Lufthansa Group Conference & Roadshow Presentation 2.5% margin - PowerPoint PPT Presentation

Lufthansa Group Conference & Roadshow Presentation 2.5% margin improvement in Q3  Adjusted EBIT margin improves to 15.5%  Free cash flow doubles, net financial debt down 80%  Good strategic progress Trading outlook for Q4 2017 confirmed  5.5% organic growth, 14.4% total growth  Slightly positive RASK; slightly negative CASK expected  Fuel headwind of c. 50m EUR (ex. Brussels Airlines) Initial outlook 2018  c. 7% organic ASK growth (excl. Air Berlin)  RASK to be slightly positive in Q1 (limited visibility beyond)  CASK down 1 to 2%  Additional fuel cost of c. 700m EUR at current rates January 2018

 Market benefits from improving industry dynamics - Increasingly profitable airline industry, driven by more discipline and consolidation - Consolidation still early stages in Europe but gaining momentum  Lufthansa Group continuously improving financials through consistent implementation of strategy - All relevant financial metrics continuously improving - Room for further improvement: Multiple areas in focus to increase through-the-cycle-profitability  Adjusted EBIT 2017 expected “above previous year” - Adj. EBIT 9M 2017 >50% above previous year, free cash flow >80% above, net financial debt >80% below - Slightly positive RASK and slightly negative CASK expected for Q4 2017  Initial outlook for 2018 operating KPIs - Organic ASK growth of c. 7%; RASK to be slightly positive in Q1 (ltd. visibility beyond); CASK down 1 to 2% - Additional fuel cost of c. 700m EUR; flat development of Aviation Services Page 2

Performance of the airline industry is constantly improving Long-term EBIT margin and ROIC development Global Commercial Airline Profitability Return on Invested Capital 12.0% 50 10% 40 8% 10.0% 30 6% 8.0% 20 4% 10 2% 6.0% 0 0% 4.0% -10 -2% -20 -4% 2.0% -30 -6% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17e '18e 0.0% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17e '18e Net profit EBIT Margin Return on capital (ROIC) Major Drivers: Increasing consolidation Clear strategic positioning of airlines More rational management teams Source: IATA World Air Transport Statistics Page 3

Industry consolidation is a major driver Degree of consolidation in US and EU US EU ‘ 96 ‘ 97 ‘ 98 ‘ 99 ‘ 00 ‘ 01 ‘ 02 ‘ 03 ‘ 04 ‘ 05 ‘ 06 ‘ 07 ‘ 08 ‘ 09 ‘ 10 ‘ 11 ‘ 12 ‘13 ‘ 14 ‘ 15 ‘ 16 ‘ 17 ‘ 18 ‘ 96 ‘ 97 ‘ 98 ‘ 99 ‘ 00 ‘ 01 ‘ 02 ‘ 03 ‘ 04 ‘ 05 ‘ 06 ‘ 07 ‘ 08 ‘ 09 ‘ 10 ‘ 11 ‘ 12 ‘13 ‘ 14 ‘ 15 ‘ 16 ‘ 17 ‘ 18 Lufthansa Lufthansa Group American Airlines American Airlines Swiss TWA Austrian America West Sabena Brussels Airlines U.S. Airways Partly Air Berlin Delta Delta British Airways International Airlines Group Northwest Iberia United Vueling United Continental Continental Aer Lingus Southwest Southwest Air France Air France KLM KLM AirTran Ryanair Ryanair Jetblue Jetblue Easyjet Easyjet ‘ 97 ‘ 97 ‘ 96 ‘ 98 ‘ 99 ‘ 00 ‘ 01 ‘ 02 ‘ 03 ‘ 04 ‘ 05 ‘ 06 ‘ 07 ‘ 08 ‘ 09 ‘ 10 ‘ 11 ‘ 12 ‘13 ‘ 14 ‘ 15 ‘ 16 ‘ 17 ‘ 18 ‘ 96 ‘ 98 ‘ 99 ‘ 00 ‘ 01 ‘ 02 ‘ 03 ‘ 04 ‘ 05 ‘ 06 ‘ 07 ‘ 08 ‘ 09 ‘ 10 ‘ 11 ‘ 12 ‘13 ‘ 14 ‘ 15 ‘ 16 ‘ 17 ‘ 18 US Market share EU 2007 2017 2007 2017 Top 5 US carriers Top 5 EU carriers reach 85% market reach 44% market 65 % 85 % 33 % 44 % share in terms of ASK share in terms of ASK Source: FLASH Flight data statistics Page 4

Consolidation continues to accelerate, particularly in Europe Different forms of consolidation International consolidation European consolidation Insolvency 75% of LH long haul-revenues in Joint Ventures 1st consolidation wave 2nd consolidation wave Current development in Europe: Global consolidation through Joint Ventures: • • LH Group, easyJet and IAG acquire parts of Air Berlin, Commercial agreements with anti-trust approval • insolvency of remainder of Air Berlin; Joint steering of prices, capacities and frequencies • More than 25 aircraft disappear from German market Revenue share agreements • • Monarch insolvency, Alitalia in administration Proven alternative to equity partnerships Page 5

