Ladies and gentlemen, thank you for standing by. I'm Yasmin, your conference call operator. Welcome and thank you for joining the conference call of Deutsche Lufthansa AG. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. Everybody who would like to ask a question may. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Dennis Weber, Head of Investor Relations. Please go ahead.
Yeah. Good morning, ladies and gentlemen. Welcome to the presentation of Lufthansa Group's results for the first nine months of 2018. My name is Dennis Weber, and I'm the Head of Lufthansa's Investor Relations activities. In today's call, our CEO, Carsten Spohr, and our CFO, Ulrik Svensson, will give you an update of the Group's performance and outlook. Carsten Spohr will focus particularly on the challenges the European aviation industry is currently facing and how we respond to them. First, Ulrik Svensson will present our results in detail. Ulrik, over to you.
Thank you, Dennis. Ladies and gentlemen, a warm welcome from me, too. In the last few months, the Group has been facing increasing headwinds. While the global economy continues to expand, the pace of growth is moderating and fraught with uncertainty. Trade conflicts and political disputes in Europe are starting to have an impact on the real economy. Our industry is increasingly affected by capacity shortages in different parts of the system, be it at airports, be it in air traffic control, or when it comes to the supply of new aircraft and spare parts. The rapid rise of the oil price means that airlines need to quickly find ways to mitigate the impact on margins. Against this backdrop, Lufthansa Group has held up very well.
In the first nine months of the year, we've continued to grow strongly, taking advantage of a unique opportunity to further expand our share in our home markets. In the short term, this growth has come at a cost, as highlighted by the losses at Eurowings and the resulting slight decline in Group adjusted EBIT. However, our leading market position and the strength of our balance sheet are key competitive advantages. That is why we are in a better position than most competitors to weather an industry downturn whenever it may come, and we'll be able to opportunistically drive the consolidation of the European market. In the first nine months, we managed to largely offset the impact from higher fuel costs. Our fuel bill increased by more than half a billion euros, while Group adjusted EBIT was only down EUR 200 million or 8%.
In fact, the group's adjusted EBIT would have even grown excluding Eurowings, where profits primarily suffered from around EUR 170 million of one-off costs related to the integration of former Air Berlin aircraft. The network airlines more than offset fuel cost increases, supported by disciplined management and other costs. Our aviation services, primarily consisting of the logistics, maintenance, and catering businesses, made a stable contribution to adjusted EBIT in the first nine months. Let me analyze the performance in the last three months in some more detail, starting with the regions. In the third quarter, performance was driven by the long-haul businesses. While loads and yields in the Americas were broadly in line with the previous year, Asia-Pacific did very well, benefiting from moderate capacity expansion and healthy demand in all major markets.
The European unit, however, declined 3.9% at constant currency, more than in the first half year. This reflects the tough prior year comparison base and the high level of capacity growth in the market, which is exerting pressure on prices. Yields in Europe also continued to be affected by a negative mix effect from disproportionate growth in the lower yield Eurowings business. In the first nine months, half of the decline of 2% was attributable to this effect. Looking at the network airlines' third quarter constant currency unit revenue was broadly flat at capacity growth of 5%. Swiss stood out again with ongoing strength across the business. The constant currency RASK at Lufthansa was up slightly as increases in long haul compensated for a tougher short-haul business. At Austrian Airlines, a better long-haul business did not compensate for intense competition in short haul.
Constant currency unit revenues at Eurowings were down 4.6% against the prior year. Eurowings is suffering from a tough comparison base as it benefited most from the demise of Air Berlin last year. In addition, Eurowings growth rates in long haul are currently higher than in short haul, causing a drag on overall unit revenues. On a year-to-date basis, the group RASK continued to be up slightly in constant currency, driven by 0.7% improvement at the network airlines while it remained on the prior year level at Eurowings. Other than in the first half year, where constant currency CASK ex fuel was down, it was up 1.2% in the third quarter. Several factors played a role here. The strength of the European aviation system is not only causing frustration to our customers, but also impacting our results.
In the third quarter, irregularity costs, that means costs related to flight cancellations and delays, were approximately twice as high as in the prior year. As a result, costs more than doubled in the first nine months, as well as amounted to around EUR 350 million across both airline groups. In addition, MRO costs increased proportionally. In contrast, labor costs declined and in some CASK of the network airlines increased by 1.2% in the third quarter at constant currency. This compares to a 1% decline in the nine-month period. At Eurowings, we completed the technical integration of former Air Berlin aircraft in the third quarter. In line with expectations, this cost another EUR 50 million of one-off cost, bringing the year-to-date total to EUR 170 million. At the same time, Eurowings is now starting to benefit from an easier cost comparison base owing to the first acquisition-related expenses in the final quarter of 2017.
In the sum of those effects, unit cost growth at Eurowings moderated compared to earlier in the year and amounted to 2% on a currency adjusted basis in the third quarter. On a year-to-date basis, CASK ex-fuel is still up 5.9% at constant currency. This brings me to the largest single cost item in our business, fuel. In line with our unchanged guidance of an EUR 850 million increase in the full year of 2018, third quarter fuel expenses were up €320 million or 23%. For 2019, we expect a further increase on our fuel cost base because the protection from lower price hedges is gradually fading. On a like-for-like basis, the Lufthansa Group fuel cost will increase by around €900 million in 2019, excluding the limited volume growth we expect next year. As of the end of September, slightly more than 60% of our expected 2019 exposure has been hedged.
