Deutsche Lufthansa AG (LHA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual General Meeting 2025 of Deutsche Lufthansa AG from the Congress Center at the Frankfurt Exhibition Grounds. [Presentation]

The Chairman of the meeting and the Chairman of the Supervisory Board, Dr. Karl-Ludwig Kley will be speaking to you.

Dear shareholders, ladies and gentlemen, I herewith open the 72nd Annual General Meeting of Deutsche Lufthansa Aktiengesellschaft, and I would like to cordially welcome you to it. When I watched this beautiful video, it occurred to me whether we shouldn't have an Annual General Meeting, if it is virtual, from a plane on a nice or a beautiful flight with us to New York or Los Angeles. Perhaps we should check this. But not this year, of course. With the exception of Mrs. Behle, Dr. Enders and Mr. Gernandt, who are having very urgent appointments abroad, the Executive Board and the Supervisory Board are fully represented. And as I said, because of the urgent appointments, these persons who are missing today cannot attend the meeting. And next to me, 2 places from here, we have the Notary Public, Dr. Carsten Angersbach, who will be taking the minutes of the Annual General Meeting as he has always done very reliably. The notice convening the Annual General Meeting was published on the March 27, 2025 in the German Federal Gazette. The full Annual General Meeting will be streamed via our online service for the benefit of shareholders completely. And the first part comprising the speech of the CEO will also be available to the general public. The right to information and speaking of the shareholders can be executed only by means of video communication because of the virtual nature of this meeting today and contributions may also be announced via our service. An application or proposal for an election may also be submitted in the online service under the heading Proposal, and it will be effective only when it has been presented verbally. So if you want to make a proposal, please also register your spoken contribution, and I will later explain to you in detail how you are supposed to do this. Information and all these things and also the voting procedure can also be viewed now in the online service or if you refer to the invitation to this meeting. Contradictions to resolutions of the Annual General Meeting or complaints about non-answering a question may also be submitted via the online service until the end of the Annual General Meeting. The agenda of today's annual meeting comprises 9 items, and we are starting with Item 1, which will hardly surprise you the presentation of the 2024 financial statement and the report about the current situation. The consolidated account and the management report have been provided by the management have also been checked and approved by the Supervisory Board. And thus, the 2024 financial statements have been adopted. And our auditor, Ernst & Young, has also issued an unqualified audit report for all items of the audit. And I would now like to ask Mr. Spohr to present the report of the management about the 2024 financial year and the current situation of the company. [Presentation]

Ladies and gentlemen, dear shareholders, a warm welcome to you to the 72nd ordinary AGM of Deutsche Lufthansa AG. I would also like to welcome you on behalf of my colleagues from the Board, Grazia Vittadini, Till Streichert and Dieter Vranckx, who are joining us today for the first time, but also on behalf of my long-standing colleague, Michael Niggemann. Our Management Board has had a new composition since last summer. So this is a first for this new team, and therefore, we are looking forward to talking to you because a lot is happening in your company right now. There is a momentum that does not only reflect the importance of aviation in the global economy, but also the role that we, as the biggest airline group of the world outside the U.S. are playing in this context. At a time when there is a global realignment of our political and economic set of values and global market conditions are changing at a rapid pace. This volatility sometimes unsettles people, but thanks to our clear course, there are new opportunities. Short-term and unforeseen developments have always challenged airlines more directly than other businesses. That is why we have some practice in acting flexibly and with foresight even in troubled times. What we do is more important than ever, connecting people, cultures and national economies sustainably. Aviation enables global understanding and strengthens economic prosperity. Aviation is and will remain an industry of the future with excellent growth prospects. For the first time ever, the International Air Transport Association, IATA, expects more than 5 billion passengers worldwide this year and an industry revenue that is supposed to exceed the threshold of $1 trillion also for the first time. These growth prospects of our global industry are the best foundation for a continued positive development of Lufthansa Group, from which you, as our shareholders, will also benefit. Before I report on the business development in 2024, I would just like to briefly highlight our good start into the year 2025 because let's be honest, we could not always be happy with our operational performance during the summer peaks of the post-pandemic years. There were various reasons for this, some of which were homegrown, but others were caused by our partners and service providers. But the bottom line is that too often, our guests did not experience the regularity and punctuality that they rightly expect of us. Often, we at Lufthansa, including myself, had no choice but offer an apology to our customers. That is why we have tirelessly worked on making Lufthansa again from 2025, the embodiment of reliable and punctual flight operations. And after 4 months of this year have passed, I can clearly say that this has been successful. In operational terms, we are looking back at the best start since 10 years. All employees in our 13 airlines have made their contribution. Our crews in cockpit and cabin, our technicians in the hangars and our colleagues at the global stations and in the administration. 