- This page has intentionally been left blank - Page 6

 Market benefits from improving industry dynamics - Increasingly profitable airline industry, driven by more discipline and consolidation - Consolidation still early stages in Europe but gaining momentum  Lufthansa Group continuously improving financials through consistent implementation of strategy - All relevant financial metrics continuously improving - Room for further improvement: Multiple areas in focus to increase through-the-cycle-profitability  Adjusted EBIT 2017 expected “above previous year” - Adj. EBIT 9M 2017 >50% above previous year, free cash flow >80% above, net financial debt >80% below - Slightly positive RASK and slightly negative CASK expected for Q4 2017  Initial outlook for 2018 operating KPIs - Organic ASK growth of c. 7%; RASK to be slightly positive in Q1 (ltd. visibility beyond); CASK down 1 to 2% - Additional fuel cost of c. 700m EUR; flat development of Aviation Services Page 7

Our objective: #1 for customers, shareholders and employees Set-up of Lufthansa Group Goal: #1 for customers, shareholders, employees Customer #1 Employee Shareholder #1 Network #1 Point-to-Point #1 Aviation Airlines Airline in home Services in Europe markets world-wide Aspirations Strategic focus topics Shape the industry Consolidation Grow the business Flexibilization Invest steadily …and others Digitalization Stay competitive Cost Optimization Page 8

Three key themes to develop strategic pillars of the group Key areas of action Expansion of market position through growth Consolidation (organic & inorganic) will redesign the structure of the airline industry Efficient and flexible forms of organization and € new production logic will determine the way of Flexibilisation working within the Lufthansa Group. Cost focus remains key to sustainable success. New business models and digital solutions Digitalisation will decisively determine Lufthansa Group’s position in the airline industry. Page 9

Consistent strategy implementation drives improving financial KPIs Development of financial KPIs Adj. EBIT Adjusted EBIT Margin Free Cash flow ~2x >3x >3x 2,635 7.6% 2,410 5.7% 5.5% 1,817 1,752 1,397 3.9% 1,307 1,171 3.3% 1,138 986 834 2.4% 725 2012 2013 2014 2015 2016 Q4 16 + 2012 2013 2014 2015 2016 Q4 16 + -297 9M 17 9M 17 2012 2013 2014 2015 2016 Q4 16 + 9M 17 Net financial debt Equity ratio Adj. ROCE (pre-tax) +5.4 -75% >2x %P. 3,418 13.3% 3,347 11.0% 2,701 9.3% 22.3% 21.0% 20.6% 1,953 18.0% 7.1% 1,695 16.9% 6.0% 13.2% 4.6% 521 2012 2013 2014 2015 2016 Q3 17 2012 2013 2014 2015 2016 Q4 16 + 2012 2013 2014 2015 2016 Q3 17 9M 17 Page 10

But we still aim to do better than that Key value drivers in focus Revenue Cost Capital Employed 1 2 Continuous cost focus Premium positioning Capital Allocation (CASK down 1% - 2% per annum) Financial 3 4 Distribution strategy -25% management positions Optimization of working capital Priorities • Improve Joint Ventures Process orientation (centralization) Profitability 5 Fleet (Harmonization; new & efficient aircraft; used aircraft) • Focused Capital New Products & Services Cultural change Allocation (e.g Internet on board) 6 • Increase Labor agreements Cash Flow 7 Active market consolidation / Scale • Maintain 8 Financial Point-to-Point growth Stability 9 Development of Aviation Services Page 11

1 LH Group best positioned to benefit from European market specifics Superior home markets define premium positioning …define premium positioning Highly attractive home markets… “our product needs to be at least as much better than it • Strong premium corporate and leisure demand: is more expensive” • Highly stable and export oriented economies • Low unemployment In nearly • Highly diversified industries 5 Star #1 all • Low cyclicality Airline markets • Decentral structure GER BE Highest Most share of dense premium network seats AT CH • At the same time these markets do not support Most Partner cost leadership: digital of choice • E.g., labor and infrastructure cost airline for JVs • Relatively high share of transfer passengers • Limited possibility to outsource production to lower cost countries for airlines Page 12

2 Unit cost to be reduced between 1% and 2% every year Key cost drivers 2018 Labour deal Pilots Reorganization (150m EUR cost reduction) (200m EUR profit contribution) Short term savings 1% to 2% Labour deal + strategic dialogue Cabin Crews (two-digit million Euro initial (structural cost CASK reduction cost reduction) improvement) every year Optimizing MRO cost (low three-digit million euro New aircraft benefit over next few years) (c. 20% less operating cost each) Lower distribution cost (increasing share of direct sales) Being awarded quality and reducing cost at the same time are not mutually exclusive Page 13