Deutsche Lufthansa AG

Dennis Weber - Head of IR Ulrik Svensson - CFO Carsten Spohr - Chairman & CEO

Stephen Furlong - Davy Research Jarrod Castle - UBS Daniel Roeska - Bernstein Research Neil Glynn - Credit Suisse James Hollins - Exane Jamie Rowbotham - Deutsche Bank Andrew Lobbenberg - HSBC Michael Kuhn - Societe Generale Damian Brewer - Royal Bank of Canada Johannes Braun - MainFirst Malte Schulz - Commerzbank

Yes, good morning, ladies and gentlemen. Welcome to the presentation of Lufthansa Group's results for the first 9 months of 2018.

My name is Dennis Weber, and I head up Lufthansa's investor relations activities. In today's call, our CEO Carsten Spohr; and our CFO, Ulrik Svensson, will give you an update of the group's performance and outlook.

Carsten Spohr will focus particularly on the challenges the European aviation industry is currently facing and how we respond to them. But first, Ulrik Svensson will present to you our results in detail.

Ulrik, over to you.

Thank you, Dennis. Ladies and gentlemen, a warm welcome from me, too.

In the last few months, the group has been facing increasing headwinds. While the global economy continues to expand, the pace of growth is moderating and fraught with uncertainty.

Trade conflicts and political disputes in Europe are starting to have an impact on the real economy. Our industry is increasingly affected by capacity shortages in different parts of the system, be it at airports, be it in air traffic control or when it comes to the supply of new aircraft and spare parts.

The rapid rise of the oil price means that airlines need to quickly find ways to mitigate the impact on margins. Against this backdrop, Lufthansa Group has held up very well.

In the first 9 months of the year, we continued to grow strongly, taking advantage of the unique opportunity to further expand our share in our home markets. In the short term, this growth has come at a cost, as highlighted by the losses at Eurowings and the resulting slight decline in group-adjusted EBIT.

However, our leading market position and the strength of our balance sheet are key competitive advantages. That is why we are in a better position than most competitors to weather an industry downturn whenever it make come, and we'd be able to, opportunistically, drive the consolidation of the European market.

In the first 9 months, we managed to largely offset the impact from higher fuel costs. Our fuel bill increased by more than EUR 0.5 billion, while group adjusted EBIT was only down EUR 200 million, or 8%.

In fact, the group's adjusted EBIT would have even grown, excluding Eurowings, where profits primarily suffered from around EUR 170 million of one-off costs related to the integration of former Air Berlin Aircraft. The Network Airlines more than offset fuel cost increases, supported by discipline management and other costs.

Our Aviation Services, primarily consisting of Logistics, Maintenance and Catering businesses, made a stable contribution to adjusted EBIT in the first 9 months. Let me analyze the performance in the last 3 months in some more detail, starting with the regions.

In the third quarter, performance was driven by the long-haul businesses. While loads and yields in the Americas were broadly in line with the previous year, Asia Pacific did very well, benefiting from moderate capacity expansion and healthy demand in all major markets.

The European yield, however, declined 3.9% at constant currency more than in the first half year. This reflects the tough prior year comparison base and the higher level of capacity growth in the market, which is exerting pressure on prices.

Yields in Europe also continued to be affected by a negative mix effect from disproportionate growth in the lower-yield Eurowings business. In the first 9 months, half of the decline of 2% was attributable to this effect.

Looking at the Network Airlines, the third quarter constant currency unit revenues were broadly flat at capacity growth of 5%. SWISS stood out again with ongoing strength across its business.

The constant currency RASK at Lufthansa was up slightly, as increases in long-haul compensated for a tougher short-haul business. At Austrian Airlines, a better long-haul business did not compensate for intense competition in short haul.

Constant currency unit revenues at Eurowings were down 4.6% against the prior year. Eurowings is suffering from a tough comparison base, as it benefited most from the demise of Air Berlin last year.

In addition, Eurowings growth rates in long haul are currently higher than in short haul, causing a drag on overall unit revenues. On a year-to-date basis, the group RASK continues to be up slightly in constant currency, driven by 0.7% improvement at the Network Airlines, while it remained on the prior level at Eurowings.

Other than in the first half year, where constant currency CASK ex fuel was down, it was up 1.2% in the third quarter. Several factors played a role here.

The strength that the European aviation system is under is not only causing frustration to our customers, but also impacting our results. In the third quarter, irregularity costs, that means costs related to flight cancellations and delays, were approximately twice as high as in the prior year.

As a result, costs more than doubled in the first 9 months as well as amounted to around EUR 350 million across both airline groups. In addition, MRO cost increased disproportionately.

In contrast, labor costs declined, and in some, CASK of the Network Airlines increased by 1.2% in the third quarter at constant currency. This compares to a 1% decline in the 9-month period.

At Eurowings, we completed a technical integration of former Air Berlin Aircraft in the third quarter. In line with expectations, this caused another EUR 50 million of one-off cost, bringing the year-to-date total to EUR 170 million.

At the same time, Eurowings is now starting to benefit from an easier cost comparison base, owing to the first acquisition-related expenses in the final quarter of 2017. In the sum of both effects, unit cost growth at Eurowings moderated compared to earlier in the year and amounted to 2% on a currency-adjusted basis in the third quarter.