103,000 employees, a strong team that has done a great job managing the first peak travel season of the year, the Easter holidays. And thus, we are well prepared for another summer of high traffic and high passenger numbers. This brings me to the review of the year 2024, in which we also had a busy season with record load factors of up to 90%. However, 2024 was an ambivalent year for us with ups and downs. The first half year was marked by strikes and other irregularities. The second half year was marked by record load factors. In total, it was a successful year. In view of the high demand for air travel, our passenger airlines were able to welcome more than 130 million guests on board off almost 1 million flights. Our revenue grew by 6% to a new record of EUR 37.6 billion. Never before in our corporate history did we have higher annual sales. At the same time, 2024 was also a year in which we were not able to fully develop our potential especially because our core business, Lufthansa Airlines was not able to contribute to the financial success of our company. All other group entities, however, achieved good results, partly even records. But as encouraging as these successes are, they cannot satisfy us if we focus on the total group because Lufthansa Airlines is and will remain by far our most important largest and highest revenue airline. Lufthansa alone provides 40% of total revenue. It is, however, also severely affected by disproportionately high location-related costs in Germany and also affected by the high labor costs in Germany, which have gone up enormously. In 2024, it also had to absorb high costs related to strikes and collective bargaining conflicts. These strikes were not only a triple-digit million burden for our financial results in the first half year, but they also clearly hurt customer satisfaction. The persistent delivery problems of aircraft manufacturers also hit our core brand disproportionately because more than other airlines, it has to compensate missing new deliveries by continuing to operate older aircraft. This drives up, on the one hand, maintenance and fuel costs. On the other hand, it reduces the productivity of the fleet because more reserve capacity has to be set aside. And it lowers the productivity of crews, some of whom have already been trained on new aircraft types and can therefore only be scheduled for fewer flights. At the end of the year, Lufthansa Airlines had to post a loss of minus EUR 94 million. The results of all other airlines of our group and of Lufthansa Technik presents a clear contrast to this. In total, for the first time, they achieved our EBIT target margin of 8%. Swiss almost achieved its record result from the previous year. In terms of the adjusted EBIT, our Swiss subsidiary for the second time exceeded its target of EUR 800 million. Eurowings repeated its excellent previous year's result and ended up at an adjusted EBIT of more than EUR 200 million. At EUR 60 million, Brussels Airlines achieved the highest profit of its history, while Austrian Airlines concluded the year with an adjusted EBIT of EUR 76 million. Lufthansa Technik raised its operational income from the previous year again to EUR 635 million. For Lufthansa Cargo 2024 was also a good year. At the end, it registered an adjusted EBIT of EUR 251 million, of which EUR 199 million were generated in the fourth quarter alone. The bottom line is we were able to conclude the past year with an operational income of EUR 1.6 billion. So even if this result is clearly below the previous year's value, we still propose a dividend of EUR 0.30 per share like last year. Our dividend yield, thereby is going up to almost 5% related to the year-end closing price of our share. However, we cannot -- and you probably will not be happy with the development of our share price, neither can the upward trend that we initially saw for the first quarter of this year until the higher tariffs were announced in the U.S. can hide this disappointing performance. This makes the success of our turnaround program all the more important. It is designed to get our core business back on track and make it profitable. We launched it last spring and have systematically pushed it ahead, a detailed improvement plan with 700 individual actions, a plan that is very ambitious. By the end of next year, we want to achieve a gross income effect of EUR 1.5 billion. And by the end of 2028, even EUR 2.5 billion, coming 2/3 from cost efficiency measures and another 1/3 from increased earnings. Now the basis for the success of this program are the clearly improved operational metrics I mentioned before. Because in aviation, stable operational performance is a prerequisite for subsequent