Deutsche Lufthansa AG (LHA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Lufthansa Group Q2 2026 Results Analyst Call. [Operator Instructions] Please be advised today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Mark [indiscernible]. Please go ahead.

Thank you very much. And also from my side, welcome, ladies and gentlemen, to the presentation of our second quarter results 2026. With me on the call today are our CEO, Carsten Spohr; and our CFO, Till Streichert; and they will both present our results for the past quarter and discuss our commercial outlook for the remaining 6 months of the year. And as mentioned afterwards, you have the opportunity to ask 2 questions that everybody can participate in the Q&A session. Thanks in advance, and we'll Carsten, over to you.

Yes. Thank you, Mark, and a warm welcome to our half year analyst conference also on behalf of Till and myself. Obviously, 2026 is a landmark year for Lufthansa as we celebrate our centenary, but maybe more important it's a time where the industry is facing a highly challenging environment, which is on the 1 hand, shaped by the ongoing Middle East crisis, on the other hand, significantly higher fuel costs and all that resulting also in bookings being made increasingly with even shorter lead times. The encouraging news is that demand remains extremely strong and continuous to support yields across our airlines, and especially in our 3 premium classes where we will come to details in just a few minutes. Also, it's important to understand that these challenging conditions, which are so clearly visible to all our stakeholders also create opportunities for us as management to implement our great strategy faster and in some point more size. But let me turn first to our performance. The second quarter was again marked by strong demand on the world. We increased revenue by 8% year-on-year to EUR 11.1 billion, which is a new record for the second quarter. But despite facing more conflicts at any other time since it's obvious to see that the people's desire to travel remains undiminished. The impact of these conflict has, however, made air travel noticeably more expensive. On the one hand, this has been driven by fuel cost, which, in our case, increased by EUR 750 million in the second quarter alone. On the other hand, as there are ongoing capacity constraints in our industry. [indiscernible] has increased significantly by 6.4% in our Network Airlines and by 9.4% at Eurowings. Many bookings for the second quarter had already made before the crisis emerged, obviously. So this was limiting our ability to fully pass through the higher cost. We expect this effect to be largely absent in the second half of the year. Hopefully, there also will be no further strikes either. The financial impact on the repeated -- of the repeated strikes by our 2 special interest unions representing cabin and cockpit in the mainline amounts to at least EUR 150 million. By now, these repeated structures are met not only with the lack of understanding from our customers, but fortunately, also increasingly from the majority of our employees. We are now finally back in conductive discussions with both unions, and we remain focused on securing the long-term competitiveness of also our core brands. This is the only way to hold the current downsizing of the group's largest and still most important airline. More generally, across the group, growth was not consistent in the reporting quarter marked by, as mentioned, multiple crisis. Due to flight cancellations to the Middle East and the impact of [indiscernible] seat capacity declined by 3.3% year-on-year. Among other measures, we discontinued our least profitable short- and medium-haul routes equivalent to around 1% of our total capacity, and this included the accelerated wind down of Rutland Cityline. This also enabled us to bring forward the planned retirement of the remaining fleet of CRJ900 aircraft. With the grounding of the airline, we were there able to cancel and take out of service the entire subset and this also contributed to the fact that the earnings impact resulting from the Cityline grounding, which we actually announced 3 years ago and just now brought forward amounts to approximately EUR 180 million for full year. As a result of this, also, among other topics, we generate adjusted EBIT of almost EUR 400 million in the second quarter. This represents a decline of almost EUR 500 million compared to previous year. Of course, none of us can be satisfied with these results. Even though the disruptions of the entire industry and the challenges we are facing. This decline in earnings also comes as no surprise. Particularly since we and Lufthansa have been affected much more than many of our competitors by again delayed aircraft deliveries. These delays are hitting us at Lufthansa at the worst possible time in the middle of the largest fleet transformation in our company's history. Also in the second quarter, we were affected, we reached only aircraft versus the planned 11 aircraft, which we had originally scheduled. For the full year 2016, we now expect to receive 41 aircraft deliveries in speed of the originally planned 45. Let me now provide some insights into the demand environment in our passenger airlines. One particularly encouraging development has been the performance of our Asia routes. Despite the competitive disadvantage resulting from the closure of the Russian airspace yields increased by more than 13%. The second positive and this one, even more long-term trend is the continued strength of demand for our premium cabins, which has been moving for years now. And also this quarter, yields are up 7% year-on-year. Yet also increased at Eurowings with a 6.5% reduction was accompanied by a 6.8% increase in yields. Our