newsonline24

• Continued progress in travel re-opening worldwide has lead to a sharp increase in bookings
   
• Decisive actions taken to respond to unprecedented industry
  disruption – preserving cash, strengthening liquidity, reducing costs and accelerating the Group’s transformation
   
• Targeting Adjusted EBIT margin of at least 8% by 2024
   
• Lufthansa Group mandates banks to help calibrate possible capital increase
   
• Economic Stabilization Fund (ESF) considers Opération Blanche

As the roll-out of vaccination programs accelerates and with travel restrictions being progressively eased globally, bookings across the Group’s airlines have increased significantly. Compared to average weekly levels in March and April 2021, bookings more than doubled in May and early June. Demand is particularly strong for European leisure destinations around the Mediterranean Sea, as well as leisure long-haul markets where there are only limited or no travel restrictions. Supported by the acceleration of bookings, the Group expects operating cash flow to be positive in the second quarter of 2021. The number of passengers is projected to reach around 30% of pre-crisis levels in June, to reach approximately 45% in July and around 55% in August. This positive trend supports the Group’s forecast to operate approx. 40% of 2019 capacity levels in 2021.

Structural transformation across the Group to yield significant cost savings, supporting future profitability and cash generation

Since the beginning of the crisis, the Lufthansa Group has taken decisive action to strengthen liquidity and to accelerate the Group’s structural transformation. Key restructuring actions include adapting the Group’s cost base and operating model to ongoing changes in our market, thereby positioning the Group to capitalize on growth in the “New Normal”.

The Group’s restructuring program targets achieving gross savings of approx. EUR 3.5 billion by 2024 (compared to 2019), of which around half are expected to be implemented by the end of 2021. Costs are expected to decline across the Group’s airlines (notably low- to mid-single-digit reduction of CASK (excl. fuel) by 2024 compared to 2019 levels), the Aviation services and in Group overheads. The main drivers for these improvements are (i) reductions in personnel cost, (ii) operational simplification and overhead reduction and (iii) fleet modernization and standardization.

Personnel cost savings are expected to reach approx. EUR 1.8 billion from 2023 onwards, of which around half  has already been achieved through a reduction of almost 26,000 employees since the start of the crisis. In Germany, the Group plans to reduce personnel costs through a combination of collective agreements, voluntary departures and forced dismissals, equivalent in cost terms to a headcount reduction of up to 10,000 positions.

Operational simplification measures include the closure of SunExpress Deutschland, the discontinuation of passenger flight operations at Germanwings and the closure of multiple other bases and sites. Improvements in operational efficiency include generating additional synergies from the harmonization of aircraft maintenance and other operational processes, digitalization and cloud migration of steering and planning functions and an approx. 50% reduction in operated IT systems for flight and ground operations, resulting in a simplified and streamlined organisation. Reduction in overhead and other costs includes an approx. 30% reduction of office space, renegotiation of key supplier contracts and reductions in external consulting and marketing expenses. Ongoing fleet modernization and standardization will further contribute to the reduction of operating costs through improved fuel efficiency, as well as lower maintenance and training costs. In addition, this will contribute to the Group’s target of reducing its net carbon emissions by 50% over the next decade.

During the recovery phase, capital expenditure will be capped at D&A levels, with a projected EUR 2.5 billion in annual capex spending in 2023 and 2024. This is circa EUR 1.1 billion lower than in 2019 and will support the generation of strong free cash flow going forward.

Lufthansa Group Well Positioned to Seize Future Opportunities

In addition to reducing costs, the Lufthansa Group is strongly committed to accelerating its transformation in order to seize opportunities for profitable growth as a structural winner in the industry:

Capturing Market Opportunities

The Lufthansa Group’s multi-hub strategy and its leading position in key long-haul markets, supported by its global joint venture network, place the Group’s airlines in a prime position to capitalize on the expected rebound in passenger demand. The Lufthansa Group is further adapting to different speeds of recovery in the travel sector by adjusting its offering to an expected slower recovery in the corporate segment, compared to strong pent-up leisure and VFR demand. In this context, the transformed Eurowings will significantly contribute to driving a profitable recovery in the leisure and VFR segment. Based on its robust yield premium and the progress made in reducing unit costs, Eurowings will be able to take advantage of its position as largest leisure carrier in Germany and to achieve profitability levels in line with the overall Group. In addition, Eurowings Discover will tap the large potential of the leisure segment in Germany by serving leisure-focused long haul destinations out of Frankfurt starting this summer. It thereby complements the existing Edelweiss offer in the Swiss market.

Enhancing Customer Centricity and Accelerating Digitalization

The Group has invested significantly in direct distribution in order to enhance the overall customer experience, improve revenue quality and profitability. The share of bookings made in direct distribution channels is targeted to increase further from >50% in 2019 to >75% by 2024. Miles & More, Europe’s largest frequent flyer program, will continue to play a pivotal role in driving customer loyalty and various initiatives have been launched to ensure a seamless and personalized customer experience across the airlines, enhanced by significant digitally-driven innovation. The contactless travel experience that the Group airlines are able to provide means that customers can fly safely and with confidence.

Underlining Commitment to Sustainability

The Group is seeking to halve its net CO2 emissions by 2030 compared to 2019 levels, following the “Avoid – Reduce – Compensate” principle. Measures such as the ongoing modernization of the Group’s fleet, which has been accelerated by the crisis, the increased use of sustainable aviation fuels, improved operational and air traffic management efficiency, as well as financial incentives such as compensation and offsetting.