Returning to the discussion of financial results in the period, our network airlines kept profits stable in the first nine months despite the factors mentioned before. A tough prior year comparison base, as well as disproportionate increase of fuel irregularities and MRO costs. Please note that we expect the latter two factors to play an only minor role in the remainder of 2018, especially as irregularities are normally less prevalent in winter because of seasonally lower volumes and the resulting higher number of spare aircraft. Labor cost growth will remain moderate in the rest of 2018 and beyond, given that we concluded long-term labor agreements with all major employee groups last year. Turning to Eurowings, segment results are down significantly this year. Let me be sure that it cannot and we are not satisfied with the profitability of the business.
Yet, we regard this year's integration cost and the delay in margin progression as the price we had to pay for this unique opportunity that opened up last year. The increase of aircraft and passenger indicate the enormous growth that the Eurowings organization had to manage this year. This year's challenges further drive our ambition to create sustainable value at Eurowings. In 2019, we will enter phase 3 of the Air Berlin integration following the rescue period immediately after the insolvency and the phase of stabilization and integration we are going through this year. The following optimization phase is all about reducing operational complexity. This is so important because the largely inorganic nature of Eurowings growth has led to a mix of different AOCs. This usually impacts our ability and flexibility to allocate aircraft and crew where it is needed.
Of course, the simplification of operational structures will take some time. Nonetheless, we are confident that Eurowings will turn to profitability in 2019 and become a leading player in its market segment, not only in terms of size, but also margin in the coming years. Finally, ground services performed very well. In the third quarter, trends at Lufthansa Cargo continued to be robust. The yield premium that Cargo commands over others in the industry remains close to historical highs. This reflects strong customer demand and our focus on yields rather than loads. The latter is affected by the belly growth to more leisure destinations, which are less attractive from a cargo perspective. In addition, the integration of Brussels Airlines Cargo business at the beginning of September has added some high yield, lower volume growth too. At Lufthansa Technik, profits tracked slightly below previous year's levels.
This is mainly to do with cost inflation in spare parts and some capacity shortages, which required a short-term contracting of external service providers. LFT is making good progress in the transformation of its business model, which focuses on the centralization of the production and logistics setup in Europe and the global expansion of its onboard retail activities. Supported by an improved performance in North America as well, profits are up in the third quarter and the first nine months. Last but not least, the result in the area of other and consolidation improved in the third quarter, mainly related to the accounting treatment of intra-group services that are work in progress. Specifically, this relates to MRO services with Lufthansa Technik revenues to the airline businesses. On a year-to-date basis, however, the result is still below the entire year due to non-returns of currency gains we had in 2017.
Turning to the group's free cash flow performance and balance sheet. Investments of almost EUR 2.5 billion, largely focused on the purchase of new aircraft to maintain a modern and efficient fleet. Primarily as the result of higher investments and an increase of cash taxes following the strong profit growth last year, free cash flow decreased to EUR 1.1 billion. Net financial debt decreased by 14% to EUR 2.5 billion. Pension provisions decreased 6% compared to year-end 2017, mainly due to a 3.1 percentage point increase of the IFRS discount rate. In sum, this means that the group's financial leverage, measured as a ratio of net debt and pension provisions over adjusted EBITDA, declined further to 1.5, a clear indication of the strength of our balance sheet. Let me finish my remarks with our outlook, where we are confirming our financial guidance this morning.
While overall economic and political risks have grown, we continue to forecast adjusted EBIT to be slightly below the previous year level in 2018. This means that we will largely offset the impact from higher fuel costs, we forecast to amount to EUR 850 million. We even expect profits to remain at least stable this year, excluding the increase in irregularity costs, which we expect to amount to around EUR 250 million this year. Capacity growth will amount to 8%, despite some reductions in winter 2018 compared to the original plan. Unchanged to our previous communication, we expect unit revenue to be up slightly on a currency adjusted basis in the full year. With regard to costs, we confirm our forecast of around 1% decline of currency adjusted CASK ex fuel in the full year, implying a much better performance in the last three months.
As discussed, this is driven by both airline groups resulting from less irregularities than in the third quarter, lower MRO cost increases, as well as the completing of the integration work at Eurowings, where the cost comparison base is starting to become significantly easier in the fourth quarter. Finally, we forecast aviation services to make a slightly smaller contribution to full profits this year. This is largely due to a more negative result in the other businesses. For Lufthansa Cargo, we now expect profits to remain stable. Nonetheless, these outlooks still assume that we will not repeat the exceptionally strong performance of the final quarter of 2017 for cargo. Based on the visibility provided by forward bookings, we expect the transatlantic routes to remain strong in the remainder of 2018.
