forward, with the size of the business growing, clearly the €2.7 billion will increase.

I think in long term, a good guidance number is between 8% and 10% of our revenues, which is where many of our best peers are hovering around.

When it comes to India, I'm afraid I cannot add anything to the speculation you quoted. There is no activity or plans in Lufthansa to invest in India, that's for sure.

But I think – but let's say, is there a willingness to keep it in Star?

Oh, yes, sure. We'd like to keep India in Star, but it doesn't reflect on any further investment.

We never like to lose a Star carrier, but it's – I think, it's a hypothetical question you're talking on.

Great. Thank you.

Good morning, gentlemen, also congratulations to the team and for yourself for the excellent results. Three questions, if I may.

Maybe staying on the topic of international consolidation, you've had great success in implementing a lot of joint ventures in many traffic regions. Could you kind of share and update on how the newest ones of those are going and whether you'd be looking towards any additions to that possibly thinking about South America or other traffic regions where some more joint ventures, even though they're smaller, may still be beneficial?

And second one possibly for Ulrik, in terms of growth, could you comment a little bit how you think about relative targets? Is there an internal hurdle rate for a project you're thinking about?

How – would that internal hurdle rate apply across the different businesses? And how do you think kind of in terms of growth for you in CapEx allocation between the different airlines and service units?

And lastly, maybe a little bit more strategic point on the airports, not specifically – not necessarily specific to Fraport, but generally, in the airport cooperation, you also talked about Zurich and Vienna in the past. What will be your target for 2018, for 2019?

What would you like to get to in terms of airport cooperation in those years? When would that have been successful from your point of view?

Yes. I'll start maybe the first and the third and then Ulrik will do the second one.

As you know, Daniel, we have 75% of our long-haul revenues in joint ventures. I think the number is matched by nobody else in the industry.

And that is one of the backbones of our recent success in long haul. But these five joint ventures in total are different stages, 30 plus with United and Canada is HGB right now, being integrated further to the next level or is already the most advanced.

Of course, working with Air China and Singapore Airlines just recently is not at the same integration level. But our belief in the success of joint venture is based on long-term relationships.

That's I think also something why our competitors will not just be able to copy that because you need to grow into a joint venture. We have done that in the case of Air China for more than 20 years.

So different stages, but overall, great commercial success, but no additional plans to the last part of your question. When it comes to airport cooperation, there is no single recipe for everything.

Even our most successful cooperation with Munich might not be the copy and paste for Frankfurt for the sort of other parts. But with our grown market share, of course, in Frankfurt, our grown market share in Düsseldorf and also in Berlin, there is indeed now a lot more interest from the airports to agree on a more integrated model with us.

And for me, that is probably something, which will develop over the years. And again, as you know, the multi-hub system really has improved over the last years.

With efficiency, we are optimizing the allocation of our aircraft and the direction and steering of our traffic flows through the multi-hub system according to quality and costs. That's why I think Frankfurt airport has waken up.

Looking at return on capital employed – I think the return on capital employed has increased substantially. It's 11.6% now, that's before taxes moved up our PS.

So looking at it about 15%. We have, indeed, internal hurdles.

We are going to invest, as we had done in the last couple of years, where it makes most sense. Those internal hurdles are well above our internal batch.

And the hurdles are slightly different for different businesses where we are looking at, what is also that risk in that business. But it's nothing which we haven't communicated publicly.

Okay, thanks.

Good morning. Three questions, please.

First, what impact from exchange rates do you expect in 2018, excluding the impact on the fuel cost? Second, what is your assumption on load factors in 2018?

And finally, thank you very much for the details on IFRS 15. Could you please give us some details on IFRS 16?

What will be the impact on net debt if you consider both aircraft and non-aircraft operating?

Yes, starting with the exchange rates, as we all know, we are short of dollars within Lufthansa. But first, we are all hedged.

We have a hedging policy, which we're building in front of ourselves. And typically what happens is when the dollar goes down, as it does for the moment and, of course, you see a slightly weaker Gs coming out of U.S., but that typically get compensated on how we are seeing the division of sales between U.S.

and Europe. So the exchange rate impact is actually not very large in short term.

So there's nothing there, which we see as a big impact on the EBIT. In terms of seasonal factor going forward into 2018, we haven't given a guidance on RASK and we have not typically split up into seasonal factors and yield development.

And as you know, we expect a stable RASK for the full year. In terms of IFRS 16, we will have a number for IFRS 16 in the second half of the year.

That's in other words, all the leases we have around in the world how they will increase our debt. As you know, we have not a lot of leases of aircraft, so this is mostly traditional buildings.

The rating agencies, just to give you a feeling, have predicted that it's another €4 billion something to be added to the Lufthansa debt.

Thank you very much. Maybe a follow-up.

If you exclude the oil price, the fuel cost, do you have a short position in U.S. dollar or a long position?

It is, indeed, a long one because it's a fuel, which makes a big difference.

Okay. Than you very much.

Thanks.

Hi, good morning and thank you for taking my question. This is one question left and it's regarding to your flexible pricing model.

It's – I mean, how much contribution to your RASK have you already penciled in?

Well, flexible pricing, I didn't understand that question. We have, of course, thousands of different shares.

What kind of flexibility you're referring to?

I mean, if you move away from your traditional letter coding pricing to a more flexible pricing model?

Well, as you know, sometime out and there is no single number you can attach to that. But already now, as you know, we are flying within the framework and the limits of the system as you rightly point out with 26 letters of the alphabet, we have gotten a lot more innovative from different prices and surcharges and so on.

And of course, once we have the technical capabilities to do that letters limitless, there might be a day when on 380, every passenger pays a different price. But potential number to that in terms of RASK development, I think, is impossible.

Surely, we'll make sure it doesn't go negative.

Okay. I think as far as I see that was the last question in the call.

So thanks, everybody, for participating. And I think, Carsten, you wanted to just wrap up.

Yes. Thank you, Andreas.

Let me just briefly wrap up on what I believe maybe is the most important thing that we wanted to say today. I don't hide that we are proud of the results we have delivered in 2017.

And – but it's not only the numbers are improving. I think it's particularly the way we have achieved this.

Quality is going up. Lufthansa has always believed that there is room for quality in all our segments in this industry.

But we don't need to convince you on this one. It's essential that costs are coming down further and the heads come down further and, as Ulrik said, we're trying to bring them down between 1% and 2% every year.

And that's what we have been working on successfully and we will continue to do that with the entire management here at Lufthansa. At the same time, we have that full dedication of our staff, again, after the difficult labor conflicts we had to live through, I think is another reason for our optimism, not just for '18, but also for the years to come.

And while, of course, we consider 2017 to be an important step on that journey, I think there's a lot more potential in the company. I mentioned the Eurowings' efficiency gains to be delivered over the next years and I promise you all we're working hard to unlock all this potential.

But for today, thanks for your listening, thanks for your question, thanks for being interested in Lufthansa. And we look forward to seeing or speaking to you soon.

Thanks.