Optimizing our Ways of Working

As part of the internal transformation plan, the Group will move from an integrated model towards a functional holding concept. This will enable faster decision-making, reduce complexity and foster more efficient cooperation across the Group airlines. The organizational separation of Group and Lufthansa German Airlines functions has been a key element of the change. Going forward, the matrix organization will be limited primarily to core airline functions to ensure maximum operational synergies. The Group’s Management Board will focus on the Group’s strategy, strategic capital allocation and value creation. With regard to its portfolio, the Group is in the process of evaluating options for the partial divestiture of Lufthansa Technik. In the case of AirPlus and LSG Group, full divestitures are targeted once the market environment allows the fair value to be realized.

New Ambitious Mid-Term Targets Established

Based on the transformation of its operating model, the restructuring of the Group’s cost base to the New Normal and the goal of capitalizing on future opportunities to further strengthen the balance sheet, Lufthansa Group targets to reach an Adjusted EBIT margin of at least 8% by 2024. Combined with a disciplined investment policy and strict working capital management, this will support a return on capital employed (Adjusted ROCE excluding cash) of at least 10% by 2024.

Potential Capital Increase

The Lufthansa Group has appointed four banks to help calibrate a possible capital increase. The net proceeds would contribute in particular to the repayment of stabilization measures of the ESF and to the restoration of a sustainable and efficient long-term capital structure.

The ESF is considering, also taking into account market conditions, to participate in a possible capital increase without the use of additional funds (Opération Blanche / Tail Swallow). If implemented, the ESF might place shares with investors and sell subscription rights on the open market during the rights trading period.

The Executive Board and Supervisory Board have not yet taken a decision on the size and timing of a possible capital increase. In addition, approval by the ESF for this is pending.

Disclaimer

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

This announcement may not be, directly or indirectly, published, distributed or transmitted in or into the United States, Canada, Australia or Japan or any other jurisdiction in which the distribution or release would be unlawful. This announcement does not contain or constitute an offer of, or the solicitation of an offer to buy or subscribe for, securities, to any person in the United States, Australia, Canada, Japan or in any jurisdiction to whom or in which such offer or solicitation is unlawful.

This release is not an offer of securities for sale in the United States of America. Securities may not be offered or sold in the United States of America absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Any public offering of securities to be made in the United States of America would be made by means of a prospectus that could be obtained from Deutsche Lufthansa Aktiengesellschaft and that would contain detailed information about the company and management, as well as financial statements. There will be no public offer of the securities in the United States of America.

Subject to certain exceptions under the Securities Act, the securities referred to herein may not be offered or sold in Australia, Canada or Japan or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada or Japan.

This announcement is an advertisement and not a prospectus. Investors should not purchase or subscribe for any shares referred to in this announcement except on the basis of information in the prospectus to be issued by the company in connection with the offering of such shares. Copies of the prospectus will, following approval of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) and publication, be available free of charge from Deutsche Lufthansa Aktiengesellschaft, Venloer Straße 151-153, 50672 Cologne, Germany, or on the website Deutsche Lufthansa Aktiengesellschaft at www.lufthansagroup.com.

In the United Kingdom, this announcement is only being distributed to and is only directed at persons who (i) are qualified investors as defined in Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018, (ii) are investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), or (iii) are persons falling within Article 49(2)(a) to (d) of the Order (high net worth companies, unincorporated associations, etc.) (all such persons together being referred to as “Relevant Persons”). This announcement is directed only at Relevant Persons and must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this announcement relates is available only to Relevant Persons and will be engaged in only with Relevant Persons.

This announcement contains certain “forward-looking statements.” Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “will,” “anticipates,” “aims,” “could,” “may,” “should,” “expects,” “believes,” “intends,” “plans,” “prepares” or “targets” (including in their negative form or other variations). By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. All subsequent written or oral forward-looking statements attributable to the Company or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realized. Any forward-looking statements are made of the date of this announcement. The Company does not assume any obligations to update any forward-looking statements. Moreover, it should be noted that all forward looking statements only speak as of the date of this release and that neither the joint global coordinators (the “Joint Global Coordinators”) assume any obligation, except as required by law, to update any forward looking statement or to conform any such statement to actual events or developments.

Each of the Company and the Joint Global Coordinators and their respective affiliates expressly disclaims any obligation or undertaking to update, review or revise any forward-looking statement contained in this release, whether as a result of new information, future developments or otherwise.

Each of the Joint Global Coordinators is acting exclusively for the Company and no-one else in connection with the potential capital increase. They will not regard any other person as their respective clients in relation to the potential capital increase and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients, nor for providing advice in relation to the potential capital increase, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

None of the Joint Global Coordinators or any of their respective directors, officers, employees, advisers or agents accepts any responsibility or liability whatsoever for or makes any representation or warranty, express or implied, as to the truth, accuracy or completeness of the information in this announcement (or whether any information has been omitted from the announcement) or any other information relating to the Company, its subsidiaries or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection therewith.

This announcement also contains certain financial measures that are not recognized under International Financial Reporting Standards (“IFRS”). These non-IFRS measures are presented because the Company believes that they and similar measures are widely used in the markets in which it operates as a means of evaluating a company’s operating performance and financing structure. They may not be comparable to other similarly titled measures of other companies and are not measurements under IFRS or other generally accepted accounting principles.

This announcement does not purport to contain all information required to evaluate Deutsche Lufthansa Aktiengesellschaft and/or its respective financial position. Financial information (including percentages) has been rounded according to established commercial standards. Certain market data about Deutsche Lufthansa Aktiengesellschaft included in this announcement is sourced from third party sources. Third party industry publications, studies and surveys generally state that the data contained therein have been obtained from sources believed to be reliable, but that there is no guarantee of the fairness, quality, accuracy, relevance, completeness or sufficiency of such data. Such research and estimates, and their underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness and are subject to change without notice. Accordingly, Deutsche Lufthansa Aktiengesellschaft expressly disclaims any responsibility for, or liability in respect of, such information and undue reliance should not be placed on such data.