We should benefit from the fact that the market-wide capacity growth on these routes will remain limited also in winter, at least when it comes to traffic originating in our home markets. The Asian business should be supported by ongoing improvements in leisure traffic, and the group's only moderate capacity expansion should ensure that this translates into good yields also in the fourth quarter. For Europe, our outlook is likely more cautious, factoring in tough comparisons from the prior year and an around 10% market-wide capacity growth over winter, which is exerting pressures on units. We are committed to protecting and expanding our market position in Europe. The growth of our customer base demonstrates that our strategy is successful and effective, so we are accepting the short-term cost that inevitably comes with the long-term benefits. Carsten, over to you.
Oh, thank you very much, Ulrik. Ladies and gentlemen, a warm welcome from my side as well. I am only pleased to provide you today with the second-best nine-month result that our company has ever achieved. Despite the strong headwinds of higher fuel costs and higher cost of flight irregularities, the Lufthansa Group can present an adjusted EBIT of EUR 2.4 billion for the first nine months of 2018. Had it not been for the one-time losses at Eurowings due to the integration of Air Berlin capacities, we would even have posted another record result. Just a few years ago, results like these would have been not conceivable even for a full business year, and today we achieved those numbers in just nine months, under which I've been, to be honest, very difficult conditions. I think it's a clear sign of the new strength of the Lufthansa Group.
Let's start with the network airlines, our core business, which has grown even stronger. Thanks in particular to outstanding performance by Swiss, they have posted a new best ever nine-month result, even improving on the comparable base from 2017, which was itself a record year. Eurowings has tangibly expanded its market position. I'll be talking more about Eurowings in just a few minutes, but first things first, it is indeed on the right strategic track. Our service companies continue to stabilize our overall group results. All in all, the results from our aviation services were broadly in line with their 2017 levels. Lufthansa Cargo has been showing excellent business trending that was maintained in the third quarter. As you know, the airfreight business is a sound barometer of future trends, so the good results here do suggest that the demand is still strong.
So much for our overall assessment for the first nine months of 2018. I now like to turn to the two issues that have been occupying and challenging us most over the past few months. The first is the disproportionately strong growth that we are currently seeing in the aviation sector and its repercussions. Our airline industry has been growing twice as fast as the global economy over the last five years. Air travel within Europe alone increased by 50% between 2008 and 2017. That's 250 million passengers up to 780 million passengers. There's just no end of this trend in sight. It's a development that we, of course, are benefiting from as Europe's leading airline group. Not only Eurowings has substantially grown its business, our network of airlines are expanding quite strongly as well.
All in all, the airlines of the Lufthansa Group carried over 108 million passengers in the first nine months of 2018, a new record for this period. Our overall seat load factor of 82% is also the highest we ever have achieved in the first nine months. As we all know, this rapid growth has really stretched the infrastructure of our industry and all the people involved in it, and occasionally it has even overtaxed them, too. That's the flip side of the growth of this kind. For our passengers, it meant a summer season of frequent waits, delays, and even flight cancellations. In our Lufthansa Group alone, we have canceled 18,000 flights. That's the equivalent of closing Frankfurt Airport for two whole weeks. Over 1.7 million travelers on our airlines have been affected by such cancellations. That's enough to fill 3,300 Airbus A380s.
It's really our customers who have suffered most. Our airlines have been working for some time now with the airport and with air traffic control to develop ways and means of bringing more stability to our flight operations. The political world is also pressing for a solution and has signaled its willingness to play its part in achieving this. Just a month ago at the German Government Aviation Summit, we agreed on 24 actions that should help to reinstall the quality of airline services. All these actions are targeted to ensure that growth goes in line with quality. If our industry is to further expand its capacity, we must keep a firm eye on the impact this will have on the performance of the available infrastructure, and therefore on the quality and on the reliability of the services we offer. In other words, no more uncontrolled growth.
I think the Lufthansa strategy here works for the industry, not quite yet. Everyone involved in the German aviation sector must work together better and plan and invest in a more coordinated way. Let's not forget, air transport in Germany and of course in Europe is in global competition. One passenger in three uses German airports just for transfer. In our hubs, it's even two out of three passengers. Obviously, these passengers could easily travel via foreign hubs instead. That is why we, as Europe's number one, are taking the initiative here in strategic and in operational terms. In doing so, we want to show our industry the way. First, we are reducing our growth plans. We have just decided to grow below the market level in the winter schedule, 8% compared to the 10% of the market in general. For summer 2019, we have lowered our planned growth even further to a modest 3.8%. Second, we are managing our growth in a better way. This means only expanding our services where there is adequate infrastructure for this on the ground. In terms of our hub system, that primarily means Munich, Zurich, and Vienna.
Thirdly, yesterday, the first day of the winter flight schedule 2018/19, we launched our project Operational Excellence under the lead of the head of our corporate strategy, Dr. Detlef Kayser. We want to achieve an operational turnaround with every means at our disposal for our customers and for our shareholders. It will help easing the burden on our employees as well. Therefore, I would like to take this opportunity to offer my thanks once again to all of our colleagues, especially those in our operational units on the ground and in the aircraft.
Many of them have really been working to their limits over the past few months. Regarding the series of specific operational actions defined for 2019. We'll be putting more operational buffer into our schedule. We'll be adding 600 people to our workforce just to stabilize our operations, and we'll be providing more spare aircraft, for example, by acquiring nine Airbus A320ceo. We will be at least partly mitigating the problems caused by the A320neos delivery rates. Right now, in the interest of our customers, regaining our operational stability and reliability is our first and utmost priority. We face the second issue that has been taking up so much of our time and attention over the last few months, Eurowings. Within just three years, Eurowings has seen a tripling of the numbers of its aircraft and a tripling of its number in regards to employees.