sustainably positive economic development. Thanks to the continued high demand, we were able to post revenue growth of 10% in the first quarter of 2025, and we expect another strong summer with another high load factor of our fleet. And despite all political and economic uncertainties, we can confirm our guidance for corporate income for the current year with significantly above previous year. However, even 2025 is another year of transformation because we are still missing important preconditions for business success of Lufthansa Airlines, that is new long-haul aircraft. The most prominent example for the persistent delivery problems of aircraft manufacturers is our order for long-haul aircraft at Boeing. As early as 12 years ago, so in 2013, we ordered 20 777X. And on top of that, 21 Boeing 787. So we are waiting for a total of 41 aircraft that should actually be flying today, but have not been delivered yet. The proverbial light at the end of the tunnel, however, can already be detected. The first Boeing 787 aircraft will be delivered in a few months and will already be commissioned for scheduled flights at Lufthansa in the third quarter. The renewal of our fleet is at the heart of our transformation. A total of 240 aircraft have been ordered, of which 100 are long-haul aircraft. This has never happened in our history before. Each individual new aircraft makes our controllers happy because it lowers our fuel costs by 25% to 30%. It also lowers maintenance costs and at the same time, produces higher earnings. But it makes our passengers and crews even happier because in our new long-haul aircraft, we offer our customers a much improved travel experience in all classes, whether at Lufthansa with Allegris or the identical SWISS Senses seats, with this cabin equipment, we are setting new standards in our industry, especially in the new first class that we have only recently launched and that has already been installed in this summer in 10 aircraft. Our customers and also the trade media agree it is difficult to experience a more comfortable and pleasant long-haul flight. So these premium offers remain one of the key elements of our strategy in order to create value for you, our shareholders. The core element of this clear and holistic premium positioning are and will remain people, our people, our employees that make Lufthansa unique, employees who work tirelessly for our guests day by day with passion and team spirit. Let me move on to another key element of our strategy, our positioning as a European airline group. Ladies and gentlemen, we grew up in a federal structure. Lufthansa never had a catchment area that could be compared to London or Paris. This competitive disadvantage already forced us to come up with innovative solutions in flight operations 70 years ago when aviation started in order to be a part of the global growth of our industry despite the infrastructure bottlenecks at German airports. With our multi-hub, multi-airline multi-brand strategy, we have found the perfect response. Only thanks to this growth strategy, have we been able to become the worldwide biggest airline group outside the U.S. judged by revenue and fleet. The former disadvantage has turned into an advantage because by now, we have the competence, the culture and the processes in order to integrate airlines from different countries with their hubs and brands into our network. And while doing so, make ever better use of the resulting synergies. Today, 5 national airlines operating from 6 hubs are part of our group. Apart the core brand Lufthansa, this is Swiss, Austrian and Brussels Airlines and since January of this year, finally, ITA Airways as well. With the integration of ITA, we are implementing the biggest airline acquisition of our history. For the Lufthansa Group, Italy is already after the U.S., the second most important foreign market, which is now becoming our home market. We are adding the 5-star hub Rome Fiumicino to our hub system. And with Milan-Linate, we are getting access to the second largest catchment area of the European Union. Within only 100 days, we have made good progress in integrating ITA into the Lufthansa Group. At the end of February, we started the first joint codeshare flights. And until today, we've already sold 84,000 tickets for these flights. We successfully managed ITA's relocation to our terminals in Frankfurt and Munich so that transfer passengers since late March can benefit from short distances and direct connections. In terms of airfreight, the cooperation with Lufthansa Cargo has already started and has been initiated as well as the integration into the Star Alliance. The next step will be the further integration of our flight schedules for the coming winter and the merging of IT systems. Within only 18 months, we want to have concluded the essential steps for integrating ITA. This is not just the fastest integration in our history, but it is a major step regarding a core element of our strategy of safeguarding the future, the further internationalization of our group. This year, for the first time, more aircraft will be stationed at our foreign hubs than in Frankfurt and Munich. Now against the backdrop of high costs in Germany, this is a logical step. Ladies and gentlemen, the cost competition is also gaining more importance because the demand structure in aviation has changed. For a number of years now, we have seen a continuous growth in leisure travel, not just