Deutsche Lufthansa AG (LHA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q2 2024 Results Analyst Conference Call and Live Webcast. I'm Mott, the chorus call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Marc-Dominic Nettesheim, Head of Investor Relations. Please go ahead.

Yes. Good morning here from Frankfurt. Warm welcome to all of you. Thanks for your interest. We'll give you an update on our Q2 results on strategic outlook and milestones and on the business going forward for the rest of the year. Sitting with me today are our CEO, Carsten Spohr; and our Board member, Michael Niggemann, who is also acting CFO. And as always, after the presentation, you have the chance to ask questions. But also, as always, we ask you to limit your questions 2 so that everybody can participate. And with that, I hand over to you, Carsten.

Yes. Thank you very much, Marc, and warm welcome on my behalf as well. Ladies and gentleman, some of you I met many times before, and you know I have said before that the pace of change in our industry is further accelerating. And you only have to look at the last months to get a sense of the pace of economic change in aviation. In March this year, we were enjoying the third best financial guide in our company's history, and just 1 month later, we needed to adjust our full year guidance due to the significant impact of the strike, especially Lufthansa Airlines. And then 2 weeks ago, we provided an ad hoc update on the quarter's key figures and again adjusted our outlook and this time, not for strikes, but for commercial reasons. And I don't want to sugarcoat this in any way. The first half of the year did not go as expected, as you well know, for the entire industry, and that surely includes us with the numbers we are presenting year-to-date. But let me allow to begin by highlighting some positive aspects. There is a continued high level of interest in travel and demand for tickets of airlines around the world in all our markets. And that obviously shows that the most important trend for our industry after COVID does remain intact. And especially important for us at the Lufthansa Group is that this is more than true for the premium cabins in long range, which, of course, are the core of the core of our commercial business model. In the first half of the year, our passenger airlines brought over 60 million passengers safely to their destinations. That represents a 10% increase compared to the previous year. This figure is very much in line with our capacity expansion of the 11% in the first half of the year. And at the end of June, this brought us back to nearly 93% ASKs compared, of course, as always, to the reference year 2019. This growth in capacity, both for us and obviously for our competitors increases supply in the market, which in turn puts some pressure on prices. And although these are still well above precrisis levels, yields are somewhat normalizing across the world, and this obviously is felt by airlines around the world. And this is -- by the way, while we have decided to reduce our planned capacity growth for the coming winter by a certain degree and we come to that later on. Moreover, also no secret that some Asian markets and business travel in general continues to recover more slowly than planned, different parts of the world, but in general. And in addition to these market-wide, industry-wide organizational yields, the first half of the year did see some several special onetime effect for us in the Lufthansa Group. Most of all, of course, the strikes in the first quarter which had an adverse effect on our financial performance, performance more or less up to EUR 0.5 billion. Second, the ongoing delivery difficulties of basically all aircraft and engine manufacturers are affecting us at Lufthansa Group somewhat more than others because we are right in the critical phase of the largest fleet modernization in our history. And to illustrate this, this year alone, '24, we wanted to put 15 new 787s into service. In the end, none of them will enter service in '24. Thirdly, the certification process for new seats, for new cabin interiors is taking significantly longer than it did before the pandemic. This is also unfortunate timing for us as this coincides with the launch of our new Allegris next year, SWISS Senses cabin reconfiguration, the timing again. And these circumstances combined with in these complex collective margin and operational regulations we have in the Mainland are leading to additional inefficiencies, especially the Mainland itself and the Lufthansa City line feeding our hubs in [indiscernible]. On top, here in Germany, our most important home market, we are affected by significant increases in taxes and fees. And all that combined, these aforementioned factors means that the consolidated results for the first half of the year fell below our own expectations of last year, and now we expect an adjusted EBIT of between EUR 1.4 billion and EUR 1.8 billion for the full year. This outlook is largely dependent on the traditionally important fourth quarter in Lufthansa Cargo and the earnings performance at Lufthansa Airlines. And to achieve a balanced result from Lufthansa Airlines for the full year, at least, hopefully, and to accelerate the overall modernization of Lufthansa Airlines, a comprehensive turnaround program has been launched. Michael will go into some more detail on this in a moment. But let's look at the results of the whole group in the second quarter for a moment. We increased the number of available seat-kilometers by 9% compared to