commercial backbone remains the North Atlantic. Here, we focus on capacity discipline to protect yields, resulting a 6% regent capacity. However, this fairly high figure also includes a disproportionate impact from the strikes. -- during the strike weeks in April, the large number of volunteer crews enabled us to maintain primarily our services to Asia, Africa and across the South Atlantic. On those routes, our passengers would otherwise have had no alternative, whereas on services to the U.S. and Canada, we were able to rebook many affected passengers onto flights operated by our joint venture partners, United and Canada. But we also continue to focus strategically on above-market growth in long-haul travel, particularly in the Southern Hemisphere. At our Network Airlines, the effects of the current geopolitical volatility fell in 4. Adjusted EBIT in this segment declined by almost EUR 500 million in the second quarter primarily due to the EUR 600 million increase in fuel cost. At the same time though, the net lines managed to achieve a slight increase in revenue despite reducing capacity by 3.3%. RASK increased by 6.4%, while unit cost only by 3.1%, somewhat less than the reduction in capacity. This continues to include significant investments by our airlines in modernizing their premium offerings, including new cable interiors, our FOX service upgrade and enhanced digital services, to name just a few. The latest example is Starling. This week, the first Stanley aircraft was equipped with sterling. A further 50 aircraft will follow by the end of the year. And as early as 2 passengers on all currently 850 aircraft will be able to enjoy free high-speed Internet onboard. At the same time, the most extensive fleet modernization in our history continues. Our fleet planners have 100 aircraft deliveries scheduled over the next 100 weeks. And while indeed, some of these aircrafts might once again arrive later than expected, eventually they will arrive. And by 2028, at the latest as promised also in the Capital Markets Day, they will enable us to upgrade or highly [indiscernible] and 1 of the youngest long-range fleets in the industry worldwide. We're also seeing a strong demand environment in the point-to-point segment. As a result, our achieved an encouraging 9.4% increase in RASK. This is significantly better than what our point-to-point competitors were able to , and it's further evidence for us that the strategic positioning of Eurowings as a value carrier is working. The 6.5% reduction in capacity primarily reflects the flight cancellations in the Middle East. In addition to higher catering and maintenance expenses Eurowings also incurred higher cockpit to costs as a result of upfront investments related to the introduction of the Boeing 737 starting next year. As a result, real cost increased by 11%, combined with more than EUR 70 million additional fuel costs, over Rings only achieved a breakeven result. Including our 50% stake in Sun Express, the overall point-to-point segment amounted to minus EUR 37 million in the second quarter. In light of this year's earnings performances, both airlines have launched cost-saving measures. It suffers the ambitious fleet expansion plan is currently being reviewed and most likely will be used in accordance with our co-owner. Overall, we continue to see a healthy demand environment of our point-to-point operations, particularly as the uncertainty. So only the future of 1 of our competitors could create new market opportunities for example, in Berlin or Geneva. Let's move to Menzacargo, which delivered a strong second quarter. The operating environment for AirCargo was anything but easy. The contract in the Middle East is affecting the reliability of global supply chains, supply networks had to be adjusted at short notice. In an environment like this, 1 thing becomes clear, once again, the more complex and unpredictable the global economy becomes the more our growing cargo business benefits. In particular, the crisis in the Middle East triggered a surge in the end on route to the Far East and for our new by now almost daily transpacific connections. Yield to Asia and on our new intra-Asian routes increased by 30%, while yields to the Middle East rose even orally. We expanded capacity by 2% in the second quarter, driven primarily by the marketing of now Ita Airways bedding capacities. As a result, revenue increased to more than EUR 1 billion in the second quarter of this year. Adjusted EBIT improved by EUR 42 million to EUR 160 million, corresponding to an operating margin of 11%. This commercial success is a result of the consistent execution of our strategy and our increasingly strong focus on high-margin products, just as pharmaceuticals, semiconductors and more and more IT server equipment for the growing AI-driven investments in computers around the world in data centers. Part of our premium strategy is also the modernization of our cargo infrastructure on the ground. At the end of June, we brought the first and most important phase of our new Frankfurt Cargo Center into operation. This will make our handling operations even more reliable, more efficient and more productive and obviously, will contribute to the premium positioning of Lufthansa Cargo. Beyond the premium positioning, there's also the internationalization strategy of the group, which is also paying off Lufthansa car. The integrated marketing of Ita Airways cargo capacities Fenza cargo, combined with closer cooperation with Swiss WorldCargo is strengthening our Logistics segment, both structurally and sustainably. Across group, airfreight increased its earnings contribution by more than EUR 100 million. This obviously includes the cargo result plus the Belly value profits of the other airlines in the group. At Lufthansa, we