Some 10,000 people are now on its payroll and 185 aircraft in its fleet. The whole Eurowings team has done a truly amazing job in making the whole thing work. Thanks to all of them. We've always said that for Eurowings, the first phase following the insolvency of Air Berlin would be a phenomenal challenge. Retrospectively, we can now see that it was even more complex than we thought. Eurowings incurred one-off integration costs of EUR 170 million in the first nine months of 2018 alone. As a result, its adjusted EBIT for the period was a full 40% down on the same period last year. Eurowings is now what we want it to be in strategic terms. It is one of Europe's biggest point-to-point carriers. It is number 3 in all of Europe.
In its home market of Germany, Austria, and Belgium, its position is even stronger as a clear number 1. Thanks to Eurowings strong growth, the Lufthansa Group is now in the pole position at the key German airports also besides our hubs. Eurowings long-haul business is also developing better than it was last year. In 2017, we were presented with a historic opportunity in the consolidation of the German air transport sector. We clearly seized it, and we see the cost that our decision has entailed as a clear and valuable investment into our future. All of you are very well familiar with the airline business. You all know how important it is to be the market leader at this or that location. We will be seeing and feeling all the benefits that this better position brings to Eurowings as well.
In developing Eurowings, we also have shown that the Lufthansa Group can drive Europe's industry consolidation. That trend is sure to continue. It may be at a slower pace and less visibly than with the mega mergers we have seen in the U.S. We also have just six European airlines going into insolvency in the last three months alone. The rising oil prices are likely to accelerate this development. Only airlines with a strong market position and a sound customer base can survive higher oil prices for an extended length of time. For 2019 and the years beyond, the Lufthansa Group will be doing everything in its power to reflect these higher oil prices even better in the prices of our tickets.
With oil costing over $80 a barrel, flying cannot and flying will not remain as cheap as it can be at a barrel price of just $30. As Europe's leading aviation group, we are confident for the future despite these oil prices. With an adjusted EBIT of EUR 2.4 billion, we have achieved not just a very solid nine-month result, we have also further added to our financial strength. For 2018 as a whole, we still expect to report an adjusted EBIT result that is slightly below last year's record levels. In other words, we are confident that we can largely offset the higher cost of more than EUR 1 billion that will accrue this year through higher fuel prices and the repercussions of our operational instability. In fact, we've already done so in the first nine months.
This too is a massive achievement, and it shows two things, that the Lufthansa Group is structurally strong again, and that the basic demand remains intact. I'd also like to stress one thing that is very important to me. Ladies and gentlemen, that all in all, we have delivered on our results projections for the year. While even the stock market darlings among our competitors have had to downwardly adjust their projections, we, after nine months, are still where we promised we would be, only just below our prior year level. I would like to emphasize once again just what that benchmark is. 2017 was a truly exceptional year in annual result terms. We expect to deliver the second-best earnings result in our company's history for 2018 as a whole, and we are looking into the future with firm and genuine confidence.
Our strategy is working, and we can see this not only in our results. We have tangibly improved our market position, especially in our home markets. We are an active driver of consolidation, and as any observer of our industry can see, consolidation is gaining speed. The strong will get stronger, the weak will get weaker. We are showing the way with the urgently needed operational turnaround of our industry in Europe, including the equally urgent switch from blind growth to quality growth. In all the above, we will stay committed to maintaining a clear and firm balance between the interests of our shareholders, our customers, and our employees. Because we aim to sustainably remain the number 1 in aviation for all three of our stakeholder groups. We promise that this is what we'll also be working on in 2019. Thank you very much. Operator?
Yes. Ladies and gentlemen a t this time, we'll begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from the line of Stephen Furlong of Davy Research.
Good morning, gentlemen. Just on Eurowings, I think you've previously said before that maybe you could see Eurowings being breakeven next year and then have LCC type margins in a three up to four-year period. Would you still see that, or is the oil price something that makes that a bit of a challenge in the short term? I just want to ask, there's a comment there in terms of the markets where the Middle East and Africa's capacity has been accelerating, and I just wonder if you have a general comment on that, particularly in the week where Istanbul has obviously launched the new airport. That would be great. Thank you.
Yes, I guess I'll start with the question regarding Eurowings. Clearly we expect Eurowings to break even in 2019. There is a large number of actions, I alluded to some of them in terms of simplification, reduced complexity, getting more one-way seats in each of the bases. We all have in our hands. Despite of the fuel headwind, we do indeed expect them to break even 2019. Longer term, we expect them to get We said at some stage, the LCC margins of EasyJet 2017, which in other words, was 8% in 2017. The plan is still holding very firm. In terms of Istanbul you want to add to that, Carsten?
Well, sure, of course, the question like you were wondering about the future outlook of the overall market, particularly about the opening up of Istanbul.
Yeah, just general comment, Carsten. Do you think that Middle East, the super connectors are just going to, after a respite, they're further expanding capacity again, certainly the airport capacity is there now.