the previous year. Lufthansa Group reached EUR 10 billion by the way, for the first time in the second quarter, which represents a 7% increase compared to the previous year, and we were able to keep unit costs at a constant level, which was obviously at least the [indiscernible] product because at the same time, with unit revenue is falling about 5% compared to the previous year, this alone resulted in a EUR 300 million earnings impact. The whole group achieved an adjusted EBIT of EUR 700 million for the second quarter, as you know. And it's pleasing that a part of Lufthansa Airlines, which I already referred to or the other passenger airlines in the group, are more or less developing in line with the market development in this very challenging environment. And the same applies to Lufthansa Cargo, Lufthansa Technik, I would like to say that we probably outperformed expectations and earn of course, for at least -- they were achieving another record result in the first half of the year, and I think it's worth to say that we will be finishing this in a very positive way this year '24 as well. Nevertheless, it's evident that our combined half year results are below expectations. However, we manage our group, as you well know, the long-term perspective rather than focusing on one quarter after the other. Therefore, let me spend a few minutes on the extremely important fact that we achieved 4 significant strategic milestones in this second quarter alone. First, Allegris, the premium business, especially on long haul is doing extremely well. As I already mentioned, it is key for us. Therefore, in April, we were finally able to present the first Airbus A350 with the new Allegris cabin. We'll now add one each month until the end of the year, including introducing our new first class. And starting next year, we even add 2 aircraft a month, one from Airbus or Boeing and one including [indiscernible]. We have had now a triple number of flights with more than 50,000 guests, and I'm delighted to say that the feedback from the guests is even above the quite optimistic expectations we have had. And again, I mentioned it for the third time, this is key for our business. Therefore, so important also that our crews come back with very positive feedback. So that makes me quite optimistic on going the right path here for years to come, as you know. By the end of the year already, we will expand the network to 6 destinations. It's Vancouver, Toronto, Montreal, Chicago, San Francisco and Shanghai. Even more important that Allegris will be installed on more than 100 aircraft in Lufthansa and also the introduction of SWISS Senses, which is how we call the similar product in Swiss will start next year. Second strategic milestone is that we continue our internationalization to be less dependent on the German market. And this is obviously demonstrated by our investment into ITA. After the United States, Italy is our second most important market outside our home markets. And with ITA, we're not just acquiring a company with a quite positive growth perspective being based on the start-up culture and cost structure as they have been able to achieve, but we are also further developing this very important Italian market for us as I just mentioned. And last but not least, I think this is sometimes getting lost in the discussion, we are getting access to adding on [indiscernible] hub #6 our multi-hub network. It's next to Munich, the only other 5-star hub in the European continent. Both will be part of our system. And last but not least, it's one of the few hubs in Europe, which has room for extension, which might not be important for the next 1, 2 or 3 years, but surely, for the strategic outlook, which is [indiscernible] for this transaction. Our customers will have access to more destinations, more connections, especially to Southern destinations. Think about Latin America, North Africa, the Middle East, and only today, 90% of our connecting passengers have the option to use at least one alternative hub in our network. That number by math will increase with an acquisition of the 6 hub and 10% of our customers today can reach their connecting destination by using all of those [indiscernible] hubs. Also that, of course, is the logic, which another hub will further enhance. So that brings me to the third strategic milestone, the launch of Lufthansa City Airlines, which is our very cost-efficient answer to the need to feeder growth on long range, which we have decided to invest in as being based on rather small European catchments compared to London and Paris. You all well know, for us, feeders is more important than for many of our competitors. Therefore, cost efficient feed is key. We will lose the option to do that with City Lines, and we will continue even in an enhanced way to do that in Lufthansa City Airlines and the first airplane is flying while we speak. And last but not least, we announced to our shareholders and the public some time ago that we want to focus more on the core of our business, which is the airline business and Lufthansa Technik. After selling our catering business last year, we're happy to announce that we'll be closing the sale of AirPlus, actually a midnight tonight. And we'll have not only EUR 0.5 billion earnings coming from that, but also we'll be able to focus even more on what we believe is the strategic core of Lufthansa. And I will now hand over to Michael for some more details on our key financial figures and some details on the mentioned turnaround program of Lufthansa Airlines. Michael, over to you.