continue to drive the expansion of our global footprint with major growth projects are underway in Portalin Canada and in the Philippines. At the same time, we are investing in new business opportunities in Germany through Lufthansa Technik Defense, building our long-standing partnership with the German [indiscernible]. These investments reflect our strong confidence issue to development of [indiscernible], even though as current global market conditions continue to present considerable short-term challenges. For example, capacity reductions by airlines around the world are translating into a temporarily lower demand for MRO services, especially for power by the hour contracts. At the same time, manufacturers, suppliers and MRO providers like Lufthansa Datesnik continue to be affected by shortages of materials. Engines, components and all kinds of spare parts remain in short supply. Against this backdrop, [indiscernible] delivered a solid second quarter. Revenue increased by 11% to EUR 2.2 billion. External business grew by 21%. Therefore, today, almost 80% of our revenue is generated with customers outside the Lufthansa Group. The adjusted EBIT stands at EUR 157 million in the second quarter. Our midterm ambition for Lufthansa Technik remains unchanged. By 2030, we intend to achieve EUR 10 billion in revenue and EUR 1 billion in profit. We remain confident in delivering what we promised shareholders and the Capital Markets last year. A good example of this is the integration of Ita Airways. It's almost exactly to the day, 18 months ago, in January '25, and we promised our shareholders and customers that the integration of Ita Airways would be the fastest an integration in our company's history. 18 months later, I'm proud to say we delivered on our promise. For our passengers, Ita Airways is now firmly established as Lufthansa Group's fifth network airline. Codeshare passengers increased by more than 700% in the past 12 months. We are now at 1,000 other passengers per day. Since [indiscernible] became Ita Airways frequent flyer program, the number of status customers in Italy has more than doubled while the number of new members has risen to 300,000. When it comes to synergies, we are fully on track. We remain firmly on course to achieve our targeted annual synergies of EUR 450 million by '28. In June, we therefore exercised our option to acquire a 30% 49% stake in Ita Airways exactly as planned. We expect the transaction to close at the beginning of next year. Subject to regulatory approvals, we will then hold a 90% stake in Ita Airways, enabling full operational integration and financial consolidation. We are continuing to execute our internationalization strategy with determination as reflected in our offer for a minority stake in TAP subaortic TAP would also benefit from the Lufthansa Group's strong growth prospects and proven ability to realize synergies among its members. At the same time, we would significantly strengthen our position in Latin America and together, Lufthansa Group, including Ita and TAP, would catch up to the current market leader in terms of market share. The successful integration of ETA demonstrates, once again, the added value that Lufthansa Group creates as a long-term partner and owner. As a member of Star Alliance since 2005, TAP could continue to benefit from the world's largest airline alliance also in the future. and Star line offers over 15,000 seats every day tune from Portugal, which is 65% more than the second-ranked alliance. Lisbon also complements our Star Alliance hub system, which is further east than our competitors better than the hubs of other alliances. Already today, Lisbon is these Star Alliance gateway to Latin America with significantly better growth prospects than in any other corporation. In addition, TAP would gain ex our [indiscernible] transatlantic joint venture with United and Canada under the existing trust immunity granted by the U.S. Department of Transportation. This is why our proposal to the Portuguese government also incorporates modules that have been specifically agreed and designed with United Airlines. Ladies and gentlemen, we're making good progress across all of our key strategic priorities. This is especially true when it comes to the numerous initiatives underway to realize further synergies. Under the motto from a group of airlines to 1 airline group, we're making Lufthansa Group more efficient and more profitable. One example is our plan to reduce 4,000 administrative positions across the group by 2030. Just in recent weeks, we announced another module involving a reduction of about 500 positions in Germany through the rapid optimization of internal processes, mainly driven by artificial intelligence. And these we continue to expand those airlines that operate with competitive or with the most competitive cost structures. Lufthansa City Airlines and Discovery Airlines and 9 aircraft during the first half of the year and remain on track to further grow their fleets in the second half. It's obvious, ladies and gentlemen, the second quarter presented all airlines, especially Lufthansa with a wide range of challenges. Nevertheless, we do remain optimistic about our future. We have navigated multiple crisis over the last decades. What gives us confidence today is not only the strength of demand. but also the fact that Lufthansa Group is becoming structurally stronger with each passing year. We are improving our portfolio, modernizing our airlines and creating a more efficient group. This is also underscored by our highly total cargo and technique segments. This is why we remain confident in our ability to generate sustainable value for our shareholders as for our customers and employees. Thank you very much for now. With that, I will hand over to Till.