in the economy class, but also in higher-value premium classes. We prepared for this trend early on following the example of our airline, Edelweiss, which is in addition to the Swiss flight program at the Zurich hub, we founded Discover Airlines 4 years ago, and we have by now profitably established it at our Frankfurt and Munich hubs. Already, Discover is operating 30 aircraft. It will grow this year to 2,000 employees and is flying to 80 destinations in 26 countries. Due to clearly lower operating cost, Edelweiss and Discover can now fly to destinations that we otherwise could not serve profitably. A growing share of leisure travel also applies to connections away from our hubs. They have -- due to the federal structure that I mentioned in our home market, they have a disproportionately high importance compared to our competitors. In these markets, Eurowings has by now profitably established itself as a leisure airline, operating 100 short- and medium-haul flights -- aircraft stationed at 13 international bases. In order to get back to competitiveness on short-haul routes from our German hubs, we established a new airlines for feeder and onward flights from Frankfurt and Munich, Lufthansa City Airlines. The establishment of these 3 airlines in the last few years have been crucial strategic steps in order to achieve necessary profitability in Germany as well because as encouraging as the profits are of all of our foreign companies and of Lufthansa Technik and Cargo, we want and need to secure sufficient added value from our hub traffic in Germany as well. Apart from the strategic logic, the diversity of our passenger airlines can also be directly translated into added benefit for our customers. Due to the broad range of our services, network quality and frequency density in the home market Europe, we already sell 75% of our tickets outside Germany. Roughly half of all transfer passengers use more than one airline of our group when traveling. Our guests benefit from the complementary services of our airlines. Of course, they benefit from clearly more connections, but they also benefit from access to the Lufthansa Group lounges and also to the central service centers or our buy now best-in-class app. As the number of touch points at which our customers can use the benefits of the group is going to grow, we want to make the benefits of our group even more tangible for our customers by positioning additional services under the umbrella brand, Lufthansa Group. In addition, we are also integrating the interaction of our airlines even beyond the shared features that are visible to our customers in order to create further synergies, lower cost and boost our profitability. Dear shareholders, you are not just owners of our airlines. Also the global leader in maintenance, repair and overhaul of aircraft, Lufthansa Technik is part of your company. The LHT is an indispensable pillar of the Lufthansa Group. Its technological excellence and innovative power benefit the entire group. And it is opening up additional growth prospects currently in the defense sector. The stable income development of this division provides economic continuity for us and additional resilience, especially in volatile times. Now this also applies to Lufthansa Cargo. air freight already played an important role even when the first Lufthansa was founded 99 years ago. And what was true then is still true today. The more turbulent the development of the global economy the higher the demand for short-term intercontinental transport services by air with a total of 22 cargo aircraft plus the cargo holds of all passenger aircraft in our group, we can offer as much capacity to our cargo customers as never before. And we can offer 350 destinations in 100 countries, also an unprecedented number. Ladies and gentlemen, dear shareholders, our strategic alignment and the quality of our portfolio contain an enormous potential for profitable growth in the future. Passenger Airlines, Air Cargo and Lufthansa Technik. In all 3 business lines in which we operate, we have reached the necessary critical size because especially in our industry, economies of scale are the foundation for economic success. For this reason, we have systematically divested business lines where we did not reach this critical size or where there were too few synergies with our core business, for example, at the LSG Group or the payment service provider, AirPlus. Ladies and gentlemen, dear shareholders, while we are meeting here in Frankfurt for our AGM, a new federal chancellor is being elected in Berlin. For about a month now, we have known the plans of the new federal government for the transport sector and for aviation. The planned financial relief is overdue. And now we urgently need a speedy implementation of the actions that have been announced. And we also need additional steps going beyond those mentioned in order to get aviation in Germany back to the path of success. So we need a reduction not just of the aviation tax, but also for costs for ATM and aviation security, which are actually state-controlled functions because it cannot be in our interest and also not in the interest of the German government that Lufthansa Group can only grow outside Germany. We especially welcome the coalition agreement's commitment to competitive neutrality for European airlines that must not be disadvantaged in the global competition because the EU program, Fit for 55 in its current