On a year-to-date basis, CASK ex fuel is still up 5.9% at constant currency. This brings me to the largest single cost item in our business, fuel.

In line with our unchanged guidance of an EUR 850 million increase in the full year of 2018, third quarter fuel expenses were up EUR 320 million, or 23%. For 2019, we expect a further increase of our fuel cost bill because the protection from lower price hedges is gradually fading.

On a like-for-like basis, the group's fuel cost will increase by around EUR 900 million in 2019, excluding the limited volume growth we expect next year. As of end of September, slightly more than 60% of our expected 2019 exposure has been hedged.

Returning to the discussion of financial results in the period. Our Network Airlines kept profits stable in the first 9 months despite the factors mentioned before: a tough prior comparison base as well as disproportionate increase of fuel irregularity and MRO costs.

Please note that we expect the latter 2 factors to play an only minor role in the remainder of 2018, especially as irregularities are normally less prevalent in winter because of seasonal lower volumes and the resulting higher number of spare aircraft. Labor cost growth will remain moderate in the rest of 2018 and beyond given that we concluded long-term labor agreements with all major employee groups last year.

Turning to Eurowings, segment results are down significantly this year. Rest assured that we cannot and we are not satisfied with the profitability of the business, yet we regard this year's integration cost and the delay in margin progression as the price we had to pay for this unique opportunity that opened up last year.

The increase of aircraft and passenger indicate the enormous growth that the Eurowings organization had to manage this year. This year's challenges further drive our ambition to create sustainable value at Eurowings.

In 2019, we will enter Phase 3 of the Air Berlin integration, following the rescue period immediately after the insolvency and the phase of stabilization and integration we are going through this year. The following optimization phase is all about reducing operational complexity.

This is so important because a largely inorganic nature of Eurowings growth has led to a mix of different AUCs. This hugely impacts our ability and flexibility to allocate aircraft and crew where it is needed.

Of course, the simplification of operational structures will take some time. Nonetheless, we are confident that Eurowings will turn to profitability in 2019 and become a leading player in its market segment, not only in terms of size, but also margins in the coming year.

Finally, the Aviation Services performed very well. In the third quarter, trends at Lufthansa Cargo continued to be robust.

The yield premium that cargo commands over others in the industry remains close to historical highs. This reflects strong customer demand and our focus on yields rather than loads.

The latter is affected by the belly growth to more leisure destinations, which are less attractive from a cargo perspective. In addition, the integration of Brussels Airlines' cargo business at the beginning of September has added some high yield, lower volumes routes too.

At Lufthansa Technik, profits tracked slightly below previous year's levels. This is mainly to do with cost inflation in spare parts and some capacity shortages, which required a short-term contracting of external service providers.

LSG is making good progress in the transformation of its business model, which focuses on the centralization of the production and logistics setup in Europe and the global expansion of its onboard retail activities. Supported by an improved performance in North America as well, profits are up in the third quarter and the first 9 months.

Last, not least, the result in the area of Others & Consolidation improved in the third quarter, mainly related to the accounting treatment of intragroup services that are work in progress. Specifically, this relates to MRO services with Lufthansa Technik renders to the airline businesses.

On a year-to-date basis, however, the result is still below the prior year due to nonrecurrence of currency gains we had in 2017. Turning to the group's free cash flow performance and balance sheet.

Investments were almost €2.5 billion, largely focused on the purchase of new aircraft to maintain a modern and efficient fleet. Primarily as a result of higher investments and the increase of cash taxes following a strong profit growth last year, free cash flow decreased to €1.1 billion.

Net financial debt decreased by 14% to €2.5 billion. Pension provisions decreased 6% compared to year-end 2017, mainly due to a 0.1 percentage point increase of the higher IFRS discount rate.

In sum, this means that the group's financial leverage, measured as a ratio of net debt and pension provisions of adjusted EBITDA, declined further to 1.5, a clear indication of the strength of our balance sheet. Let me finish my remarks with our outlook, where we are confirming our financial guidance this morning.

While overall economic and political risks have grown, we continue to forecast adjusted EBIT to be slightly below the previous year level in 2018. This means that we will largely offset the impact from higher fuel cost, really, forecast to amount to €850 million.

We even expect profits to remain at least stable this year, excluding the increase in irregularity cost, which we expect to amount around €250 million this year. Capacity growth will amount to 8%, despite some reductions in winter 2018 compared to the regional plans.

Unchanged to our previous communication, we expect unit revenue to be up slightly on a currency-adjusted basis for the full year. With regard to costs, we confirm our forecast of around 1% decline of currency-adjusted CASK ex fuel in the full year, implying a much better performance in the last 3 months.

As discussed, this will be driven by both airline groups resulting from less irregularities than in the third quarter, lower MRO cost increases as well as the completion of the integration work at Eurowings, where the cost comparison base is starting to become significantly easier in the fourth quarter. Finally, we forecast Aviation Services to make a slightly smaller contribution to group profit this year.

This is largely due to a more negative result in the other businesses. For Lufthansa Cargo, we now expect profits to remain stable.

Nonetheless, this outlook still assumes that we will not repeat the exceptionally strong performance of the final quarter of 2017 for Cargo. Based on the visibility provided by forward bookings, we expect the transatlantic routes to remain strong in the remainder of 2018.