Well, the airport capacity has not been the issue in the Gulf region in general, in total in the last years. I've just been to Doha myself. Looks like plenty of capacity available there. You can see how empty the airport was. Definitely there will be fighting for the same passengers between Istanbul, Doha, Dubai, and Abu Dhabi. I think we'll see more an impact of those four among each other than necessarily for us, where we have regained market shares on the premium seats, especially to the Asian market over the last years due to our product improvement. We are actually improving our market position further by adding new services to Asia out of Munich starting in March, which shows our confidence in that market.
Okay. Thank you. Very clear. Thank you.
The next question comes from the line of Jarrod Castle of UBS.
Thank you. Good morning. I will just focus on the balance sheet. Firstly, as you point out, your earnings are down call it 10% this year and your stock price is down over 40%. Does it change your thinking in terms of using the balance sheet for share buyback? Secondly, you mentioned IFRS 15, any further clarity on IFRS 16? Lastly, just on M&A, just on the disposal front, is there anything that will be done going forward in terms of the group? Thanks.
Starting on the dividend side. We are having a dividend policy of 10%-25% of our EBIT, which is a dividend policy we will continue with. We are having a net debt EBITDA of 1.5. We are going to continue to build reserves to opportunistically see if there are opportunities in consolidation. I think especially now if things are going to get tighter for some of our competitors, there might be interesting opportunities ahead. Of course, long term, if we do not find any opportunities, indeed, we will look again at subject of buybacks for potential larger dividend policies. In terms of IFRS 16, we are thinking about around EUR 2 billion effect estimated at year-end. In terms of the disposals, we are continuously looking at our strategy whether all the different businesses have the same amount of synergies with our airlines or not.
This is something which we are regularly going over, there is nothing new to report for the moment.
Thanks very much.
The next question comes from the line of Daniel Röska of Bernstein Research.
Good morning, gentlemen. Three for me. First, on the Operational Excellence program, I get the aspect around improving punctuality, but could you comment on the bottom line impact of this? It seems that adding aircraft to the kind of up reserve and significant amount of staff could amount to significant amount of cost. How much of that do you think we'll be able to offset? What's the P&L impact you're targeting for that Operational Excellence program? Secondly, on the balance sheet, also maybe a little bit more to CapEx. There have been incremental fleet order news over the past couple of weeks and months. Could you just give us a little bit more specific range how that is phased over the next couple of years, so kind of the CapEx levels in 2019, 2020, and 2021? If you're willing to give a number, I'm happy.
If not, I'll settle for a relative comment between kind of 2018, 2019, 2020, and 2021. Lastly, maybe a little bit more on the strategic side. The pilot deal you did last year with the VC had a lot fewer restrictions than the previous treaty. How you've moved to 19 to 59, could you maybe on a longer timeframe, next two to three years, comment on what do you think this contract will also enable? What are the additional steps you're planning or envisioning to do in the Lufthansa mainline business to secure the cost position as now that you have a larger freedom from the pilot union agreement? Thanks.
Röska, good morning. On the Operational Excellence, we are indeed, of course, investing money. Not just aircraft, also in IT solutions, additional people. We definitely expect a positive bottom-line effect compared to the extra costs we had this year. We had EUR 250 million additional costs for irregularities this year, and definitely want to reduce that number after investments made in Operational Excellence and quite positive to achieve that. On investments in aircraft, as already guided before, between 8%-10% of our revenue we are willing to invest if the aircraft manufacturers can deliver. The problem over the last month has not necessarily been our CapEx availability, but the ability to produce those aircraft and engines on time. If there is any impact at all, I think it rather comes from that side and might reduce our CapEx.
We are definitely moving on this modernization of our fleet because feedback of passengers and by controllers alike is very positive on these new aircraft. On the Vereinigung Cockpit, you already mentioned one big step. We are now able to bring narrow bodies of the Airbus fleet to 59. We will be starting to do so next spring. We are also looking at bringing A320 to Air Dolomiti to operate out of Italy for Italian labor cost. We are looking at moving Airbus A330 into our hubs, Frankfurt and Munich, operated by Eurowings to compete on leisure-oriented routes. I think we are using the new freedom quite significantly. At the same time, we are remaining that we are at 25 aircraft equivalent under the collective labor agreement, which we have promised.
There is lots of room for us to move aircraft around without breaking that rule, which we will not, because indeed, we also have significantly improved the relationship to the pilot union, which is just as important as the pure numbers, I think. Thank you.
Thanks.
The next question comes from the line of Neil Glynn of Credit Suisse.
Good morning, everybody. If I could ask three also, please. The first one, Carsten, you mentioned a strong message on pricing passing on the higher fuel costs, also I guess that's balanced with a market share focus on short haul. I'm interested what you infer from the behavior of your competitors and also your partners, I guess, on long haul in terms of how that educates your view on your ability to protect margins on long haul into next year, or at least over the coming quarters. Second question with respect to capacity. For next year, obviously summer growth rate is moderating, will you be saying to the colleagues what color routes, or is it just a question of slowing growth across the network? The final question on peak season profitability.