Yes. Thank you, Carsten, and a warm welcome also from my side. As usual, I'll now take you through the financial deep dive for the second quarter. We'll focus on the key drivers of our performance and of course, the actions we are taking to mitigate current headwinds and of course, also concluding on the outlook for the remainder of the year. Let me start with having a closer look into our group P&L. In the second quarter, revenues increased by 8% year-on-year to EUR 11.8 billion. This was mainly driven by higher passenger revenues while we reduced our capacity by more than 3%. This was outweighed by the effect of higher yields and stable seat load factors. Additionally, continued strain airfreight as well as MRO demand supported the top line growth. This is a clear proof that demand for all our services is strong. However, Fuel costs have been a major headwind 2 as it rose by 40% and led to an extra cost of roughly EUR 750 million compared to last year. Depreciation increased due to post our fleet renewal, while higher costs for external maintenance mainly reflects higher material cost for engines and spare parts. All other cost line items either grew less than inflation or declined versus prior year. As a result, adjusted EBIT dropped by EUR 490 million compared to prior year, reaching EUR 883 million, while the adjusted EBITDA margin stands at 3.4%. Please note that excluding the directly measurable strike effect of EUR 150 million, adjusted EBIT margin would have been 1.3 percentage points higher. Let's have a closer look into our adjusted EBIT in the second quarter and the notable deviation from last year's levels. The 2 by far biggest earnings drivers are immediately evident, fuel prices and unit revenues, as mentioned, material fuel cost headwind shaped this quarter -- for Network Airlines, we saw a fuel price effect of EUR 658 million. And thanks to strong demand for travel redirect demand and disciplined pricing, also revenues increased materially on a per unit basis. This compensated for a large part of the fuel headwind, enabling a recapture rate of 60% as we had foreseen and expected. Overall, this confirms that our commercial performance remains robust as our pricing power. Let's also have a look at the other building blocks of this quarter, starting with ASK driven by strikes and further consolidation of our continental network, including the grounding of CityLine, we reduced capacity at our Network Airlines leading to reduced production. At the same time, we continue to make progress on cost discipline. Looking at our 3% increase in CASK ex fuel, please note that most of it is explained by the capacity reduction. Adjusting for this capacity reduction, unit cost ex fuel at our Network Airlines, hence only grew at around 1% proving that we can effectively withstand the ongoing industry-wide inflation. Progress at Ita is good. Operating profit was positive in Q2. Looking at the numbers, keep in mind that we do not consolidate operating foot, but instead, 41% of Ita's net income. This is affected by FX movements related to unhedged lease liabilities. Therefore, the headwind from the ITT equity result almost completely stems from FX effects. Going forward, once we consolidate and include inter FX hedging, this volatility will be limited -- will be eliminated, sorry, will be eliminated. At point-to-point airlines, stronger which is an encouraging signal for the strength of the business model, particularly given that other point-to-point players in Europe have flagged challenges. However, it is not sufficient to carry away the additional fuel cost burden. Logistics and MRO are both contributing positively to the Group's earnings, underpinning the value of our portfolio with diversified revenue streams. Let me now turn to the actions we are taking to strengthen profitability and protect earnings in the current environment. While higher fuel costs and disruptions weighed on our second quarter results, we remain firmly focused on the levers that are fully within our control. A core element is the Lufthansa Airlines turnaround program which is progressing according to plan. By the end of this year, a cumulative gross EBIT effect of at least EUR 1.5 billion will be reached. The program is built on 3 key pillars. We've discussed them before, and we are making clear progress in one. First 1 is fleet renewal and rollout of Alegis are gaining further momentum in it by far the biggest earnings potential. Keep in mind that midterm, we expect the fleet and product modernization across the entire group to increase our operating margin by 3 percentage points. Second, the ramp-up of capacity in our more cost-efficient AOCs gradually progresses. This summer, the number of aircraft operated by city Airlines more than doubled versus last year to reach 18 aircraft. Given that the crew costs are below the levels of Lufthansa Classic combined with higher productivity, block hours flown. This will notably support our cost control. Last but not least, productivity and efficiency initiatives. And you know that we've spoken about the more than 700 initiatives within the Lufthansa Airlines turnaround program, they are rolled out and will improve Lufthansa Airlines future competitiveness. In addition to the ongoing turnaround of mainline, we have initiated several EBIT safeguarding measures across the entire group that will provide roughly EUR 150 million to EUR 200 million of positive earnings impact this year. These measures primarily focus on reduction of discretionary spend project prioritization, external hirings and fleet optimization, for instance, the phaseout of the Airbus 220 fleet at Swiss. In summary, while we cannot influence fuel prices or geopolitical developments, we'll continue to focus on the elution of our strategic initiatives, as laid out at our Capital Markets Day last year. and the actions underway today provide a clear path to improve profitability in the midterm. Let me now turn to cash flow. Operating cash flow reached EUR 2.3 billion in the first half of 20 down EUR 600 million year-on-year. This decline was mainly driven by the lower operating result on the 1 hand side and reduced ticket prevents due to shortened booking windows. Net CapEx of EUR 1 billion mainly covers final payments for 14 aircraft deliveries as well as prepayments for future fleet additions. This was partly offset by positive MRO capitalization effect. On the divestment side, we generated around EUR 1.1 billion cash from aircraft transactions, including 7 sale and leaseback deals and the sale of a Boeing 747-8. Overall, adjusted free cash flow amounted to approximately EUR 1 billion and remained broadly in line with last year despite the weaker earnings performance. Moving to balance sheet. Our financial position remains strong and provides an important source of stability. Liquidity levels stood at approximately EUR 10.7 billion at the end of June, comfortably about -- comfortably above our target corridor of EUR 8 billion to EUR 10 billion and we continue to maintain investment-grade ratings with stable outlooks from all our 4 major rating agencies. Net debt remained stable at around EUR 8.3 billion, while the leverage ratio increased modestly to 2x, mainly due to the lower EBITDA. The increase in net financial debt was largely offset by lower pension liabilities, supported by