These should benefit from the fact that the market wide capacity growth on these routes will remain limited also in winter at least when it comes to traffic originating in our home markets. The Asian business should be supported by ongoing increase in leisure traffic, and the group's only moderate capacity expansion should ensure that this translates into good yields also in the fourth quarter.

For Europe, our outlook is slightly more cautious, factoring in tough comparisons from the prior year and an around 10% market-wide capacity growth over winter, which is exerting pressures on the yields. We are committed to protecting and expanding our market position in Europe.

The growth of our customer base demonstrates that our strategy is successful and effective. So we are accepting the short-term cost that inevitably comes with the long-term benefits.

Carsten, over to you.

Thank very much, Ulrik. Ladies and gentlemen, warm welcome from my side as well.

I'm indeed pleased to provide you today with the second best 9-month result that our company has ever achieved. And despite the strong headwinds of higher fuel costs and higher costs of fight irregularities, the Lufthansa Group can present an adjusted EBIT of EUR 2.4 billion for the first 9 months of 2018.

And had it not been for the onetime losses at Eurowings due to the integration of Air Berlin capacities, we would even have posted another record result. Just a few years ago, results like these would have been not conceivable even for full business year, and today, we achieved those numbers in just 9 months under, which, I think, to be honest, very difficult conditions.

I think it's a clear sign of the new strength of the Lufthansa Group. Let's start with the Network Airlines, our core business, which have grown even stronger, thanks, in particular, to an outstanding performance by SWISS.

They have posted a new best ever 9-month results, even improving on the comparable base from '17, which was itself a record year. Eurowings has tangibly expanded its market position.

We'll be taking, sorry, I'll be talking more about Eurowings in just a few minutes, but first things first, it is indeed on the right strategic track. Our service companies continue to stabilize our overall group results.

All in all, the results of our Aviation Services were broadly in line with their 2017 levels. Lufthansa Cargo has been showing excellent business trading that was maintained in the third quarter.

And as you know, the airfreight business is a sound barometer of future trends. So the good results here do suggest that the demand is still strong.

So much for overall assessment for the first 9 months of 2018. I now like to turn to the 2 issues that have been occupying and challenging us most over the past few months.

The first is a disproportionally strong growth that we are currently seeing in the aviation sector and its repercussions. Our airline industry has been growing twice as fast as the global economy over the last 5 years.

Air travel within Europe alone increased by 50% between 2008 and 2017 by 250 million passengers up to 780 million passengers, and there's just no end of this trend in sight. It's a development that we, of course, are benefiting from as Europe's leading airline group.

Not only Eurowings has substantially grown its business, our Network Airlines are expanding quite strongly as well. All in all, the airlines of the Lufthansa Group carried over 108 million passengers in the first 9 months of 2018, a new record for this period.

Our overall seat load factor of 82% is also the highest we ever have achieved in the first 9 months. But as we all know, this record growth has really stressed the infrastructure of our industry and all the people involved in it.

And occasionally, it has even overtaxed them too. That's the flip side of the growth of this kind.

And so our passengers went through summer season of frequently, delays and even flight cancellations. At our Lufthansa Group alone, we have canceled 18,000 flights.

That's the equivalent of closing Frankfurt Airport for 2 whole weeks. Over 1.7 million travelers on our airlines have been affected by such cancellations.

That's enough to fill 3,300 Airbus A380s. It's really our customers who have suffered most.

Our airlines have been working for some time now with the airports and with air traffic control develop base and means of bringing more stability to our flight operations. The political world is also pressing for solutions and has signaled its willingness to play its part in achieving them.

Just a month ago at the German government aviation summit, we agreed on 24 actions that should help to reinstall the quality of airline services. And all these actions are targeted to ensure that growth goes in line with quality.

If our industry is to further expand its capacities, it must keep a firm eye on the impact this will have on the performance of the available infrastructure, and therefore, on the quality and on the reliability of the services we offer. In other words, no more uncontrolled growth.

I think the Lufthansa strategy works for the industry not quite yet. Everyone involved in the German aviation sector must work together better and plan and invest in a more coordinated way.

And let's not forget, air transport in Germany and, of course, in Europe is in global competition. One passenger in 3 uses German airports just for transfer.

In our hub, it's even 2 out of 3 passengers. And obviously, these passengers could easily travel via foreign hubs instead.

That is why, we as Europe's number 1 have taken the initiatives here in strategic and in operational trends. And in doing so, we want to show our industry the way.

First, we are reducing our growth plans. We have just decided to grow below the market level in the winter schedule, 8% compared to the 10% of the market, in general.

And for summer 2019, we have lowered our planned growth even further to a modest 3.8%. Second, we are managing our growth in a better way.

This means only expanding our services where there is adequate infrastructure for this on the ground. In terms of our hub system, that primarily means Munich, Zurich and Vietnam.

Thirdly, yesterday, the first day of the winter flight schedule 2018, '19, we launched our project Operational Excellence, under the lead of the head of our corporate strategy, Dr. Detlef Kayser.

We want to achieve operational turnaround with every means at our disposal for our customers and for our shareholders. And it will help easing the burden on our employees as well.