Clearly, as was mentioned a number of times, the irregularity impact, if I can pronounce it, for summer 2018. Just how does it impact your thinking on structural profitability going forward? I guess these issues may well persist without a solution being found, it seems.
Neil, good morning to you. First of all, reducing capacity growth in general and being done so by Lufthansa as Europe's number one surely sends a signal to the industry in itself. Also listening to our competitors over the last week, I think their expression towards growth has become more moderate, even those who have been growing most aggressively over the last year. I think the message has been received by a more rational industry that we need to look at our growth and shouldn't overstretch it, first of all, because of you, second, just the operational requirement. The infrastructure just cannot take that growth anymore. I think there's two impacts on reducing growth across the industry. One, infrastructure not allowing us. B, we all, after some conversation going on, are more rational players, hopefully by now.
On the long range, we are at 75% of our revenue on long range by now is in joint ventures. We legally are allowed to talk to our partners about prices and growth, which of course has a stabilizing impact. If you add to that on the North Atlantic two other big joint ventures, we obviously know that there has been much more rational behavior in that market than in some short-haul European markets. In terms of the last question, yes indeed, there were in Q3 around EUR 180 million in total in irregularity costs, which is a huge amount. As Carsten said, there is not only at the top political level an action plan of 24 action points to address this, because this is not only, of course, a cost question for Lufthansa, it's an accessibility level for our customers.
It is just not out of the question to accept it going forward. I think the pressure is on at all levels within the aviation industry to change this. On top of that, of course, it's important that we can do a number of things internally to compensate for some of the shortfalls which are happening externally. Some of that will cost something, as we said earlier, but the benefit will be larger than the cost. I think I skipped your question, how are we actually managing the capacity reduction, which is capacity growth reduction? In general, we are moving larger aircraft to Munich and some smaller aircraft will move to Frankfurt to, of course, make sure we don't lose market shares here when it comes to slots and also to reduce the load on Frankfurt Airport.
It's not necessarily cutting routes, it's rather reallocating capacity to those hubs which can take it on the ground or in the air. By that, we'll be able to bring down the growth to 3.8% without endangering our network quality. Many thanks, Carsten.
The next question comes from the line of James Hollins of Exane.
Good morning. Two from me, please. Follow-ups. Just on the 3.8% capacity for the summer. If we went back a couple of months, I was wondering what figure that would have been. On that figure, if you could just give some detail on how that splits by region or/and by airline. Maybe just noting where some are above 3.8% and some are below. Secondly, again, following up on the CASK ex fuel for you from Daniel's question regarding to the Operational Excellence investments that pay themselves back in the same year. Should we still be thinking that CASK down about 1% for full year 2019? That's similar to 2018. Thanks.
Yeah. Starting on the guidance for growth for summer next year. The 3.8% would have been at least 50% higher if we spoke a number of months ago. When it comes to the different airlines, clearly Eurowings will have rather modest growth going into 2019. It's all about operational stability and getting our complexity out of the airline. Where there will be more proportional higher growth is, for example, in Swiss short haul. There's going to be a mix between different airlines. Basically, the 3.8% average is where most of them are going to be. There's not going to be a huge outlier anywhere. In terms of CASK ex fuel, ex currency, yes, our ambition is indeed to continue with our cost reduction program. We have, if you remember, a long-term objective of 1%-2% reduction.
We are, of course, next year going to be helped by not having the one-off cost and of course also being helped very much by taking out complexity costs at Eurowings. We will indeed, not only with Eurowings but also with the network airlines, continue with that ambition.
Perfect. Thanks, Ulrik.
The next question comes from the line of James Hollins of Deutsche Bank.
Morning, gentlemen. Just two from me, please. Firstly, just thinking about unit cost ex fuel and at constant currency in the fourth quarter. To get from flat year to date to -1 in the full year looks like a big ask, I appreciate there are several moving parts with Air Berlin and hopefully also disruption headwinds hopefully easing. Any thoughts on that, please, in more detail and on whether this might allow you to grow EBIT in the fourth quarter? Secondly, just a clarification. Year to date, irregularity or disruption costs are EUR 350, and I think you just said those were EUR 180 in the Q3. The EUR 250 million number you mentioned earlier for 2018, is that your expectation of the year-on-year headwind? If so, what have you assumed for Q4? Thanks.
Starting on the Q4 CASK. Indeed, we expect the CASK to reduce substantially in the fourth quarter. As you rightly alluded to, there are a number of specialities going on in 2017, which means there are going to be less Eurowings one-off cost in 2018. Furthermore, irregularity costs naturally, since clearly the winter season does have lower irregularity costs, will not have as high an increase as it had earlier in the year. Also MRO cost is proportionately not going to increase in the same way as it did in the first 3 quarters. We're fairly confident about that guidance there. When it comes to the EUR 250 million number, which was mentioned in the room earlier, that EUR 250 million is indeed our headwind for the full year. That's the extra irregularity cost we expect for 2018.
Thanks.
The next question comes from the line of Andrew Lobbenberg of HSBC.
