Lufthansa Investor Day 2010 Group Strategy and Development Wolfgang Mayrhuber, Chairman of the Executive Board & CEO Deutsche Lufthansa AG Frankfurt am Main / June 28, 2010 Our Vision Where are we going? We… want to grow profitably … want to distinguish ourselves from competitors in terms of superior quality, service, operational and technical competency as well as innovation … want to maintain a strong balance sheet … are open for partnerships, whether in alliances or by consolidation … want to offer products in all segments … will stay an Aviation Company and an Airline Group … want to stay flexible, responsive and stable within a changing environment … have a leadership strategy that builds on entrepreneurship and a modular setup 2 Lufthansa Group
Our formula for success is sustainability: Based on respecting stakeholders’ interests… Ca. 340,000 shareholders Cash value added Sustainable development Shareholders Synergies Profitable growth Ca. 80 m customers p. a. Seamless travel Flexibility (network) Take over responsibility Ca. 117,000 Employees 149 nations Customers High quality products Competitive fares Individual caring Mobility a la carte Employees Fair HR Team spirit Entrepreneurship Job security/perspectives 3 Lufthansa Group Our formula for success is sustainability: …and on creation of value and growth Strong capital structure Value creation Solid asset base
Profitable growth Financial stability Rating Investing in strategic opportunities Modular Setup New technologies Innovation Group development Integration Stronghold Europe Connecting Europe with the world Competency Market 5 local European markets Emerging economies Learning organisation Management of networks 4 Lufthansa Group Lufthansa A mobility company with focus on passenger airline business External revenue split External revenue [in m EUR] 3,475 4,184 73% Passenger Airline Group 462 10% Logistics 558 630 Technik 10% MRO 586 61 1% IT Services 59 387 6% Catering 71 Q1 2009 Q1 2010 5 Lufthansa Group Growth perspectives – Increasing relevance of Asia, while Europe and North America relatively lose importance in 2028 Growth of passenger air traffic 2008 to 2028 within regions (in RPK) RPK in bn 2008 North America ( +2. 5% p. a. to 1. 580 bn) Europe ( +3. 4% p. a. to 1. 280 bn) RPK in bn 2028 Asia/Pacific 660 bn 980 bn Middle East ( +6. 2% p. a. to 140 bn) 40 bn ( +6. 9% p. a. to 3. 080 bn) Africa Latin America ( +6. 4% p. a. to 430 bn) 120 bn ( +6. 4% p. a. to 120 bn) 30 bn 810 bn Souce: Boeing Current Market Outlook 2009 Lufthansa Group Growth perspectives – The North Atlantic traffic remains the intercontinental market with the highest volume, despite emerging markets Growth of passenger air traffic 2008 to 2028 between Europe and the world (in RPK) RPK in bn 2008 North America ( +4. 6% p. a. to 1. 060 bn) RPK in bn 2028 430 bn Europe 180 bn 130 bn Asia/Pacific ( +5. 5% p. a. to 900 bn) Latin America ( +4. 3% p. a. to 410 bn) 180 bn Middle East ( +5. 5% p. a. to 330 bn) 310 bn Africa ( +5. 4% p. a. to 360 bn) Souce: Boeing Current Market Outlook 2009 7 Lufthansa Group
Business environment Strong market upturn temporarily interrupted by the ash plume in April… International passenger and air freight volumes seasonally adjusted 14 13 12 FTK, billions 260 RPK 240 RPK, billions 220 200 FTK 180 160 2005 8 Ash impact 11 10 9 2006 2007 2008 2009 2010 Source: IATA Lufthansa Group Business environment – …but pre-recession levels almost regained by May with a distinct positive trend… International passenger and air freight volumes seasonally adjusted 14 13 12 11 FTK, billions 260 240 RPK, billions May rebound RPK 220 200 FTK 180 160 2005 9 10 9 2006 2007 2008 2009 2010
Source: IATA Lufthansa Group Business environment – …and Lufthansa is taking part in recovery, the cargo segment going ahead Monthly growth of international air traffic (IATA) and Lufthansa (% to PY) 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 * PKT Passenger volume (RPK) Fright volume (FTKT) IATA FTKT Oct 2007 Jan 2008 Jul Jan 2009 Jul Jan 2010 May Source: IATA, Lufthansa (*) Lufthansa Cargo incl. chartered capacities of Jade Cargo and AeroLogic 10 Lufthansa Group Business environment Also a very positive long-term perspective for the airline industry Annual growth rates 2008 to 2028