the strong performance of pension assets and a high count rate in Germany. Overall, our balance sheet continues to provide ample flexibility to navigate the current environment while investing into fleet renewal and strategic priorities. Let me not to fuel as this remains 1 of the major earnings factors this year. Since our first quarter reporting, the fuel outlook has improved. Based on our -- based on forward curves as of July 27, we now expect a total fuel bill of approximately EUR 8.7 million for this year and our expected fossil fuel cost stands at approximately EUR 8.5 billion with a further EUR 0.2 billion related to mandatory SAF requirements. At the same time, our fuel exposure remains well protected with hedge ratios of around 81% for the full year and 86% for our passenger airlines. Based on this, or based on the current forward curve, we currently estimate the positive hedge result of about EUR 1.5 billion for the full year. This gives you an idea of the value of our hedging strategy. Going to the next slide, yes, thank you. At the same time, fuel re markets remain highly volatile. In recent months have demonstrated that both jet fuel prices and foreign exchange rate movements can change rapidly, creating uncertainty around the ultimate fuel bill for the full year. To improve the hedge effectiveness and to reduce sensitivity to extreme market movements, our 86% hedge ratio currently also comprises jet crack swaps to an extent of about 20% of our fuel exposure. Nevertheless, fuel does remain a significant external swing factor for this year. just for the past 3 months, and you can see that, the full year fuel bill estimates have fluctuated by more than EUR 700 million, depending on the forward curve observation date. While our hedging framework has served us well over many years, 1 lesson from this crisis is that not all hedges are equally effective under all market conditions. The sharp dislocation between crude oil, gas oil and refined jet fuel products highlighted certain limitations, reduced oil refining capacity in Europe and elsewhere also contributed to increased volatility between crude oil and refined products. We did react quickly introducing jet crack hatches and adapting our approach during the quarter. Based on these experiences, we are analyzing our hedging framework. And our objective is straightforward, better alignment with actual fuel exposure, a low base risk and a high hedge effectiveness supporting a stable earnings profile through the cycle. Let me now turn to the key question for the remainder of the year. Why do we believe the second half can improve materially compared to the first half. First, Q2 should not be seen as a blueprint for half 2 strike-related disruptions should no longer weigh on operations, recapture rates improve and the composition of the booking stock becomes increasingly favorable. When assessing Q2, we saw a positive trend throughout the quarter, looking at year-on-year RASK comparison. June was better than May, which was better than April. What provides confidence is the quality of the booking intake. For the half 2 months, bookings at precrisis level precrisis yield levels represent between 10% to 30%. This means that an increasing share of future bookings benefits from the stronger post prices pricing environment. At the same time, current booking trends show yields running around 5% to 12% above prior year, while load factors remain a few percentage points below prior year levels. The current demand environment continues to be characterized by shorter booking cycles and yield-focused revenue management. This creates initial load factor gaps if they are filled with incremental high-yield demand, they can drive meaningful RASK outperformance. If they remain if they remain a more differentiated management closer to departure date will be required. In other words, the development of these load factor gaps is a key swing factor for half 2. to offset the almost EUR 700 million fuel headwind, we currently expect in half 2, we need to achieve a mid- to high single-digit RASK increase versus prior year. The favorable mix of post-crisis bookings and continued yield discipline can enable this, assuming the demand strength proved assistant. Let me conclude with our outlook for the rest of the year, respectively, full year. The environment in which we operate remains fairly dynamic. And while demand trends are encouraging, and our performance measures are gaining traction, visibility for the remainder of the year remains lower than we would typically expect. This is primarily driven by ongoing volatility in fuel markets and a significantly shorter and significantly shorter booking cycles. Against this backdrop, we believe it is appropriate to adjust our earnings guidance to a defined range. For the full year 2026, we now expect adjusted EBIT to be between EUR 1.7 billion and EUR 2.2 billion. At the same time, we now expect our capacity to be broadly flat versus prior year compared to our previous expectations of growth of between 0% to 2%. This reflects the measures we've taken to safeguard profitability and improve fuel efficiency while continuing to prioritize capacity deployment in the most attractive long-haul market. In our earnings range, the upper end of this range remains consistent with our previous expectation of an adjusted EBIT significantly above prior year levels. In other words, the earnings potential we saw before has not disappeared. Rather, the current range reflects the fact that uncertainty around the downside has increased, in particular, driven by the renewed tensions in the Middle East throughout July. The key question for the second half is not demand versus no demand. Demand is there. The key question is the balance between fuel headwinds on the 1 hand and revenue upside on the other. Therefore, principle of 4 key swing factors that will determine where within our guidance range, the full year result ultimately lands. First, the development of jet fuel prices Second, the extent to which we see an acceleration in unit revenues during the second half and current pricing trends are encouraging, but the degree of recapture of fuel remains the most important earnings variable. Third, our outlook assumes the continuation of the operational stability we have achieved in recent months, including the absence of further strike disruptions. And fourth, current strength in the cargo market provides important support to earnings and the sustainability of the current demand environment in airfreight will therefore also influence where we ultimately land within the guidance range. As always, Lufthansa Cargo's full year result will significantly depend on the fourth quarter performance, making the peak seasonal swing factor. Importantly, -- our expectations for adjusted free cash flow of around EUR 0.9 billion remain unchanged, supported by the net investments of around EUR 2.5 billion instead of initially planned EUR 2.9 billion, primarily reflecting slightly lower aircraft deliveries than originally assumed. And while uncertainty has increased, our focus remains firmly on execution. We continue to accelerate the measures within our control, strengthen cost discipline across the group and there will improve also our earnings resilience. And with that, Carsten and I are happy to take your questions.