Thank you, Carsten. Warm welcome to all of you also from my side. Let me come straight to the [ effects ]. I'm pleased to report that our revenues in the second quarter have exceeded EUR 10 billion, showing a 7% increase compared to the prior year. This growth was driven by a strong capacity increase of 11%. On the other hand, the operating expenses increased by 10% due to the higher level of production and general cost inflation. Hence, our operating result stands at EUR 686 million, which is a decrease of EUR 400 million compared to the prior year. Looking at the reasons, approximately EUR 300 million, thereof can be explained by a decrease in unit revenues, including approximately EUR 100 million strike impact. Looking at our different business units, the decrease is mainly driven by the passenger airlines, particularly by Lufthansa Airlines. Hence, the results confirm what we had foreshadowed in our profit warning earlier this month, a market-driven decline in unit revenues and inefficiencies in our core business has affected us in the past quarter. Let me give you an insight into these 2 effects and how we intend to address them in the future. Let's discuss the macro level first. One can observe a tremendous capacity increase in all traffic regions, leading to an overall capacity growth of 12% in the second quarter. Also, our own capacity grew by 11% compared to prior year. We now stand at 92% of offered capacity in terms of 2019 levels, while many of our competitors have already surpassed precrisis levels. For us, this growth has two positive implications. Number one, the market is still growing. The demand for air travel is still strong. Number two, even in spite of a strong 11% capacity growth, we managed our revenues well and could avoid an overall excessive yield decrease. However, additional capacity supply has, of course, an impact on ticket prices. Although our yields have been resilient to a certain extent, there was a year-on-year decline of almost 4%. This decline varies significantly between the traffic regions. In Asia, we have seen the highest industry capacity growth with almost 28%, driven by the big the Chinese carriers. Our yields to Asia have dropped almost 10%. Another region to highlight is North America, where we deployed 27% of our capacity. In the second quarter, we were able to grow our capacity over the North Atlantic by more than 15% while yields were relatively stable at minus 2.6% compared to last year. Apart from the supply side, also the demand structure has changed over the past years. The leisure segment has recovered faster than corporate travel. According to IATA forecast, corporate travel will not fully recover to precrisis level within the next years whereas private travel has already crossed this threshold this year. After talking about the market environment, let's now have a closer look at our Passenger Airlines segment. The operating results amounted to EUR 581 million compared to EUR 965 million last year. A large part of this, the decrease relates to 5.3% lower unit revenue. The vast decline was larger than the yield decline since the seat load factor was around 1 percentage point lower than last year. Total expenses have been built by personnel cost increases and cost inflation of spare parts and increase in total by 10% on a year-on-year basis. On the other hand, total income grew by 5% and was less outweighted by the increased expenses. Thanks to the strong capacity increase of 11%, unit cost remained flat. In terms of capacity ramp-up, the Passenger Airlines in total were in line with expectations. The adjusted EBIT margin of the whole Passenger Airlines segment was at 7.2% in the second quarter and therefore, more than 5 percentage points below previous year. When analyzing the figures more in this, next to the broader strike impact and the overall RASK decline, one main driver for the downward trend cannot be overlooked. Lufthansa Airlines is clearly falling behind. Despite an 11% capacity increase and the 5% revenue increase, we have not been able to utilize a fixed cost leverage and CASK was up by 3%. In the second quarter, Lufthansa Airlines has achieved less than half of its adjusted EBIT compared to last year, and the Passenger Airlines EBIT margin of over 7% compared to only 4.7% at Lufthansa Airlines. In order to effectively fight the reasons for this shortfall, the [indiscernible] turnaround program was initiated. Given the structural changes, we need to reposition Lufthansa Airlines for long-term success in a competitive market environment, which is not an easy task but a [indiscernible] task. Compared to other airlines in our portfolio, Lufthansa Airlines has been most exposed to current market difficulties. And apart from the market challenges, the cost structure needs to be analyzed as well. In particular, due to the delayed aircraft delivery, productivity is the lowest within our Passenger Airlines segment. We will come to the multiple effects of the delayed aircraft deliveries in more detail later, but there are also inefficiencies and such as buffers and reserves in the system. Recently, the