Earnings Call: Q3 2018

Oct 30, 2018

Ladies and gentlemen, thank you for standing by. I'm Yasmin, your current school operator. Welcome and thank you for joining the conference call of Vertu Lufthansa again. 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 would like to Please press the star key followed by 0 for operator assistance. I would now like to turn the conference over to Dennis Viva, Head of Investor Relations. Please go ahead. Yeah. Good morning, ladies and gentlemen. Welcome to the presentation of North Hamza Group's results for the 1st 9 months of 2018. My name is Anazeda, and I have a full contract and virtualations activity. In today's call, our CEO, Carsten Schorr, and our CFO, Eric Santon, to give you an update of the performance and outlook. Customer 4 will focus particularly on the challenges European aviation industry is currently facing and how we respond to them. But first, we'll extend some representative of results in detail. Ulrich, over to you. Thank you, Dennis, ladies and gentlemen, a warm welcome from you 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 trusted 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, I want to come 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 impact on margins. Against this backup, Lufthansa Group has held up very well. In the 1st 9 months of the year, we've continued to grow strongly, taking advantage of the 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 that you have to leave it. 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 and industry downturn whenever it may come. And we will be able to opportunistically drive the consolidation of the European market. In the 1st 9 months, we managed to largely offset the impact from higher fuel costs, Our fuel bill increased by more than half a €1,000,000,000, while group adjusted EBIT was only down €200,000,000 or 8%. In fact, the group's adjusted EBIT would have even grown, excluding Eurowings, where profits per managed suffered from around 1,000,000 of one off costs, relative integration of former Air Berlin aircraft. The Network Airlines more than offset fuel cost increases, supported by discipline management and other costs. Our aviation services, primarily consisting of the logistics, maintenance and catering businesses made a stable contribution to adjusted EBITDA in the 1st 9 months. Let me analyze the performance in the last three months in some more detail starting with Allegiance. In the third quarter, the performance was driven by the long haul businesses. While notes in use in America were frozen 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 wind, however, declined 3.9% at constant currency, more than in the first half year. Which reflects the tough prior year comparison base and the high level of capacity growth in the market, which is exerting pressure on prices. Houston Europe also continued to be affected by a negative mix effect from disproportionate growth in the lower yielding business. In the 1st 9 months, half of the decline of 2% was attributable to this effect. Sitting at the Network Airlines, 3rd quarter constant currency unit revenue was broadly flat at capacity growth of 5%. Please put 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 capital 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. Viewings is suffering from a tough comparison base as its benefited most from the demise of Air Berlin last year. In addition, Eurowings growth rates, 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 draft continues 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 Unilever. Other than in the first half year where constant currency CASK ex fuel was down, It was up 1.2% in the 3rd quarter. Several factors played a role here. The first of the European Aviation System is under is not only caused interest rates in our customers, but also impacting our results. In the 3rd quarter, irregularity costs That means cost related to flight cancellation and delays were approximately twice as high as in the prior year. As a result, costs more than doubled in the 1st 9 months, as well as amounted to around 1,000,000 across both airline group. In addition, MRO cost increased proportionally. In contrast, labor cost declined and in some task of the network airlines increased by 1.2% in the third quarter at constant currency. This compares to a 1% decline in the 9 month period. At Jewellery, we completed a technical integration of former Air Berlin aircraft in the third quarter. In line with expectations, this caused another EUR 50,000,000 of one off cost. Bringing the year to date total to 1,000,000. At the same time, the Eurowings is now starting to benefit from the easier cost comparison base owing to the 1st 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 0.9 percent at constant currency. This brings you to the largest single cost item in our business, fuel. In line with our unchanged guidance of an 850,000,000 increase in the full year of 2018, 3rd quarter fuel expenses were up €320,000,000 or 23 percent. For 2019, we expect a further increase of our fuel cost saving, corporate protection from lower price hedges in Gladys stating. On a like for like basis, it grew to the cost will increase by around 1,000,000 in 2019, excluding the limited volume growth we expect next year. At the end of September, slightly more than 60% of our expected 2019 social has been excellent. Returning to the discussion of financial results in the period, Our network airlines kept profits paid in the 1st 9 months, despite the factors mentioned