World Economy (GDP) Airplane fleet Number of passengers +3. 1% +3. 2% +4. 1% Expected growth of the world fleet up to 2028: 29,000 new aircraft 3. 2 trillion USD primary investment Airline traffic (RPK) Cargo traffic (FTK) +4. 9% +5. 4% Source: Boeing Market Outlook 2009 11 Lufthansa Group Leading business Challenges: Managing volatility, crises and competition Operating results Lufthansa Group (in m EUR) Iraq crisis Financial crisis Pilots’ strike Crises Economic slump Gulf crisis Performance ATC Kosovo war 1060 841 723 718 577 383 28 36 1042 845 9/11 H5N1 epidemic 1378 H1N1 epidemic Strong winter 280 SARS epidemic Pilots’ strike Volcano Volatility 428 305 167 6 34 345 130 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Competition No-Frills Carriers Middle East Carriers Asian Carriers Remark: 1991 – 1996: Profit / loss from operating activities 12 Lufthansa Group Leading business Our strategic track proved suitable in the lasting uphill battle Sound financials – e. g. cost base, strong balance sheet, cash reserves, ownership of assets Flexibility – e. g. flexible contract volumes, postponement of deliveries Responsiveness – e. . fast capacity adjustments Opportunities – e. g. secure the markets, prepare for economic revival Differentiation – e. g. product, offer Group structure – e. g. cycles, regions, customers Culture – e. g. mastering crisis is “state of mind”, avoidance of lay-offs Entrepreneurship – e. g. local crisis management ensures appropriate and fast execution 13 Lufthansa Group Leading business – Consistently carrying out dedicated efficiency and cost-cutting programs Operating results Lufthansa Group (in mEUR) Programm 15 Programm 93 Action plan 378 1060 841 723 428 305 167 6 34 28 36 345 718 577 383 130 1042 845 CLIMB 2011 1280 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 14 Lufthansa Group Leading business – The Group‘s successful crisis management shows in its profitability and its track record of value creation Operating profitability Lufthansa vs. industry Airline industry operating result (in bn USD) 20 15 10 5 0 -5 -10 -15 Lufthansa value creation measured as CVA Cash value added (in m EUR) 3500 3000 2500 2000 Total: 2. 1 bn EUR Source: IATA 2001 2002 003 2004 2005 2006 2007 2008 2009e 1500 1000 588 552 500 0 -500 -628 -1000 -1500 745 404 151 386 1,546 Lufthansa operating result (in m EUR) 1500 1200 900 600 300 0 654 -858 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 15 Lufthansa Group Leading business Lufthansa has become the largest European Aviation Group… 25. 000 25. 0 Total Revenue (bn EUR) 20. 000 20. 0 15. 000 15. 0 10. 000 10. 0 Lufthansa British Airways+Iberia Air France-KLM Air France KLM British Airways Iberia 5. 000 5. 0 0 0 2000 80,0 80 70,0 60,0 60 50,0 000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 Lu A B A KLM B Ib Passengers per year (in m) 40,0 40 30,0 20,0 20 10,0 0,0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 16 Lufthansa Group Leading business …with an operating margin above competitors‘ level Operating margin Lufthansa / British Airways / Air France-KLM Q2 2007 – Q1 2010 (in %) Lufthansa British Airways 15% 10% 5% 0% -5% -10% -15% -20% Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Air France-KLM Q4 09 Q1 10 17 Lufthansa Group
Leading business – We are well positioned as an innovative, leading aviation group, committed to better understand customer needs 18 Lufthansa Group Lufthansa‘s steps towards the future – reflected by its ongoing organisational development and by its leadership strategy „Early Days“: Monolithic Airline From mid 90s: Business segments Focussed Aviation-Group „Strategic Management-Holding“ Logistics LH Passage FRA MUC DIR LHP LCAGLHT LSY LSG TC GG LX LCAG Services LHT Airline-Groupe FRA MUC DIR LX OS SN BD Logistics LCAG Services LHT LSY LSG LSY LSG “flying“ “Services“ XQ 4U B6 19 Lufthansa Group
Airline Group – Leadership strategy The principle of integrated autonomy The competitiveness of passenger transport requires attracting a sufficient passenger volume in our homemarket Europe Therefore, Lufthansa establishes a scalable, modular Airline Group Integration of partners follows the principle of „integrated autonomy“ This combines the strength of a large-scale enterprise and the advantages of widely autonomous, self-dependent business units, focussed on their local markets The partners keep their relevant functions and brands as well as their entrepreneurial responsibility 0 Lufthansa Group Airline Group – Leadership strategy – The Airline Development Board balances the Group‘s and the segments‘ perspectives e. g. Fleet size e. g. Network design e. g. Multi brand sales e. g. Brand Strategy & Group development Definition of ”Principles“ Allocation of resources Airline Development Board (ADB) Business segments Business segments Airlines / Business segments Local market perspective Entrepreneurship Responsibility for P&L LX FRA MUC DIR OS SN BD … … Support functions Realization of synergies Shared Services e. g.
Aircraft purchasing, Fuel management e. g. Station management e. g. Financial & business services e. g. IT services Flexibility Lufthansa Group 21 Airline Group – Leadership strategy Common principles of the learning organisation Entrepreneurship and further development of the Airline Group and respective working principles Learn from and with each other – in an atmosphere of trust and transparency Share market intelligence Flatten peaks regarding capacity, investments etc. Allocate resources appropriately – with a focus on market potentials, customer‘s preferences, cost etc.