disproportionately high location costs in Germany, in Frankfurt and Munich particularly, and collective wage agreements have a negative impact on earnings. These findings in mind, Lufthansa Airlines still has high call it, productivity and efficiency reserves at its disposal. The identified modernization initiatives within the Lufthansa Airlines turnaround program seek to realize this potential. First of all, we want to increase revenue quality by consistently implementing the premium promise we stand for. Next, the further optimization of the network will make increased seasonality of demand more manageable. And most importantly, productivity enhancement, for example, by optimizing group planning, will bring an upstart with it. Bear in mind that our personnel cost for Lufthansa Airlines amounts to approximately EUR 3 billion each year, and we still have a productivity gap of more than 15% compared to pre-COVID levels. So there's a lot of potential to be realized. Alongside that, we are striving for the full potential of our leisure carrier discover airlines and the new carrier for feeder traffic, Lufthansa City Airlines, is utilized to further expand their services at our hubs in Frankfurt and Munich with more competitive cost basis. Besides the shift of A330 aircraft from the Lufthansa Classic Airlines to Discover Airlines, also the A320 fleet of Discover Airlines and City Airlines will grow while the A320 fleet of Lufthansa Classic will shrink. Partnerships with wet lease partners will also be beneficial in this regard, in particular, to reflect the increased seasonalization. And last but not least, fleet harmonization will be key in reducing complexity, reducing the number of long-haul aircraft types and thus phasing out the Airbus: [ the 3,300; the 4,300; the 4,600 ]; and Boeing 747-400 in total 4 sub fleets with around 50 aircraft, by 2028 the latest will bring our productivity to a new level. Also aside from all these efficiency measures, we will review all other opportunities to strengthen our business model and create value for our shareholders. This includes also our current cooperation with our competitor, Condor, and the corporation agreements, which they have with us. We terminated this agreement already in 2020. However, the termination became not effective due to a decision of the authorities. Consequently, we welcome the recent decision of the Dusseldorf Higher Regional Court which confirms that we are no longer obliged to grant Condor special conditions in the form of discounted feeder flights. While we agreed with Condor on an interim period until the end of the current summer flight schedule, the termination of 2020 becomes effective at the end of October. We will need to see whether we find common commercial grounds with Condor on a potential cooperation beyond that point in time. As you can see, we take a look at all mid- and long-term leaders at Lufthansa Airlines. The turnaround program at Lufthansa Airlines also comprises immediate actions which will have a short-term effect on our results, such as immediate variable cost reductions and admin hiring fees. Other measures include capacity reduction in the winter compared with originally envisaged growth. Among all the challenges, we have identified the one main pain point can easily be singled out, our fleet. Right now, our fleet is heterogenous and outdated with different aircraft types, ages, sizes and capabilities. Needless to say that this causes significant inefficiencies across the entire system, like higher fuel consumption, unreliable operations, increased maintenance efforts, operational inflexibility and the multitude of different necessary crew training. To you give a concrete example, let's talk about comparing old and new technology long-haul aircraft. Operating one modern aircraft like 777-9 or 787-9 instead of old aircraft like 747-400 or A340-300 would produce a double-digit million euro amount of higher profit each year. Where does it come from? Let's start with the product, a modern aircraft with a more sophisticated [indiscernible] offers a clearly higher potential for generating ancillary revenues and revenues as such. Then, Think about the belly. Bear in mind that the belly capacity of most new aircraft is significantly larger, hence higher cargo revenues can be achieved. Now let's discuss the cost side. New aircraft means less maintenance, which is a significant item in our P&L. Finally, the clearly biggest difference, fuel consumption. New technology aircraft have a 20% to 30% higher fuel efficiency than old aircraft. Across the entire portfolio of missing long-haul aircraft, this adds up to a 3-digit million earnings impact each year just because the aircraft which we order do not arrive on time. But this figure, even though already big, represents only a fraction of the [indiscernible] since they are further much more difficult to quantify effect. Think about an increased aircraft reserve for a higher irregularity cost was the need to provide our customers with a state-of-the-art premium offer, which are all directly linked to the age of the fleet and