And therefore, I would like to take this opportunity to offer my thanks, once again, to all of our colleagues, especially those in our operational units on the ground to in the aircraft. Many of them have really been working to their limits over the past few months.

We now have serious specific operational actions defined for 2019. We'll be putting more operational buffer into our schedules.

We'll be adding 600 people to our workforce just to stabilize our operations, and we'll be providing more spare aircraft, for example, by acquiring 9 Airbus 320ceos. We'll be at least partly mitigating the problems caused by the 320neos.

Right now in the interest of our customers, regaining our operational stability and reliability is our first and utmost priority, which brings us to the second issue that has been taking up so much of our time and attention over the last few months, Eurowings. Within just 3 years, Eurowings has seen tripling of the numbers of its aircraft and tripling of its numbers in regard to employees.

Some 10,000 people are now on its payroll and 185 aircraft in its fleet. And the whole Eurowings team has done a truly amazing job in making the whole thing work.

Thanks to all of them. We've always said that for Eurowings, the first phase, following the insolvency of Air Berlin, would be a phenomenal charge.

Retrospectively, we can now see that it was even more complex than we thought. Eurowings incurred one-off integration cost of €170 million in the first 9 months of 2018 alone.

And as a result, its adjusted EBIT for the period was a full 40% down on the same period last year. But Eurowings is now what we wanted to be in strategic terms.

It is one of Europe's biggest point-to-point carriers. It is number 3 in all of Europe.

In its whole markets of Germany, Austria and Belgium, its position is even stronger as a clear number 1. Thanks to Eurowings' strong growth, the Lufthansa Group is now in a poll position at the key German airports, also besides our hubs.

And Eurowings long-haul business is also developing better than it was last year. In 2017, we were presented with a historical opportunity in the consolidation of the German air transport sector.

We clearly seized it. And we see the cost that our decision has entailed as a clear and valuable investment into our future.

All of you are very well familiar with the airline business. You all know how important it is to be the market leader at this or that location.

And we will be seeing and feeling all the benefits that this brings in Eurowings as well. In developing Eurowings, we also have shown that the Lufthansa Group can drive Europe's industry consolidation.

That trend is sure to continue. It may be at a slower pace and less visibly than were the meager mergers we have seen in the U.S.

But we also had just six European airlines go into insolvency in the last 3 months alone. The rising oil prices are likely to accelerate this development.

Only airlines with a strong market position and a sound customer base can survive higher oil prices for an extended length of time. So for 2019 and the years beyond, Lufthansa Group will be doing everything in its power to reflect these higher oil prices even better in the prices of our tickets.

If oil is costing over $80 a barrel, flying cannot and flying will not remain as cheap, as it can be at a barrel price of just $30. As Europe's leading aviation group, we are confident for the future despite these oil prices.

With an adjusted EBIT of €2.4 billion, we have achieved not just a very solid 9-month result, we have also further added to our financial strength. For 2018 as a whole, we still expect to report an adjusted EBIT result that is slightly below last year's record levels.

In other words, we are confident that we can largely offset the higher cost of more than €1 billion that we will incur this year through higher fuel prices and the repercussions of our operational instabilities. In fact, we've already done so in the first 9 months.

This too is a massive achievement. It shows 2 things that the Lufthansa Group is structurally strong again and that the basic demand remains intact.

I'd also like to stress one thing that is very important here. Ladies and gentlemen, that, all in all, we have delivered on our results projections for the year.

While even the stock market darlings, among our competitors, have had to downwardly adjust their projections, we, after 9 months, still -- we promise we would be only just below our prior year levels. And I would like to emphasize, once again, just what that benchmark is.

2017 was a truly exceptional year in annual result terms. We expect to deliver the second-best earning results in our company's history for 2018 as a whole, and we are looking into the future with firm and genuine confidence.

Our strategy is working, and we can see this not only in our results. We have tangibly improved our market position, especially in our home markets.

We are an active driver of consolidation, and as any observer of our industry can see, consolidation is gaining speed. The strong, we'll get stronger; the weak, we'll get weaker.

And we are showing the way with urgently needed operational turnaround of our industry in Europe, including the equally urgent switch from blank growth to quality growth. In all the above, we will stay committed to maintaining a clear and firm balance between the interest of our shareholders, our customers and our employees and because we aim to sustainably remain the number 1 in aviation for all 3 of our stakeholder groups.

And we'll promise that this is what we'll also be working on in 2019. Thank you very much.

Operator?

Good morning gentlemen. Just on Eurowings.

I think you previously said before that maybe you could see Eurowings being breakeven next year. They have healthy C-type margins in a 3- to 4-year period.

Would you still see that? Or it's the oil price something that makes that a bit of a challenge in the short term?

And the next, I want to ask, there's a comment there in terms of the markets where the Middle East and Africa's capacity is accelerating. And I just wondered if you have a general comment on that, particularly in the week where Istanbul has, obviously, launched the new airport, that would be great.

Thank you.

Yes. I guess, I thought with the question regarding Eurowings.

So clearly, we expect Eurowings to break even in 2019. There is a large number of actions and I alluded to some of them in terms of simplification, reduced complexity, getting more one that you receive in each of the bases.

We all have in our hands. So despite of the fuel headwind, we do indeed expect them to break even in 2019.