form has failed at least for the aviation part because it will not lead to a reduction of carbon emissions, and it will not lead to more climate protection, but it will only lead to a distortion of competition and a mere shifting of emissions outside Europe. So let us hope that the EU Commission will also actively address the urgent need for reform and will also take into account the positions of the member countries, including Germany, because Europe needs a positive vision again, a vision that highlights competitiveness and economic strength. As Europe's #1, we are making our contribution by connecting our continent of Europe to the world and the world to Europe. That's what we stand for. Thanks to your trust dear shareholders, thanks to the enormous loyalty of our customers. And thanks to the major commitment and the tireless dedication of our more than 100,000 employees. Together with you, we are already looking forward to the next year in which we will celebrate 100 years of Lufthansa and will open the next chapter of our company's history together with you. We count on you. Thank you very much. [Presentation]

Dear shareholders, I will now deliver the Supervisory Board's report. And as any year, we have had a very intensive year on the Supervisory Board. And the main subjects were in addition to the regular and intensive discussion and study of the political framework conditions of the competitive environment and the economic situation of the company. First, the reorganization of the Executive Board at the beginning of the financial year 2024. Furthermore, the improvement of punctuality and stability of our flight operations. Thirdly, investments in the fleet renewal. And fourthly, the purchase of the shares in ITA Airways. And we also observed and supported the turnaround program for the operative and economic improvement of the quarter and Lufthansa and also the growth-related program, Ambition 2030 of Lufthansa Technik. And of course, we also regularly talk to the Executive Board about weaknesses and critical developments. We do so frankly and with a great deal of transparency. But all in all, and it's important for me to underline this again here, the Supervisory Board supports the group strategy fully, and they also fully support the implementation of the Executive Board. And you will also find the report of the Supervisory Board in the management report. And I would like to thank our shareholders, that is you, for your trust, for your confidence, which you have expressed with your investment in Lufthansa. And of course, the development of the share prices are not satisfactory for us, but we are also observing that the Executive Board is setting the course and it's taking the right actions to change this development, and there are improvements, and we will continue to support and discuss this intensively within our organization and our group. And I would like to thank all our global employees. Lufthansa or aviation in general is an industry which requires a great deal of employees and our employees must fully work 24/7. And I can ensure you that in particular, the stations and the airplanes, our employees also know the normal human emotions, and they experience the same emotions as you. But unfortunately, they must also experience exceptional situations time and again. The numerous strikes in Germany, for instance. And we often -- we, as Lufthansa have got nothing to do with the content of such strikes, and they cause not only a lot of economic damage, but thousands of employees are being affected by this all over the world because they must do a lot of replanning, they must organize accommodation for delayed passengers in emergency beds and hotels, and they really work 24/7. And for all this and even much more, I would like to express our gratitude to our employees. At the same time, we would like to express our appreciation. And I believe that I'm saying this also on behalf of you, our shareholders. Ladies and gentlemen, now as the terms of office of the member of the Supervisory Board is commented, Astrid Stange and Angela Titzrath will come to an end at the end of the Annual General Meeting. Furthermore, Thomas Enders is withdrawing from his mandate for personal reasons at the end of this Annual General Meeting. Mr. Enders has been a member of the Supervisory Board from 2020 up to this very day. With his expertise and many years experience in the aviation industry, he has enriched the work of the Supervisory Board. Thomas Enders is also a person of clear positions and attitudes. And this has always been very helpful for our work. And at yesterday's meeting of the Supervisory Board, I already thanked him, and I'm reiterating this now on behalf of the Supervisory Board and also on a more personal note. The new elections to the Supervisory Board will be needed, and this will be Item 7 of today's agenda. The Supervisory Board proposes Erich Clementi, Astrid Stange and Angela Titzrath, they should again be elected to the Supervisory Board as well as Enders spoke that they should again be elected for a period of 3 years to the Supervisory Board. Mr. Clementi and you know Mr. Clementi, Mr. Erich Clementi and Mr. Stange and Alexis Hoensbroech, the CEO of WestJet in Canada had been involved in important activities in the Lufthansa Group, but he's running for office as a member of the Supervisory Board for the first time. He will briefly introduce himself with this video message.