delivery delays. Apart from that, the record postponement in delivery schedules leads to a mismatch in the training status of our crews. We currently have more than 100 pilots trained on 787s cannot be deployed as we have not received a single 787 at Lufthansa Airlines this year. Now we have covered our airlines extensively. I would like to turn your attention to two other equally important areas: Lufthansa Technik and Lufthansa Cargo. Lufthansa Technik has achieved record results, reaffirming a strong demand in the company's outstanding market position in the MRO sector. The 15% revenue increase we have seen in the first quarter continued with another 16% in the second quarter, driven by the airport aircraft component services and the Engine Services segment. Although Lufthansa Technik is facing continuing challenges like the recruiting of qualified employees or bottlenecks in the supply chain, the company achieved an adjusted EBIT above last year's results. For 2024, in total, we expect an adjusted EBIT at previous year's level since inflation is a counter effect to the continued growth of the MRO market. Our cargo profit has remained on par with the prior year, reflecting the expected normalization in air freight. Yet, we remained extremely high compared to precrisis times and volumes are picking up again, thanks to the eventual global destocking. For the full year 2024, we expect a significant increase in revenues in the Logistics segment. Based on our assumption that inflation-related cost increases are likely to be partially offset by structural savings and efficiency improvements, we therefore forecast the adjusted EBIT of Lufthansa Cargo to be roughly at previous year's level. Let's look at the group as a whole again. In the first half of this year, generation of free cash flow was significantly better than the operating results suggested, driven by a robust booking intake for the summer season. Other working capital items remained flat despite the still significant year-on-year growth. Again, the majority of the investments related to fleet modernization and the roll-off of new seats. However, the shift of CapEx due to delayed aircraft deliveries supported the free cash flow. Available liquidity is still above our target range with EUR 10.6 billion, supported by strong adjusted free cash flow, which was also positively affected by capital expenditure shifts. Compared to the beginning of the year, net debt declined slightly because of the generation of free cash flow and also the net pension liability decreased due to a 0.2 percentage points higher discount rate. These reductions have severely impacted our leverage ratio, which was kept at the level of 2.0, including pensions. In order to protect ourselves against fluctuations in our pension obligations and thus the net debt, we have been implemented a liability-driven investment strategy, so-called LDI, to the allocation of pension assets. Our fuel cost expectations remain roughly unchanged. The slight decrease in the price of Brent in the past couple of weeks leads to an expected tailwind of EUR 200 million regarding our fuel bill in 2024. The hedge ratio of 82% for 2024 and about 60% for 2025 with a bit more than half of the hedges relating to jet fuel and the rest of crude oil, we are well protected against risk of rising prices, including the effects of possible escalation of conflicts in the Middle East and its possible impact on the oil prices. Coming to the outlook. For the full year, we expect an adjusted EBIT of EUR 1.4 billion to EUR 1.8 billion. If you compare the midpoint of this range to our previous guidance of EUR 2.2 billion, this implies the RASK development, which is a low single-digit figure lower than originally expected. As for capacity, we stick to our full year outlook of 92% relative to 2019, 96% in the third quarter. This implies that capacity stays at a similar level also in the fourth quarter. The delivery schedule of Boeing does not impact our capacity planning in 2024 since we did not assume to operationally deploy any of the Dreamliners this year. Unit revenues are expected to decline in the low to single to mid-single-digit percentage range for the full year and low single digit in the third quarter. This reflects the somewhat weaker market environment compared to last year. In this context, we might have a further look at capacity planning throughout the rest of the year in order to support the yield development. RASK is expected to increase in the low single-digit percentage range next quarter, primarily due to ongoing cost inflation. Forecast guidance for the full year is unchanged. We believe in a set CASK, excluding strike effects and the low single-digit increase when including strike effects. Given the reduced adjusted EBIT guidance, our adjusted free cash flow for the full year is expected to be significantly below EUR 1 billion, dependent on aircraft deliveries and capital inflows from sales and leaseback. To achieve those targets, the most important thing is, of course, is satisfied customer. To dig deeper into this topic, I hand over to you, Carsten, again.