And also, longer term, we expect them to get to the, we said at some stage the LCC margins of easyJet 2017, which in other worlds was 8% in 2017. So the plan is still holding very firm.

In terms of Istanbul, do you want to talk on that, Carsten?

Well, I'm not quite sure if I caught the question right. You were wondering about the future outlook of the overall markets, in, particularly about the opening in Istanbul?

Yes, just a general comment, Carsten. Do you think that Middle East, the super connectors are just going to, after arrest by the further expanding capacity again, certainly, the airport capacity is there now.

Well, I think airport capacity has not been the issue in the Gulf but for those regions in general in total in the last years. I've just been to Doha myself.

It looks like plenty of capacity available there if I see how empty the airport was. But definitely, there will be fighting for the same passengers between Istanbul, Doha, Dubai and Abu Dhabi.

So I think we'll see more impact of those 4 among each other than necessarily for us where we have regained market shares on the premium seats, especially to the Asian markets over the last years due to our product improvement. So we are, actually, improving our market position further by adding new services to Asia out of Munich starting in March, which shows our confidence in that market.

Thank you.

Thank you, good morning. I'll just focus on the balance sheet.

Firstly, as you point out your earnings are down, call it, 10% this year and your stock price is down over 40%. So does it change your thinking in terms of using the balance sheet for share buyback?

Secondly, you mentioned IFRS 15, but any further clarity on IFRS 16? And then lastly, just on M&A, just on the disposal front, is there anything that will be done going forward in terms of the group?

Thanks.

Yes. So starting on the dividend side, we are having a dividend policy of 10% to 25% of our EBIT, which is a dividend policy we will continue with.

We are having a net debt to EBITDA of 1.5, but we are going to continue to build reserves to opportunistically see if there are opportunities in consolidation. I think especially now if things are going to get tight at some of our competitors, there might be interesting opportunities ahead.

Of course, long term, if we do not find any opportunities, indeed, we will look again at the subject of buybacks or potential large dividend policies. In terms of IFRS 16, we are speaking about around EUR 2 billion effect estimated at year-end.

In terms of disposals, we are continuously looking at our strategy whether all the different businesses have the same amount of synergies with our airlines or not. So this is something which we are regularly going over, but that's nothing new to report for the moment.

Good morning gentlemen. Three for me.

First on the operational excellence program. I get the aspect around improving punctuality, but could you comment on the bottom line impact of this.

It seems that adding aircraft to a kind of up reserve and significant modest staff could amount to significant amount of cost. And how much of that do you think will you be able to offset?

So what's the P&L impact you're targeting for that operational excellence program? And secondly, on the balance sheet also maybe little bit more to CapEx, there have been incremental fleet order news over the past couple of weeks and months.

Could you just give us a little bit more specific range how that has phased over the next couple of years or kind of the CapEx level in '19, '20, and '21? If you're willing to give a number, I'm happy.

If not, I'll settle for a relative comment between kind of '18, '19, '20 and '21? And then lastly, maybe a little bit more on the strategic sides, the pilot deal you did last year with [indiscernible] had a lot fewer restrictions than the previous [indiscernible] you've moved [indiscernible] Could you maybe in a longer time frame, next 2 to 3 years, comment on what do you think this contract will also enable?

So what are the additional steps you're planning or envisioning to do in the Lufthansa mainline business to secure the cost position kind of now that you have larger freedom from the pilot union agreement? Thanks.

Yes, Roeska, good morning. On the operational excellence, we are indeed, of course, investing money, not just the aircraft, also in IT solutions, additional people.

But we definitely expect a positive bottom line effect compared to the extra cost we had this year. So we had EUR 250 million additional cost for irregularities this year, and I definitely want to reduce that number after investments made in operational excellence.

I'm quite positive we'll achieve that. On investments in aircraft, as Ulrik has guided before, it's between 8% to 10% of our revenue we're willing to invest if the aircraft manufacturers can deliver.

The problem over the last month has not necessarily been our CapEx availability, but the availability to produce those aircraft and engines on time. So if there is any impact at all, I think it rather comes from that side.

It might reduce our CapEx, but we are definitely moving on with volumization of our fleet because feedback of passengers and my controllers are like, is very positive on these new aircraft. On the Vereinigung Cockpit, you already mentioned one big step.

We're now able to bring narrow bodies of the Airbus fleet to CityLine. We'll be starting to do so next spring.

We're also looking at bringing 320s to Air Dolomiti operate out of Italy for Italian labor cost. And we are looking at moving Airbus 330s into our hub strength for the Munich operated by Eurowings to compete on leisure-oriented routes.

So I think we're using the new freedom quite significantly. Of course, at the same time, we are remaining the 325 aircraft equivalents under the collective labor agreement, which we had promised, but there's lots of room for us to move aircraft around without breaking that rule, which, of course, we will not because, indeed, we also have significantly improved the relationship to the pilot union, which is just as important as the pure numbers, I think.

If I can ask 3 also, please. The first one, Carsten, you mentioned strong message on pricing passing on the higher fuel cost, but also, I guess, that's balanced with a market share focus on short haul.

So I'm interested what you'll infer from the behavior of your competitors and also your partners, I guess, on long haul in terms of how that educates your view on your ability to protect margins on long haul into next year or at least some of the coming quarters? Second question with respect to capacity.