Morning, guys. I only want to stay on Eurowings like everybody else and ask a bit of a simple potentially brutal question, which is, why was Eurowings so much worse than we expected, or than you expected, this summer? What judgments, decisions, or processes did you guys not do as well as you might have done? What gives you confidence going forwards into next year that you can actually deliver, having struggled this year? Related to that question is, around Eurowings previously, you said that you saw Eurowings as your key consolidation tool for the group, and it was going to be very easy to plug and play things in. The evidence seems to suggest otherwise. Do you still believe it is a consolidation tool?
As a final one, can you tell us what the heck is going on in Italy, please?
Andrew, good morning. When you talk about Eurowings and what made it more difficult than we expected to transfer the capacity, we go into the very basic of aviation. It would take a lot longer to transfer aircraft from one AOC to the other, because together with the German authorities, it took a lot longer time to transfer the maintenance documents. Some of them have been in languages I haven't even heard of. Some of them have not been very complete. A lot of homework had to be done. This was very basic bureaucratic work to transfer the aircraft. Also, transferring crew took a lot longer. Don't forget, never, ever in German aviation, there have been 77 aircraft transferred in such a short time.
The simulator sessions which had to be booked, the licenses which had to be changed, all that took a lot longer, and there was just no comparison for us of that magnitude to really base it against, we were just optimistic. At plug and play, your second question has the same kind of implication. We still believe that Eurowings is a plug-and-play model, but what you plug in has to work. In Air Berlin, we didn't buy a company, we just gathered assets, staff, aircraft, slots, routes, passengers. We had to puzzle them back together. Usually, talking about the consolidation, we would buy a running company, and we'd plug and play it into the Eurowings system. I think that will be much easier and very acute in the future. We have not diverted from our strategy.
On Italy, there's nothing more than what I read in the media. I understand they are now looking at a national solution. Surely we will not be interested to be co-investors with the government in an airline which needs to be restructured. Our position remains. The market is our second most important foreign market after the U.S. We are growing Italy with Air Italy going to A320, doubling the size of aircraft on the Embraer side. More Eurowings and Lufthansa switch flights into Italy. When it comes to Alitalia, we need to see what the Italian government is up to, like you.
All right.
One on Eurowings, I know because we talked about it so much. Also, please look at how our competitors who took much smaller chunks of Air Berlin, EasyJet and, of course, Ryanair, how they struggled with a fairly small number of aircraft they were trying to integrate. I was quite surprised to see their numbers of integration costs. It shows it's not necessarily a Eurowings issue, it was more an Air Berlin issue.
That's slightly why I'm curious, because EasyJet, I know they were playing with what was exceptional and not exceptional and how they were allocating their cost buckets, and it was a big amount they cited. What they told the market is that their integration experience of the Air Berlin crew and aircraft went faster than they had budgeted for, which is what is slightly confusing in contrast to what you're reporting, to be honest. I don't know whether they're just playing with numbers.
I just saw their numbers compared to our numbers and considering how many aircraft they integrated and how many we did, but I'll leave it up to them.
Fair enough. Thank you.
The next question comes from the line of Michael Kuhn of Société Générale.
Good morning, gentlemen. The usual question on the trading environment. Mr. Spohr, in his opening remarks, said that the political turmoil now has some effects on the real economy, while Mr. Spohr referred to cargo as the economic parameter and said things are still quite nice. What do you currently experience, and how do your forward yields and forward load factors look like? Secondly, one simple question. What would the Q3 CASK number, excluding disruption and excluding integration costs, look like? Lastly, in Vienna, we are seeing this capacity rush in at the moment. What do you see in terms of forward pricing there, and could the intensifying competitive pressure make further restructurings necessary? Thank you.
Good morning. On the political outlook versus the market outlook, I think what I said about cargo is also true about passengers. We do see a strong forward booking situation. Demand seems to be very much intact, I think I touched it in my remarks earlier as well. At the same time, we all read the papers, and the world doesn't seem to become a more stable place. We are indeed always prepared for a potential downturn, which is not in sight yet. There's always sub-fleets which are fully depreciated we can ground. We always make sure we have some crew in overtime, we can reduce flight hours without having additional costs. We're always in this, let's call it, pre-crisis mode as professionals, but there's nothing to be seen at this very point. On Vienna, for that, I hand over to Ulrik.
With all our friends gathering now in Vienna for the biggest aviation party ever, we shouldn't forget that there's still less aircraft of all of our new competitors combined than our former competitor, NIKI, had been operating out of Vienna. The headlines in the Austrian press not necessarily correspond to the market pressure we are seeing there, because it has been tougher before with NIKI aircraft being an extension of what we see today.
In terms of the CASK numbers. We look at, as a group, CASK excluding the increase in the regularity costs in the third quarter. Instead of the CASK going up by 1.2%, it would actually go down by 0.4%. If you look at Eurowings alone, look at the one-off costs in Q3, instead of having an increase of CASK in Eurowings, it would have been a minus 3.3% CASK number in the third quarter, excluding the one-off integration cost.
Excellent. Thank you.
The next question comes from the line of Daniel Röska, National Bank of Canada.
Good morning, everybody. One question, just because I think I missed in the presentation or couldn't see the same. Can you give us some feeling of how the RASK has developed specifically between premium and non-premium cabins, given that the growth in the market seems particularly focused on the non-premium segments? The premium RASK, if you could give that please, for Q3 rather than the nine months. Coming back to Eurowings. Again, could you tell us how many AOCs are in Eurowings at the moment and how many you'd aim to have by the end of 2019? As a follow-up on that, both in terms of the cost but also the opportunity cost of lost revenue, how much is the drag of the complexity of the AOCs on the Eurowings EBIT at the moment? Thank you.