And next to be mentioned strategic milestones, which we believe are foundation for future success. Indeed improved customer focus which the whole industry, I think, is trying to get back to after COVID is the other element of success. And therefore, I think it's worth to say that Allegris is surely one key part, but only one part of our large-scale premium offensive. This goes from intercontinental catering and business class to more staff at the airports to improve digital services, we are constantly working to provide our guests with a significantly enhanced travel experience along whole journey. Compared to last year, for example, we have increased the number of our own staff at our hub airports by more than 10%. To further improve service quality, we have done intensive trainings of our more than 3,000 service center call center agents and we will also obviously becoming [indiscernible] in our industry continue to improve our app, which by the way was just recently nominated at the World Aviation Festival as the best airline app of the year. In June this year, it was used by an average of almost 600,000 guests per day, which is more than [indiscernible] per day, an increase of more than 40% over the previous year. And as much as difficult to calculate, we are more or less generating approximately EUR 1 billion in annual revenue through the app by now. Key to the end users is, of course, to have it able to serve in the case of irregularity, which unfortunately, for our industry are not completely avoidable, but nowadays, more than half or more or less half of our refunds via the app. We do up to 80,000 rebooking every month and I think there's no end in sight to improve the service element the app provides for the overall customer experience. From B2C business with customers, let's spend a few minutes on our B2B business, and there, let's focus on Technik -- Lufthansa Technik. I think it's worth to say that Technik remains to be a jewel in our portfolio. The company remains on a successful course and we are very convinced that we will continue to expand its leading global position with a growth program, Ambition 2030. The program provides for extensive investments in the expansion of the core business of Lufthansa Technik and in locations in Europe, the Americas and Asia. For example, we are planning to build an additional repair facility for engines and aircraft components in Portugal very soon, alternatively another location in Southwest Europe, to expand our own production capacities and of course, to recruit regional specialists where in the German [indiscernible] market is more and more difficult to make that happen. The expansion of the digital business will be another important focus. Lufthansa Technik will also make for sure, an even greater contribution to security and defense in Europe with additional partnerships and activities in the defense sector. And in that regard, we would like to take this opportunity today to draw your attention to our Capital Markets Day for Lufthansa Technik towards the end of the year, as soon as my new colleague, [indiscernible] is on board, the two of us, together with the management of Technik, will prepare that for you and looking forward to host those of you who are interested to join us. Ladies and gentlemen, there is no question that the first half of the year was not as financially successful as we would have liked. However, I mean, hopefully, you could feel that we are optimistic about the future. We expect a positive result for the year as a whole, driven by sustained demand, especially in the premium classes and the mentioned continued strong performance of Lufthansa Technik. The multi-hub, multi-airline, multi-brand [indiscernible] is unique, the way we optimize this in the future, 6 hubs. It remains our key formula for success and obviously will evolve further with the integration of integration of ITA Airways. And therefore, we are confident that by continuing this strategy being implemented, we will further consolidate and also expand our position in Europe's most successful airline group. Thank you very much for the attention so far. And now, Michael and I and Marc look forward to your questions and providing you the best answers as we can. Thank you.