For next year, obviously, the summer growth rate is moderating, but will you be filling frequencies or pulling routes? Or is it just a question of slowing growth across the network?

And the final question. On peak season profitability, clearly, as was mentioned a number of times, the irregularity impact, if I can pronounce it, for the summer 2018.

Does, how does this impact your thinking on structural profitability going forward because, I guess, these issues may well persist without a solution being findable it seems?

Neil, first of all, reducing capacity growth in general is being done so by Lufthansa as Europe's number 1 surely sends the signal to the industry in itself. But also listening to our competitors over the last weeks, I think their expressions towards growth have become more moderate, even those who have been growing most aggressively over the last year.

So I think the message has to receive, been received by a more rational industry that we need to look at our growth and shouldn't overstretch it, first of all, because of yield, but second, just for operational requirements. The infrastructure just cannot take that growth anymore.

So I think there's 2 impacts on reducing growth across the industry. One, infrastructure not allowing us.

B, we all after some consolidation going on are more rational players, hopefully, by now. On the long range, we have, 75% of our revenue on long range by now is in joint ventures.

So we legally are allowed to talk to our partners about prices and growth, which of course, has a stabilizing impact. And if you add to that of the North Atlantic 2 other big joint ventures, you obviously know that there has been much rational behavior in that market and in some shorter European markets.

And now over to Ulrik.

In terms of the last question, yes, indeed, they were in Q3 around €180 million in total in irregularity cost, which is a huge amount. But as Carsten said, I mean, there is not only at the top political level an action plan of 24 action points to address this because this is not only, of course, a cost question for Lufthansa, it's an acceptability level for our customers, which is just not out of the question to accept this going forward.

So I think that pressure is on at all levels within aviation industry to [indiscernible] this. But on top of that, of course, it's important that we can do a number of things internally to compensate for some of the shortfalls which is happening externally.

Some of that will cost something, as we said earlier, but the benefit will be larger than the cost.

And Neil, I think I skipped your question, how are we actually managing the capacity reduction, which is capacity growth reduction? In general, we are moving larger aircraft to Munich and some smaller aircraft we'll move to Frankfurt to, of course, make sure we don't lose market shares here when it comes to slots and also to produce a load on Frankfurt airport.

So it's not necessarily cutting routes, it's rather reallocating capacity to those hubs, which can take it on the ground or in the air. And by that, we'll be able to bring down the growth to 3.8% without endangering our network quality.

Thanks a lot.

Good morning. Three for me, please, follow ups.

Just on the 3.8% capacity for the summer. If we went back a couple of months, as only what figure that would have been, and on that figure, if you could just give some detail on how that splits by region and or by airline, maybe just noting where some are above 3.8% and some are below.

And secondly, again following up on the CASK ex fuel. From Daniel's question regarding to the operational excellence, investments are paying itself back in the same year.

Should we still be thinking about CASK down about 1% for full year '19, similar to '18? Thanks.

Yes. Starting on the guidance for growth for summer next year, the 3.8% would have been at least 50% higher if we spoke a number of months ago.

When it comes to the different airlines, clearly Eurowings will have rather modest growth going into 2019. It's all about operational stability and getting our complexity out of the airline where there will be more proportional high growth.

For example, in SWISS short haul, there's going to be a mix between different airlines. But basically, the 3.8% average is where most of that's going to be.

There's not going to be a huge outlayer anywhere there. In terms of CASK ex fuel, ex currency, yes, our ambition is, indeed, to continue with our cost-reduction program.

We have, as you remember, a long-term objective of 1% to 2% reduction. And we are going to -- of course, next year going to be helped by not having the one-off cost and of course, also being helped very much by taking out complexity cost at Eurowings.

So we will indeed not only with Eurowings, but also with the Network Airlines continue with that ambition.

Good morning gentlemen. Yes, just 2 from me, please, Firstly, just thinking about unit cost ex fuel and at constant currency in the fourth quarter to get from flat year-to-date to minus 1 in the full year looks like a big ask, but I appreciate there are several moving parts with Air Berlin and hopefully, also disruption headwinds, hopefully, easing.

But any thoughts on that, please, in more detail? And whether this might allow you to grow deeper in the fourth quarter?

And secondly, just a clarification. So year-to-date irregularity or disruption costs are €350 million.

And I think you just said those were €180 million in the Q3. The EUR 250 million number you mentioned earlier for 2018, is that your expectation of the year-on-year headwind?

And if so what have you seen for Q4? Thanks.

Yes. Starting on the Q4 CASK.

Yes, indeed, we expect the CASK to reduce substantially in the fourth quarter. As you rightly alluded to, there are a number of specialities going on in 2017, which means they are going to be less Eurowing cost, one-off cost in 2018.

Furthermore, irregularity cost naturally since, clearly, the winter season does have a lower irregularity costs, will not have as high increases we had earlier in the year. And also MRO cost is proportionately not going to increase in the same way as it did in the first 3 quarters.

So we're fairly confident about that guidance. When it comes to the EUR 250 million number, which was mentioned earlier, yes, that EUR 250 million is, indeed, our headwind for the full year.

That's the extra irregularity cost we expect for 2018, 12 months basis.