Ladies and gentlemen, dear shareholders of Lufthansa, my name is Alexis von Hoensbroech. I'm the CEO of WestJet and which is the second largest airline of Canada, and it's also one of the largest travel organizer of the country. We are active in North America, but because of some flights to overseas destinations, we have a global network. Before going to Canada, about 3 years ago, I worked with the Lufthansa Group for 16 years, last as the CEO of Austrian Airlines in Vienna, but also as a member of the Board of Lufthansa Cargo or in Lufthansa Passage and at the level of the Lufthansa Group. In this respect, I'm very familiar with many aspects of this wonderful group. And I have been very pleased about the nomination for the Supervisory Board of Lufthansa because I feel close ties to the group and the many employees, and I'm very pleased to have an opportunity to return something to the group in this way. Lufthansa is the largest airline in Lufthansa and thus, it has a critical role to play in Europe, a role which may never have been more important than now. Because of my comprehensive experience in the aviation industries in Europe and North America, I believe that the member of the Supervisory Board, I can support the group and the Executive Board to find the right orientation with the group so that we can survive in the economic and political different aviation industry and to find the right course forward. In this respect, I would be very pleased if you could give me your trust and your support for the election to the Supervisory Board. Let us now turn to the remaining items on today's agenda.

Let us now turn to the remaining items on today's. Under agenda Item 2, it is proposed to distribute a cash dividend of EUR 0.30 per share. Under agenda items 3 and 4, the Annual General Meeting you will decide on the approval of the actions of the members of the Management Board and the Supervisory Board. Under agenda Item 5, you will decide on the approval of the modified remuneration system for the Board of Management. And under agenda Item 6, it will decide on the approval of the 2024 remuneration report. Agenda Item 7 relates to the election of the Supervisory Board members, which has just been outlined. Agenda Item 8 concerns the amendment of the Articles of Association to enable virtual Annual General Meetings for the next 2 years. Regardless of this authorization, we are working intensively on holding an in-person Annual General Meeting next year. Agenda Item 9 concerns the Annual General election of the auditor. For the 2025 financial year, the Supervisory Board proposes Ernst & Young again. Additionally, E&Y is also to be appointed as auditor for the sustainability report should this audit be required after the CSRD is transposed into German law. Details of all agenda items can be found in the invitation to the meeting. I will now announce the number of shares represented. Of the share capital, 250,408,977 registered shares are currently represented. This corresponds to 20.9% of the share capital. We also received postal votes for 254,910,581 shares. A total of 505,319,558 shares are thus represented, which corresponds to 42.17% of the share capital. You can access the list of participants via our online services. Ladies and gentlemen, this concludes the public portion of the broadcast. From this point on, only shareholders of the company and their authorized representatives will be able to follow the remainder of the Annual General Meeting via our online service. Shareholders who have been watching the stream without logging in are kindly requested to log in now. And I would like to thank all other viewers for their attention and interest in Lufthansa, continue to support Lufthansa. [Statements in English on this transcript were spoken by an interpreter present on the live call.]