[Operator Instructions] And the first question comes from Alex Irving from Bernstein.

Good morning, two for me, please. First, on your transformation plan. Do you have any financial targets that come with this? You talked about an 8% margin. Is that still the goal? And second, very good performance in Technik this quarter, really impressive. I think it's the first time of more than EUR 200 million EBIT. But are you overearning here, especially given the GTF problems and delivery delays the major OEMs? And where should we think about earnings normalizing for Technik, please?

Alex, it's Michael speaking. 8% is the margin we are aiming for, that's the overall target, and we think that's a number we have to achieve to have a viable financial status also in the future. However, we can only say as soon as possible. So there's a delay, no doubt about that. We know where we are right now. With respect to LHG, we are benefiting from the market, no doubt about that. There are also some headwinds like finding the right people. So it's a dry labor market in Germany. We have to use many suppliers. And this first half year result was also a bit fueled by onetime effects out of older contracts. So it's not meant that we are overshooting last year in our overall result of Lufthansa Technik.

So then the next question comes from Jarrod Castle from UBS.

Maybe just a follow-on to Alex's question. I mean what are the costs of restructuring and the profile in terms of getting the restructuring done? I mean, is it [indiscernible] and how should we think about that ramp-up? And then secondly, good to see AirPlus kind of being -- getting the proceeds, I guess. Any plans for that EUR 0.5 billion that you care to share with us?

This is Carsten, Jarrod. I think it's important we don't talk about restructuring. We have done restructuring. So we know what the restructuring needs. But here, I think we really talked about the modernization and we shouldn't -- I think we should have pointed that out. There are some onetime struggles we have, which will be overcome, latest by '26, think about the airplane delays, think about the cabin configuration, think about Pratt & Whitney and so on. And then there are some structural elements which we want to optimize. Think about Lufthansa City Airlines for the feed. Think about Discover, which is a successful answer to this growth in leisure traffic. Think about termination finally allowed of our main competitor in Frankfurt in providing him with feed. So these things, of course, will have effect and that, I think, is a better, in my view, an English term for what we are planning to do with Lufthansa Airlines and restructuring. Second question, timeline. Well, I think, 2 years, taking us into '26 will give us the answers or will give us the results of most of the topics we are describing today. But also, as Michael pointed out, for the last, let's call it, old generation airplane to leave, we're probably looking at the end of '27 or the winter '27, '28 even. But I would think this turnaround program to be described in terms of the modernization, I just drafted. It's a 2-year program taking us into the summer of '26.

Right. And the AirPlus proceeds?

Midnight tonight over the timeline and maybe the quality of who will take the more profit. We are planning to close midnight with profit of EUR 450 million.

I'm sorry. Any plans for that money, except just to kind of reduce the net debt or...

At least a book gain of EUR 130 million. And you know, our investment plans for aircraft. So I promise you we have placed a good money. We will not -- it won't be sitting around, but I think it's more a strategic move than it's about the EUR 130 million book gain why we have done this. We want to focus on our core business. And there are major investments needed on the IT in AirPlus which the new owner will be happy to do. In our case, it would have been distracting from the key investments we want to do for our passengers and Lufthansa Technik in airplanes facilities for Lufthansa Technik.

And the next question comes from Stephen Furlong from Davy.

Yes. Carsten, Michael and Marc. Yes, two for me. You mentioned about maybe, too much capacity. Are you surprised with the kind of supply chain issues that the level of capacity that have come back in markets this year? That's the first one. And then I was just wondering about Asia with kind of competitor kind of growth plans and stuff like that. Do you think that Asia for the Lufthansa Group is going to be as big a business proportionally as it has been pre-COVID or could it be smaller? I mean, for example, the Americas is a very important part of the group as well. Just was wondering about that.

Yes, Stephen, thanks. You know I had this conversation before. You know my -- and I never meant it to be a short-term view. You know my long-term view that those airplanes, Airbus and Boeing are not producing, will never be made up for. Not like the German car industry when they have to cancel the shift, be it strike or some parts missing, we do an extra shift at night or in the weekend and the cars are coming back. In the aircraft, we all know that doesn't happen. So these aircraft will be missing in the integral of supply of the industry, let's say, forever. So I do still stick with my view that this reduction of capacity or production capacity, both in [indiscernible] and other facilities will have a positive impact on the industry going forward for years. They are now applying to this summer of '24 [indiscernible] we were thinking. No, but this is not what I said, but the effect is more long term. Asia, we were #1 out of the European competitors to Asia in the times before COVID. We're only at 57% capacity currently for what we used to fly to China and German investments in China are at a record high. So I think our weakness in Asia, which we presented today in yields is not coming from the economic opportunities, it comes from the overcapacity provided by Chinese carriers. We're growing in the triple-digit region, including flying through the Russian air space, which we don't do. So I would call this an abnormal situation for the Asian market. Also there, mid- and long term, Asia with a huge growth potential, will be with our also further northern hub structure, leaving room out for a second, the key pillar of our success also in the future. Right now, obviously, the money rather comes from the West but I am not that pessimistic for Asia in the midterm for sure.