Good morning guys. Yes, stay on Eurowings like everybody else and ask a bit of a simple, but potentially brutal question, which is why was Eurowings so much worse than we expected or than you expected this summer?

What judgments, decisions or processes did you guys not do as well if you might have done? And what gives you confidence going forwards into next year that you can actually deliver having struggled this year?

And then related to that question is around Eurowings previously you said that you saw Eurowings as your key consolidation tool for the group. And it was going to be very easy to plug-and-play things in, and the evidence seems to suggest otherwise.

So do we still believe it is a consolidation tool? And then as a final one, can you tell us what the heck's going on in Italy, please?

Andrew, well good morning. Well, when we talk about Eurowings and what made it more difficult than we expected to transfer capacity, we go into the very basic of aviation.

It took a longer to transfer aircraft from one AUC to the other because together with the German authorities, we did a lot longer time to transfer the maintenance documents. Some of them have been in languages I haven't even heard of, some of them have not been very complete, a lot of homework had to be done.

So this was very basic [indiscernible] work to transfer the aircraft. Also transferring crew took a lot longer, don't forget never ever in Germany aviation, there has been 77 aircraft transferred in such a short time.

So be it simulator sessions, which had to be booked, be it licenses, which had to be changed, all that took a lot longer and there was just no comparison for us at that magnitude to really basically gain. So we were just too optimistic.

Plug-and-play, your second question has the same kind of implication. We still believe that Eurowings is a plug-and-play model, but what you plug in has to work.

In Air Berlin, we didn't buy a company, we just gathered assets, staff, aircraft, slots, routes, passengers and had to puddle them back together. Usually, talking about the consideration, you would buy a running company and would plug-and-play it into the Eurowings system.

I think that would be much easier that occurred in the future. So we have not diverged from our strategy.

On Italy, there's nothing more than what I read in the media. I understand they are now looking at a national solution.

And surely, we will not be interested to be co-investors with the government in an airline, which needs to be restructured. So our position remains.

The market is our second most important foreign market after the U.S. We are growing in Italy, be it with Air Dolomiti going into 320s, doubling the size of aircraft on the Embraer side, more Eurowings and Lufthansa in SWISS flights into Italy.

And when it comes to Alitalia, we need to see what the Italian government is up to, like you. For Eurowings, I know because we talked about this so much, also please look at how our competitors who took much smaller chunks of Air Berlin, EasyJet and of course, Ryanair, how they struggled with a fairly small number of aircraft they were trying to integrate.

I was quite surprised to see their numbers of integration cost. So this shows you it's not necessarily Eurowings issue, it's more an Air Berlin issue.

Clearly, and that's slightly why I'm curious because EasyJet, I mean, I know they were playing with what was exceptional and not exceptional and how they were allocating their cost bucket and it was a big amount they cited, but what they told the market is that their integration experience of the Air Berlin crew and aircraft went faster than they had budgeted for, which is what is slightly confusing in contrast to what you're reporting, to be honest. I don't know whether they have been playing with numbers.

Yes, I just saw their numbers compared to our numbers and considering how many aircraft they integrated and how many we did, but I'll leave it up to them.

Fair enough. Thank you.

Good morning gentlemen. The question -- the usual question on the trading environment.

Mr. Svensson in his opening remarks said that the political turmoil had some effects on the real economy, while Mr.

Spohr referred to Cargo as the economic barometer and said things are still quite nice. So what do you currently experience?

And how do your forward yields and forward load factors look like? Secondly, one simple question.

What would the Q3 CASK number, excluding disruption and excluding integration cost look like? And lastly, in Vienna, we are seeing this capacity rush in at the moment.

What do you see in terms of forward pricing there? And could the intensifying competitive pressure make further restructurings necessary?

Thank you.

Kuhn, good morning. Well, on the political outlook where this is a market outlook, I think what I've said about Cargo is also true, but passenger, we do see a strong forward booking situation as demand seems to be very much intact.

And I think I said that in my remarks, so -- Ulrik did as well. At the same time, we're all reading the papers and the world doesn't seem to become a more stable place.

So we are, indeed, always prepared for a potential downturn, which is not inside yet. As always, some fleets which are fully depreciated, we can ground.

We always make sure we have some proven over time, so we can reduce flight hours without having additional cost. So we always in this, let's call it, pre-crisis mode as professionals, but there's nothing to be seen at this very point.

On Vienna, and with that, I hand over to Ulrik. With all of our friends gathering now in Vienna for the biggest aviation party ever, we shouldn't forget that there is still less aircraft of all of our new competitors combined, than our former competitor, NIKI, had been operating out of Vienna.

So the headlines in the Austrian press not necessarily correspond with the market pressure we're seeing there because it has been tougher before with NIKI Aircraft being an extension of what we see today.

In terms of the CASK numbers, so we look as a group CASK, excluding the increase in the irregularity cost in the third quarter instead of the CASK going up 1.2%, it would actually go down by 0.4%. If you look at Eurowings alone and we look at the one-off cost in Q3 instead of having an increase of CASK in Eurowings, it would have been a minus 3.3% CASK number in the third quarter, excluding the one-off integration cost.