before. A tough prior year comparison base, as well as disproportionate increase of fuel, irregularity and as the play an only minor role in the remainder of 2018, especially as irregularities of normally less prevalent in winter. Because of seasonal lower volumes and the resulting higher number of spare aircraft. Labor cost growth will remain moderate in the West of 18 and beyond, given that we concluded long term labor agreement with all major employees last year. Turning to Yuri, segment results are down significantly this year. Let's be sure that it cannot, and we are not satisfied with the profitability of the business. Yet, we regard this year's integration goals and the delay in margin progression as the price we had to pay for this unique opportunity that opened up last year. They increased the backup and past the year, indicate the enormous growth that the year over year organization had to manage this year. These key challenges further drive our ambition to create substantial sustainable value at Eurowings. In 2019, we will then just take 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 AUCs. This usually impacts our ability and flexibility to allocate annotate aircraft until where it is needed. Of course, the simplification of operational structures will take some time. Nonetheless, we are confident that your rings 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, the related services performed by a while. In the third quarter, trends at Lufthansa Car had continued to be robust. The deal premium that Carl commands over other ministries remains close to historical highs. This reflects strong customer demand, and our focus on yields rather than those. The latter is affected by the value to more leisure destinations, which are less attractive from a car perspective. In addition, the integration of Brussels Airlines Carla Business at the beginning of September, has added some high yield lower volume growth tool. At least as a technique, profits tracked slightly below previous years' levels. This is mainly to deal with cost inflation in spare parts and from capacity shortages, which required a short term contracting of external service providers. LSG is making good progress in the transformation of a business model which focuses on the continuous aging of the production and liquid spec up 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 1st 9 months. Last, not least, the result in the area of other unconsolidation improved in the 3rd quarter, mainly related to the accounting treatment of intergroup services that are work in progress. Specifically, this relates to MRO services would lift up technicalities to the airline businesses. On a year to date basis, however, the result is still below the entire year, due to non recurrence of currency gains we had in 2007. Turning to the group's free cash flow performance and balance sheet. Investments of almost EUR 2,500,000,000, largely focused on the purchase of new aircraft to maintain a modern and efficient fleet. Primarily as the result of higher investments and the increase of cash taxes following a strong profit growth last year, free cash flow decreased to 1,000,000,000. Net financial debt decreased by 14% to EUR 2,500,000,000, pension provision 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 at the ratio of net debt and pension producing permissions or 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 EBITDA to be slightly below the previous year level in 2018. This means that we will largely offset the impact from higher fuel costs we report costs to amount to €850,000,000. We even expect profits to remain at least stable this year excluding the increase in the regularity costs, which we expect to amount around EUR 250,000,000 over Capacity growth will amount to 8% despite some reductions in winter 2018 compared to the region plan. Unchange to our previous communication, we expect unit revenue to be up slightly on a currency adjusted basis in the previous With regard to costs, we confirm our forecast of around 1% decline of currency adjusted cash, exceeded the full year. Implying a much better performance in the last three months. As discussed, due to the driven by both airline groups resulting from less the regularities in the third quarter, lower MRO cost increases as well as the completion of the integration work at Eurowings. The cost comparison base is starting to become significantly easier in the 4th quarter. Finally, we forecast aviation services to make a flight to a smaller contribution to full profit this year. This is largely due to a more negative result in the other businesses. For move to Chicago, we now expect profits to remain stable. Nonetheless, we are experiencing that we will not repeat the exceptionally, exceptionally strong performance of the final quarter of 2017 for Carter. Based on the disability provided by forward booking, we expect the Transplantic rules to remain strong, in the remainder of 2018. We should benefit from the fact that the market wide capacity growth on these roads, we remain limited Auckland winter at least when it comes to traffic originating in our home markets. The Asian business should be supported by ongoing increase in leisure traffic, the growth will be moderate capacity expansion to ensure that this is canceled into good use also in the 4th quarter. For you, our outlook is slightly more cautious, factoring in tough comparisons from the prior year and then around 10% market wide capacity growth over winter, which is which is exerting pressure on yields. 