[Operator Instructions] The first question today is from the line of James Hollins from BNP Paribas.

Yes. A couple for me, please. Till, thank you for the details on the unit revenue outlook, so some good data in the I think what's quite conspicuous is you seem to want to stop short of retaining the guidance you gave at Q1 of recapture rates above 100% for Q3 and Q4, now given the full year fuel cost guidance has come down since Q1, I was wondering if I'm writing thinking you're deliberately not talking about recaptures above 10% I guess it might be a quick answer. And then I guess, a mix of [indiscernible] cost and your capital day last year for Lufthansa Airline, you talked about a 20% increase in crew productivity by 2028. I was wondering, a, where we are on that be, I guess, for a customer, any update on strike potential? Is it disappearing and may need to tell they are generally on the turnaround program. Clearly, the numbers have changed not changed at 1.5% and 2.5% or just your general thoughts on the progress.

Yes, James, let me make a start. Thanks for the 3 questions. In terms of the unit revenue recapture, let me just state first. For the second quarter, we had achieved a recapture rate of about 60%. Again, that is in line with what we also announced on our on earnings call. So that was in line. Look, going forward, very true, slight reduction in terms of fuel bill for the full year at the current stage. Of course, as we go forward, we've got still a sortable booking stock ahead of us that needs to come in we see decent yields. And there was -- if you now translate both the fuel bill and the booking stock, mathematically, we were still going to need towards the back end of this year. So the fourth quarter a recapture rate, which clearly exceeds the 100% to make the guidance work that's mathematical. And a fundamental topic will be how we see the earnings. So at revenue at yield and feed load factor side coming in over the next couple of weeks and months. Shall I take the -- you go next, and then I'll turn around.

Okay Yes, James, it's Carsten. On the increase in productivity in Lufthansa Airlines, we're actually on track. And I might remind you, there's 3 factors contributing. One, obviously, is the cleanup of the fleet. -- as long as we were waiting for 787s billets being trained. While it's been pretrained to have them ready when the airplanes come in and not being fully productive is coming down. even though, of course, there still is a significant rollover in the fleet happening, which will be over by the year '28 you referred to. Second, we continually previously put aircraft into the more productive AOCs, namely Lufthansa City Airlines and Discover. And we, as you know, grounded the least productive AUC, which is Lufthansa city line. And not least, we are now in constructive talks with our 2 specialized unions who represent [indiscernible] Kevin and concrete staff in the core airline that they have understood, if I may say it, for sure, the staff is understood, and I think also now by now, a majority of the union leaders that only with productivity increases, we will ever see growth in hirings in Lufthansa clad again. So put those 3 together, I'm optimistic we will achieve the increase in productivity promise at the CMD.