Decide on spearheading activities Streamline activity plans 22 Lufthansa Group Airline Group – Leadership strategy Benefits of a modular Airline Group Synergies through group-wide intellectual properties Customer Benefit Harvesting Cost Synergies Generation of Revenue Synergies 23 Lufthansa Group Airline Group – Strong cooperation Jointly developing the group Fundamental principles of fleet development defined Safeguarding flexibility, increased homogeneity and staggering of fleet development Bundled purchasing and marketing of aircraft Standardized financing and accounting within the group
Group Airlines develop competitive strategies and common management of networks Alignment and optimization of local network strategies Positioning in the competitive landscape Development of overall strategies to safeguard today‘s as well as future hometurf catchments 24 Lufthansa Group Airline Group – Strong cooperation Jointly developing the group Essential principles for group sales approved Development of sales channel management Joint corporate contracts Move under one roof
Lufthansa and Austrian Airlines intensify their cooperation in cargo business Synergies result from an extended range of products & coordination of business processes Founding of a joint subsidiary in Vienna Lufthansa Cargo takes over responsibilty for additional markets 25 Lufthansa Group Airline Group – Group Airlines enhance their position by structural cost management while generating synergies Integration of group airlines generates substantial synergies Structural cost management leads to a permanent reduction of unit costs „Climb 2011“ 1 bn EUR earnings improvement by end of 2011 20 m EUR 60 m Synergies 230 m for the EUR EUR Group
Further optimisation of unit costs 100 m EUR „Austrian Next Generation“: Further 150 m EUR cost reductions, focus on volume markets, maintain position in Eastern Europe Optimization of neighborhood traffic Integrated sales organization Joint ground processes (i. e. check-in, handling) Joint contracts (i. e. fuel, handling, general purchasing) Alignment of back office processes 3 year turnaround plan, 25% capacity cut, -800 jobs, cost cut of 80 m GBP p. a. 26 Lufthansa Group Competition – The group strategy strengthens the positioning in important worldwide sales regions, especially compared to European competitors Market share (RPK) Jan. Apr. 2010 (in %) and change vs. PY (in PP) North Atlantic 27. 2 +0. 8 Traffic regions in sum Europe 23,5 +0. 9 43. 5 +2. 2 25. 9 -1. 3 PKT overall (AEA): 27. 3 211. 199 Mio 24. 4 +0. 2 -0. 4 27. 3 21. 1 -1. 6 +1. 8 23. 4 -0. 4 27. 8 +0. 2 14. 4 -0. 7 14. 3 -1. 8 PKT Region: 50,637 Mio. 42. 7 Middle East 38. 4 +0. 7 Mid Atlantic 6,2 -0,6 +0. 6 PKT Region: 49,674 Mio. 42. 5 12. 7 -0. 7 32. 5 -0. 4 23. 0 -1. 8 26. 3 18. 3 -1. 5 +3. 8 Africa 18. 9 +0. 7 -0. 8 Asia/Pacific 29. 5 31. 5 +0. 4 +0. 4 20. 5 18. 0 -1. 6 +1. 6 24. 0 +1. 7 Lufthansa Airline Group incl. Brussels Airlines* Air France / KLM British Airways + Iberia
PKT Region: 16. 830 Mio. PKT Region: 9,627 Mio. 15. 0 -2. 4 South 32. 5 -3. 1 Atlantic 12. 1 -0. 2 28. 3 -2. 7 27. 2 +6. 0 PKT Region: 21,178 Mio. PKT Region: 46,144 Mio. Other AEA carriers PKT Region: 17,013 Mio International passenger traffic of AEA network carriers, Source: AEA (*) Lufthansa Passenger Airlines, SWISS, Austrian Airlines, bmi, Brussels Airlines 27 Lufthansa Group Global growth opportunities – The exposure to emerging markets has significantly increased in the new Passenger Airline Group setup More than half of LH long-haul exposure is to fast recovering emerging markets in Asia-Pacific, Africa and Middle East +1. % Europe 48% Americas 24% Asia/Pacific 18% Lufthansas exposure to Africa has grown substantially through consolidation. 265 weekly flights to 38 destinations +3. 3 Middle East & Africa 9% +5. 7% +4. 4% +5. 0% LH exposure by traffic region Jan-Dec 09 % GDP growth CAGR 2010e – 2013e Source: LH, Global Insight 28 Lufthansa Group Outlook Clear course as leading European network carrier with global offer and ongoing development of the Lufthansa Airline Group Considerable upward trend for Lufthansa Cargo Sound contributions of MRO, IT Services and Catering Strong engagement in cooperation with partners (e. . STAR) Various growth opportunities Continuous development of all products and segments Lufthansa will maintain its successful course based on a strong brand with qualified personnel, a stable management, value creation and a clear strategic course 1. 2. 3. 4. 5. 6. 7. 29 Lufthansa Group Thank you Wolfgang Mayrhuber, Chairman of the Executive Board & CEO Deutsche Lufthansa AG Frankfurt am Main / June 28, 2010