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 indirectly comes with a long term benefit. Catherine, on 2 years. Well, thank you very much, Albert. Alexander, a warm welcome from my side as well. I am really pleased to provide you today with the 2nd best 9 months results that our company has ever achieved. And despite the strong headwinds of higher fuel cost and higher cost of flight irregularity, This transit rules can present an adjusted EBIT of 1,000,000,000 for the 1st 9 months of 2018. And had it knocked them for the one time loss of a deal with due to the integration of Adelaide capacities we would even have posted another record results. Just a few years ago, results like these would have been not conceivable even for 4 business years. And today, we achieved those numbers in just 9 months under which has been to be on a very difficult condition. I think it's a clear time at the midpoint of the Los Angeles. Let's start with the network airlines, our core business, which has grown even stronger. Thanks in particular to outstanding performance by switch. They have posted a new best ever of 9 months results even improving on the comparable days from 17, which was itself a record year. Has presently expanded its market position. If you take me, sorry, are you talking more about Eurowings in just a few minutes? But first and first, it is indeed on the right strategic track. Our service company continues to stabilize our overall group results. All in all, the results from our aviation services were broadly in line with their 2017 levels. So from Chicago, it's been showing excellent business trading that was maintained in the third quarter. As you know, the asset business business found parameter future trends. So the good results here, we suggest that the demand is still strong. So much for our overall assessment for the 1st 9 months of 2018. I now like to turn the 2 issues that has been occupying and challenging us most over the past few months. The first, it's a disproportionately strong growth that we are currently seeing in the aviation sector and its repercussions. Our airline history has been growing twice as fast as a global economy over the last 5 years. Air travel within Europe alone increased by 50% between 2008 in 2017, but 250,000,000 passengers up to 780,000,000 passengers. And there's just no end of this current insight. It's a development that we, of course, are benefits from a Europe leading airline group. Nippon, New Zealand has substantially grown its business. Our net of airlines are standing quite strongly as well. All in all, the airlines of the rest of the group carried over 180,000,000 passengers in the 3rd 9 months of 2018. A new record for this period. Our overall speed load factor of 82% is also the highest we ever have achieved in the 1st 9 months. But as we all know, this rapid growth has really stressed 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 client. And for our passengers, it meant a somewhat season of frequent waste delay and even flight cancellations. At our Lufthansa Group alone, we have canceled 18,000 flights. That's the equivalent of clothing tanker airport for 2 whole weeks. Over 1,700,000 travelers on our airlines have been affected by such cancellations. That's an after 4,300 tablets is created. It's really our customers, we have stopped on waste. Our airlines have been working for some time now with the airport and with effort to control developed base and need of bringing more stability to our flight operations. The community award is also present for a solution, and have signaled its willingness to play its part in achieving them. Just a month ago, the German government affiliation status we read on 24 actions that should help to reinstall the quality of airline services. And all these actions are targeted to ensure the growth in line with 40. If our industry is to further expand its capacity, we must keep a firm eye on the impact which will help 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 reason I'm very busy at work for the industry not quite yet. Anyone involved in the German aviation sector must work together better and plan and invest in a more coordinated way. And that will protect Air France for Germany and, of course, Europe is in global competition. 1 passenger in 3, even during airport, just for transfer. In our house, it's in 2 of our 3 passengers. And obviously, these passengers could easily travel by a phone hub instead. That is why we, as Europe's number 1, assets in the initiative here, institutions and some operational firms. And doing so, we want to show our industry the way. First, we are reducing our growth path. We've just decided to grow below the market level in the fleet of schedule 8% compared with 10% of the market in general. And for summer of 2019, We have lowered our plan growth even further to a modest 3.8%. 