One question, just because I think I might have missed in the presentation or couldn't see it. Could you give us some feeling of how the RASK has developed basically between premium non-premium cabins given the growth in the market seems particularly focused on the non-premium segments.

So the premium RASK, if you give that, please, for Q3 rather than the 9 months? And then coming back to Eurowings, again, could you tell us how many AOCs are in Eurowings at the moment?

And how many you'd aim to have by the end of 2019? And then as a follow-up on that, both in terms of the cost, but also the opportunity cost of lost revenue, how much is the drag of the complexity of the AOCs on the Eurowings EBIT at the moment?

Yes. So starting with the RASK number.

So clearly, the RASK in premium cabin is ruling up very well. Where we are seeing the RASK pressure is very much in Europe and very much in economy class.

In terms of the AUCs in Eurowings, it is a mix. So in some basis, we are all the way up to 4 AOCs.

And well, that kind of shows the complexity you have with, of course, limitations to move crews and the aircraft in a simple way in one single base. In terms of how large is that impact going forward, well, as we've said we're going to have a breakeven result in 2019.

And we are, ultimately, aiming at EBIT margin of around 8%. The majority of that delta positive is actually coming for taking out that complexity, increasing the productivity of aircraft and crew, it is less coming on the revenue side.

Okay. And just to be clear in terms of the premium RASK, you say holding up well.

What is well? How much is that?

That number, I will have to come back to you. I don't have that on hand.

Just 3 for me as well. Firstly, can I just come back on the measures being taken to better manage disruptions next year because, I think, apart from the measures you mentioned in the presentation, there was also an initiative from your side, recently to cap slots at Germany airport.

So can you just elaborate on that a bit, and how realistic that is? Secondly, apparently, you're in discussions with Boeing for a €5 billion Dreamliner order instead of more A350s.

And I was just curious what make you prefer Dreamliners over A350s? And then lastly, can you just clarify whether this positive effect you had in Q3 in the other segment will turn around in Q4 or indeed next year?

And what the exact background of this accounting effect is?

Yes. Good morning, Johannes, on the various measures taken, you, of course, know our list, additional people, additional aircraft, IT-backed solutions on communication with passengers, but I think your question is more focusing on the slot initiative.

I think we have been able to convince the German public that there is a limit of growth for the infrastructure in Germany as it stands today. Infrastructure on the ground and infrastructure in air traffic control.

So my realistic expectation is that we'll not see any growth in number of slots at German airports for next year. And as I said before, the least I expect is those numbers not to grow.

I would even refer them to go down on some airports, which is maybe a little late in the process to achieve that. And there is a lot of discussion about this issue, which makes me positive that this is not the end of our discussion what we see for next summer, but just the beginning.

We just have more movements per hour than the whole system can take. For example, in the UK, you guys are having an overall number of movements for the whole air traffic control in the country, that's something we're looking, which will help us significantly.

And we've been successful, for example, in Dusseldorf not to have additional number of movements there, which was initiated by the airport. And also, in Frankfurt, I'm very positive, we don't see growth in the next years looking at the punctuality we have here.

On the -- our campaign out there between Airbus and Boeing on long-range aircraft, basically, obviously, if we add 787 to the fleet, there is additional complexity, which has to be compensated by the offer of Boeing. So we're running campaign, and the better deal in the end will win.

And of course, the deal not only includes prices of aircraft, but also includes our operational -- cost of operating this aircraft, and we have that, of course, strongly in the focus.

Then, finally, on the accounting questions when it comes to Other and Consolidation. So the results in Q3 is basically increasing due to timing effects intragroup transactions.

And this is primarily related to the MRO. If you look at the numbers for the first 9 months, this segment is still below prior year, and that we expect to be the case also for the full year of 2018.

Thank you. But just to clarify, so if you say timing effects that would imply for me that this is something that will turn around in coming quarters.

So can you just clarify whether this is the case?

Yes, that is indeed the case. So the positive effect you see now in Q3, there is a corresponding negative, since this is in the company, in the airlines.

And that means depending how much in the company transactions you have, this can indeed swing between the different quarters, but typically on a full year basis, it levels out. So we had a correspondingly negative number in Q1 this year.

All right. Thank you.

Can you hear me now? My question would be, would you feel comfortable to be the first one to hike prices based on the higher oil price in the industry and also go ahead maybe in advance of IAG or Air France-KLM?

And the second one, I mean, given that you generally had quite confident statement on North America. If I look on your Q3 yields, they happen 0.2% negative, still quite weak.

What was the particular reason? I mean, you were quite confident on premium yield, so was there any issue on the leisure side?

Well, when it kind of comes to prices, of course, it's limited to what I can see in public about this. But I hope my people already are doing what you're describing.

And of course, we're trying to use a very strong demand situation, the record load factors to bring our yields up wherever the market position allows that. It's part of running the airline in a more profitable way.

On the Americas, I think...

Yes. In terms of North America in the third quarter, yes, it was not as strong as it been in the first half year.

This is just because of a comparison basis. In Q3 2007, it was extraordinarily good.

But we do indeed expect Americas going forward in the fourth quarter to be strong.

All right. Ladies and gentlemen, thank you very much for your time this morning.

We look forward to speaking with you and meeting you over the next few weeks and months. And we'll come back then with the publication of our full year results in March next year.

Thank you, and goodbye.