And the next question comes from Muneeba Kayani from Bank of America.

So you talked earlier about the fact that your capacity ramp-up has lagged peers. Just kind of how are you thinking about them capacity into 2025. Are you still targeting to get to 100% of 2019 levels? And as you think about that capacity ramp up, how are you thinking about the trade-off between kind of the unit cost benefit versus kind of yield, maybe headwinds as you add capacity similar to what you saw this year? And then secondly, just in terms of dividends for this year, I know it's just one each results. But just -- what are you your thinking right now with profitability down year-on-year? Should we be thinking about a payout ratio increasing to keep the absolute dividend flat or kind of the dividend coming down with profitability?

Well, first of all, profitability coming down year-over-year is not what I'm paid for and my new CFO neither. So we have explained what the challenges are in the year '24, hopefully, in a transparent way, but our path leads us to 8%. That's a clear conviction of this management, led by me, and we will get there, probably 1 or 2 years later than we were hoping, sure. But it's not talking about profitability going down. We're doing huge, as you know, activities, investments, some of them described today, which will bring us there. . Capacity ramp-up for next year? I don't think we'll be heading at 100%. I mentioned the winter, we are currently discussing to reduce our planned growth for the winter. That, of course, has a mathematical effect for the full year. So I don't think we'll see EUR 100 million next year will be somewhere between EUR 95 million, EUR 96 million, EUR 97 million, EUR 98 million, we'll see. For us, yield is more important than growth, especially to bring up our profitability as I answered to your other question just a second ago. And that, I think, is what in that regard, also the structure of fleet aircraft coming in with many aircraft we are able to take out. That's the advantage of taking quite a few share of old aircraft. We're very flexible to adapt our growth even though we have a record number of airplanes coming in. Unit cost benefits versus headwinds. U.S. costs will keep flat. We will, as I said before, quite proud to keep them flat this first half, which probably too many other competitors did. And if you take the strike effect out, we are also optimistic to keep unit costs flat for the whole year. And that, again, shows our focus on costs, and we will continue to do that. On dividend, we have this clear policy of 20% to 40% of our net income, and there is no reason to touch that. Obviously, with the new CFO coming in, you know I will discuss that, but I would be surprised to see a radical change on that. So we are, as you know, the long term investor and hopefully for all of you being a trustworthy partner. So no sharp edges on those trends, in those topics.

If I can clarify on the dividend then, would you look to then pay out at the higher end to maintain the absolute dividend?

No answer to that yet. This, we will decide like every year in the guidance as I'll give you. And when time will come, I'll promise I'll tell you first.

And the next question comes from Sathish Sivakumar from Citi.

I've got two questions here. So first, on the booking commentary that you said in the press release where you said up until the end of October, it's up 10% versus last year. Can you show us some color like where the strength is coming from, like based on point of sale? And then what is the pricing that this is coming at? Are you still seeing prices being down in line with your guidance or is it slightly coming in slightly better? And then the second one is around your 8% EBIT margin target. So if I had to understand the building blocks, right, how much of it would come from the modernization/turnaround program that you launched today versus a capacity ramp-up versus pricing?

On the bookings, I think we gave you a little chart just a few minutes ago, which shows our growth in the various parts of the world and how they reacted to that growth. Again, Asia probably being the most problematic. But if you look at the U.S., we outgrew the market on the North Atlantic and only lost 2-point something -- 2.6% on yields. So we were able to sell that additional capacity at very good prices, by the way, with a shift of point of sales somewhat from the U.S. to Europe, which last year was extremely towards U.S. and now we have a more balanced approach on that. . And EBIT margin, the Lufthansa Airline, I think in a normalized way is more or less half of our business less. So I expect all my business units to be part of the 8% target. So the turnaround is a big part of reaching 8% and there is no bypassing of their success to reach the 8%. And this is why Michael pointed out, while we are so focused on the turnaround program, some of the issues solving themselves and some will be solved by answers from management, which we have given some indications today.

So like the 8% bridge, like say, versus somewhere around 4%, 5% this year, how much of it would be driven by this modernization program?