Let me take over on the turnaround question once again. So yes, we continue executing the turnaround plan at Lufthansa mainline here means the 3 pillars. Let me quickly underpin with a few figures or pointers. So confident on the EUR 1.5 billion contribution for this year on track, a fleet renewal and product renewal. If you just rewind back 12 months in time, we had a new technology share of about 2% of our total fleet. Now 1 year later, this stands at about 26%. And so that's a 4 percentage point gain. So we make progress, obviously, in line with the fleet renewal. We wish it would be going quicker. But of course, when you then extrapolate and scale that, in line with our order book, we expect to reach a 50% new technology share by 2030. And this is a major, major lever. And this is coupled with obviously new product leaders Swiss sensors. You heard Carsten speaking about the yield uplift of Alegis, which we are quite excited about. This is positive. And of course, beyond this investment into FOX. So future onboard experience is an element that drives customer satisfaction and ultimately, also willingness to pay. If I may, the second pillar, just to point here again here. In terms of AOC strategy, we have doubled the number of aircraft at the Citi Airlines to 18 now. You have seen that during the second quarter, we have grounded City line, which was initially planned for a later point in time. So that's an acceleration. And of course, we continue to optimize also wet usage, wet to wet lease usage. And on the many, many initiatives, which are in the smaller category, we equally make progress. I'll close on a note in response in response to the crisis or the earnings pressure. We've added basically EBIT safeguarding measures, which I wouldn't necessarily call structural. They are more short term, just cost optimization, which I think, nonetheless, are very necessary.

We will now take the next question. This is from Alex Irving from Bernstein.

Two from me, please. First 1 is on fleet, specifically the 777X. And as the first 1 playing Emirates said it doesn't want to take them either as a global launch customer, do you have enough comfort to accept them? And how does that shape your confidence you be able to retire old technology in 2027? Second question, you see opening remarks about the possible easier take private and the potential for opportunities in Berlin and Geneva. Could you please elaborate on that? And are there other markets where you would also see opportunity?

Alex, Carsten, [indiscernible] to you. On the 777, as you know, the entry into service still planned for summer of 27 with Boeing at this point, promising to deliver the aircraft as I referred to in the Q1 call, we have 2 plants in parallel. One plan A, call it, [indiscernible] does come on time. Plan B, it has further delays in which case we would reactivate 340, 300, which we have kept for this purpose to cover the network. And depending on the likelihood of the 2 scenarios, I would probably see you see that in the schedule which we have published, we currently have published the 340 million being the more reliable plan. Hopefully, the certain deliveries will allow us to actually operate them. On that very specific topic of the first build aircraft also like our friends in Dubai, we are in talks with Boeing which of these areas will be not accepting for commercial service and which of these aircraft, which we were able to be modernized and then of course, on financial tribution of Boeing, we would be willing to take. So a similar topic as our friends in Dubai, we're just not quite as open and talk about the details of the discussion. On our friends in Lufthansa, I just mentioned Berlin and Geneva because these are 2 obvious that spoke in our network where we are competing with each other. But of course, depending on which shareholder they will have in the future, which strategy they will pursue, we also are ready to talk if there are additional opportunities for our shareholders and in the end for our shareholders to make money off, but I think it's too early to say. And also regulatory environment, as you well know, is very difficult. I think I can also speak on my 2 competitors in London and Paris. We like the part of easyJet which exactly the regulators don't want us to have. So I think we're all in a similar situation here. But of course, we are ready to talk if there's opportunities, not just in Berlin and in Geneva.

We'll now take the next question. This is from Muneeba Kayani from Bank of America.

The first 1 I wanted to ask around cargo a little bit more. Kind of what are you seeing in terms of demand trends related to AI equipment? And how are you seeing the 4Q peak season developing point. And like in terms of your new guidance, has your view on air cargo for this year kind of changed? Is it more positive now than it was when you first gave the guidance earlier this year? Secondly, just on TAP then. What is the next step? And kind of where is the time line and you're competing bidders said last week that the PAP unions had publicly expressed concerns about strikes and your labor relations. And so I wanted to know if you have any comment on that?