Yes. Starting with the RASK number. Clearly, the RASK in premium cabin is holding up very well. Where we are seeing the RASK pressure is very much in Europe and very much in economy class. In terms of the AOCs in Eurowings, it is a mix. In some bases, we are all the way up to four AOCs. Well, that shows the complexity you have with, of course, limitations to move crews and aircraft in a simple way in one single base. In terms of how long is that impact going forward? As we said, we're going to have a breakeven result in 2019, and we are ultimately aiming at EBIT margins of around 8%. The majority of that delta positive is actually coming for taking out that complexity, increasing the productivity of aircraft and crew. It is less coming on the revenue side.
Okay, thank you. Just to be clear, in terms of the premium RASK, you say holding up well. What is well? How much is that?
That number I will have to come back to you on. I don't have that at hand.
Okay. I'll wait to hear that. Thank you.
The next question comes from the line of Johannes Braun of MainFirst.
Yes. Good morning. Just three from me as well. Firstly, can I just come back on the measures being taken to better manage disruptions next year? I think apart from the measures you mentioned in the presentation, there was also an initiative from your side recently to cap slots at German airports. Can you just elaborate on that a bit and how realistic that is? Secondly, apparently you are in discussions with Boeing for a EUR 5 billion Dreamliner order instead of more A350s. I was just curious what makes you prefer Dreamliners over A350s. Lastly, can you just clarify whether this positive effect you had in Q3 in the other segment will turn around in Q4 or indeed next year, and what the exact background of this accounting effect is? Thank you.
Good morning, Johannes. On the various measures taken, you of course know all this. Additional people, additional aircraft, IT reservations and communication with passengers. I think your question is more focusing on the slot initiative. I think we have been able to convince the German public that there is a limit of growth for the infrastructure in Germany as it stands today, infrastructure on the ground and infrastructure in air traffic control. My realistic expectation is that we will not see any growth in number of slots at German airports for next year. I said before, in the week, I expected those numbers not to grow. I would even prefer them to go down on some airports, which we are really late in the process to achieve that.
There's a lot of discussion about this issue, which makes me positive that this is not the end of our discussion, what we see for next summer, but just the beginning. We just have more movements per hour than the whole system can take. For example, in the U.K., you guys are having an overall number of movements for the whole air traffic control in the country. That's something we are looking at, which will help us significantly. We have been successful, for example, in Düsseldorf, not to have additional number of movements there, which was initiated by the airport. Also in Frankfurt, I'm very positive we don't see growth in the next years looking at the punctuality we have here.
On our campaign out there between Airbus and Boeing on long-range aircraft, basically, obviously, if we add 787 to the fleet, there is additional complexity, which has to be compensated by the offer of Boeing. We are running campaign, and the better deal in the end will win. Of course, the deal not only includes prices of aircraft but also includes our operational cost of operating these aircraft, and we have that, of course, firmly in the focus.
Finally, on the accounting questions when it comes to other and consolidation. The result in Q3 is basically increasing due to timing effects, intergroup transactions. This is primarily related to the MRO. If you look at the numbers for the first nine months, this segment is still below prior year. That we expect to be the case also for the full year 2018.
Thank you. Just to clarify, if you say timing effects, that would imply for me that this is something that will turn around in coming quarters. Can you just verify whether this is the case?
Yeah, that is indeed the case. The positive effect you see now in Q3, there is a corresponding negative since it is intercompany in the airlines. That means depending how much intercompany transactions you have, this can indeed swing between the different quarters. Typically, on a full-year basis, it levels out. We had a correspondingly negative number in Q1 this year.
All right. Thank you.
The next question comes from the line of Malte Schulz of Commerzbank. Mr. Schulz, your line is open.
Can you hear me now? Sorry. My question would be, would you feel comfortable to be the first one to hike prices based on the higher oil prices in the industry and also go ahead maybe in advance of IAG or Air France-KLM? The second one, given that you generally had quite confident segment on North America, if I look on your Q3 yields, that happened with 0.2 negative, still quite weak. What was the particular reason? You were quite confident on premium yields. Was there any issue on the level side?
When it comes to prices, there's limits to what I can say in public about this, but I hope my people already are doing what you are describing. Of course, we are trying to use the very strong demand situation and the record low sector to bring our yields up wherever the market position allows that. It's part of running the airline in a more profitable way. Americas, I think-
In terms of North America in the third quarter, yes, it was not as strong as it had been in the first half year. This is just because of a comparison basis. In Q3 2017, it was extraordinarily good. We do indeed expect America going forward in the fourth quarter to be strong.
Okay.
All right. Ladies and gentlemen, thank you very much for your time this morning. We look forward to speaking with you and meeting you over the next few weeks and months. We'll come back then with the publication of our full year results in March next year. Thank you and goodbye.
Ladies and gentlemen, the conference has now concluded. You may disconnect your telephone. Thank you for joining. Have a pleasant day. Goodbye