Yes, as I mentioned, Muneeba, the cargo trends are positive indeed. And next to the supply chain disruptions, which we have seen, especially after the Iran war, which have helped the cargo business, the increased need for transportation of server exit has almost become an industry-shaping element. So we are allocating and reallocating our network to serve our customers who try and want to move serve around the world. As you can imagine, for these high risk and high -- very expensive equipment logistical costs are almost negligible. So this is a very profitable business and you do need freighter aircraft for this business by the sheer size of these racks. So we would expect the adjusted bit of cargo to be significantly above last year. because the trend is -- the positive trend is ongoing. And the Q4, as you do now is the most decisive quarter. On TAP, the concerns about strikes. I think there has been 1 union out of many in TAP, which has mentioned that. This is 1 union, which is very closely aligned to our German pilot union, so think about that one. The other unions we have engaged with in TAP have been very constructive about our ideas about the joint future, time line and next steps, of course, up to the Portuguese government, so nothing to add on my side on this.

We'll now take the next question. This is from Stephen Furlong from Davy.

Just thinking in the next couple of years in terms of the cadence of the improvement in the EBIT margins. I mean you've said before that '25 and '26 are kind of transition years. Is it really kind of dependent on the aircraft delivery rate to see whether '27 would also be a transition year? So that's kind of the first question, that would be great. And then I guess, as related to that, I'm assuming that CapEx, which is slightly lower this year, kind of does it step up a bit next year, year after? Or is there any change in the CapEx trends over the next couple of years compared to what you previously said or is it a movable feast?

Yes, Stephen, thanks for the question. So first, let me just confirm in terms of cadence and aircraft deliveries, this is a major, major lever. This is why we always say that fleet renewal and moving up in the new technology share in our fleet is a powerful lever coupled with better product. So there was -- a lot will depend upon the timing. It's true -- so while we have made already decent progress, and I was just quoting the 4 percentage points of new tech share increase year-over-year. We obviously would love to make faster progress. But contrary, this year, we actually expect 41 aircraft instead of 45, so there was -- there is a little bit of a delay in the aircraft receipts. Does that have a certain impact on the ramp-up? And there was also to your question of transition or transition year. Yes, of course, aircraft deliveries impact that. And there was probably also 2027, we'll still have aspects of a bit of a transition. Second, on CapEx for this year. it's exactly that. So the slight lotion in CapEx is largely associated with the [indiscernible] aircraft that we expect to receive this year.

We'll now take our next question. This is from Jay Rowbotham from Deutsche Bank.

I was also going to ask about deliveries. If you can provide any color on your expectations for 2027 now, that would be helpful. But if not, second question, in Germany, the coalitions agreed on a series of comprehensive reforms and some of them relate to the flexibilization of the labor market. I was interested to know whether you see anything yet coming from these reforms that could benefit Lufthansa and help you with those attempts to improve the crew productivity?

Jamie, it's Carsten. Again, without repeating everything with [indiscernible] the '27 delivery schedule is already impacted by delays of '26. 350s have been moved also to 900 have been moved from '26 to '27. 350s 1000, which we expected to operate in the summer of '26 are now moved into '27. The 777 situation, I'll just refer. So it is unfortunate, but it's the fact that '27 will be another element of a transition driven by these deliveries, of course, also will have an impact on CapEx, which, in general, of course, stays the same. It's just moving it from 1 year to the other. The labor market flexibilization, I would almost put in the same bucket as tax increase, which was reverted in Germany. Government now start to understand that these are structural disadvantages of Germany, which have an impact on the German economy to the post governments need to react. So let me take that on the high abstract level as positive. To your very detailed question, I must admit that in the core of Lufthansa, the classic airline our CL are much more restrictive coming from days of government ownership than what the government now willing to touch. So even with the regulatory environment changes on this one, before we have agreements in Lufthansa, we need the approval of the unions to unlock these restrictions from the '90s. While that doesn't happen, as you know, we are not hiring in the core and run up our operations in the modernized CLAs, Lufthansa City Airlines discover and of course, our non-German [indiscernible]. But as a, call it, indication that our still most important market, we only a 20% turnover now in Germany, but still we are at 20%. I find it at least encouraging, being modest that we now see single for million that things cannot go on. And I must also say other industries are much more affected the Asian Lufthansa in all modesty is probably 1 of the few real economy companies in Germany still growing and still being among the global leadership. So there is a wake-up call, I think, which has been heard in the Berlin.

And Jamie, if I may just complement on the CapEx, once again, look, what we would be seeing sharing from 2026 into 2027 from an aircraft point of view, we would obviously also catch up at the CapEx level. here, once again, a reminder, part of our strategy is that we do make use of sale and leasebacks as a vehicle. At the moment, we are standing at a mid-teens level in terms of sale leaseback share, therefore, completely in line with what we said at the Capital Markets Day, we will use this as well as a bit of a flexible instrument to manage net CapEx and ultimately also free cash flow exactly in line with what we laid out September last year.