2nd, 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 primary needs, Munich, Zurich, and Vienna. Thirdly, yesterday, the 1st day of the winter flight scheduled 20 nineteen, we launched our project of racial excellence and the lead of the head of our corporate surgery, Doctor. Devesca. We want to achieve operational turnarounds with every means our disposal for our customers and for our shareholders. And it will help easing the burden on our employees as well. And that's why I would like to take this opportunity to offer my Thanks once again for all of our colleagues, especially those in our operational units on the ground for India trucks. Many of them have been working to their limits over the past few months. In our distilleries of specific operational actions defined for 2019, We'll be putting more operational buffer into our schedule. We'll be adding 600 pieces of our workforce just to stabilize our operations and we'll be providing most aircraft for example by acquiring 9 Airbus 3 22 years. We do at least highly mitigating the problem's cost for the future of the year is really late. Right now, it means that our customers, we're gaining our operational stability and reliability is our first and utmost. Priority. It's basically the second issue that has been taking up so much of our time and attention over the last few months. Within just three years, yielding a tripling of the numbers of its aircraft and a tripling of this number without answering it. Some ten thousand people on our payroll and 185 aircraft each week. And the whole year is being taken a truly amazing job in making the whole thing work. Thanks to all of that. We've always said that for New Orleans, the 1st day following the insolvency of Evelyn would be at a nominal charge. It's intersected thing. You can now see that it was even more complex than we thought. Yearwinds include 1 of integration costs of EUR 170,000,000 in the 29 months of 2018 alone. And as a result, its adjusted EBIT for the period was a full 40% down in the same period last year. But nearly is now what we wanted to be in strategic terms. It is one of Europe's biggest point to point periods. It is number 3 in all of Europe. And its home market of Germany, Austria, Belgium, its position is even stronger as a clear number 1. Thanks to nearing strong growth, Growth of the group is now in the pole position at the key German airport also besides our hearts. And we have a long haul business is also developing better than it was last year. In 2017, it was presented with a historic opportunity in the conversation of the German Air time spectacular. We clearly see this. And we see the cost that our decision has appealed as a clear and valuable investment into our future. All of you are very well familiar with the airline business. We all know how important it is to be the market leader at this or the application. And we will be seeing and feeling all the benefits It is better, Brexit buildings as well. In developing buildings, we also have shown that the discount that we've turned by Scribe Europe's industry consolidation. That trend is sure to continue. It may be at a slower pace, and less visibly than with the media analysis we have seen in the US, but we also have 6 European airlines sponsored in the last 3 months below. The widening oil prices are likely to accelerate this development. Only airlines respond to the strong market position and the sound customer base can provide higher oil prices for an extended length of time. So for 2019 and the years beyond, Elizabeth would really be everything in its power to reflect these higher oil prices even better in the prices of our tickets. It's always costing over $80 a barrel. Flying cannot and flying will not remain achieved as it can be at a better price of just $30. As we have leading the Asia Group, we are confident for the future, despite these oil prices. With an adjusted EBITDA of EUR 2,400,000,000, we've achieved not just a very solid 9 month results, we have also further added to our financial strength. For 2018, as a whole, we still expect to report an adjusted EBIT result is slightly below last year's record levels. Now we are confident that we can largely offset the higher cost of more than €1,000,000,000 that will accrue this year to higher fuel prices and the repercussions of our operational instability. In fact, we've always done so in the 1st 9 months. This tool is a massive achievement. It shows two things that the system is structurally strong again, and that the basic demand remains intact. I'd also like to stress one thing that is very important to you. Please, gentlemen, that all in all, we have delivered our results projections for the year. But even the stock Market Garland and 1 of our competitors successfully downloaded the adjusted projections. We, after 9 months, are still a promised EOB. Only just below our prior year level. And I would like to emphasize once again just what our benchmark is. 2017 was a truly exceptional year in annual results. We expect to deliver the 2nd best earning results in our company history for 2018 as a whole. And we are looking into the future with firm and general incontinence. Our strategy is working, and we can see this not only in our results. We have tangibly improved our market position to especially in our home market. We are an active driver of consolidation. And as any observer of our industry can see, conversation is in speed. The strong, we get stronger, the weak, we get weaker. And we are following the way with the urgently needed operational turnaround for our industry in Europe, including it will improve improving 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 interest of our shareholders our customers and our employees. And because we aim to sustainably remain the number 1 in the relation for all three of our stakeholders, and we'll promise that business will also be working on in 2019. Thank you very much. Operator? Yes. One moment for the first question, please. The first question comes from the line of Stephen Furlong of David Research. Yes, just on Eurowings, I think you've said before that maybe you could see, your wings being breakeven next year and then how LCC type margin due to 3 year to 4 year period. Would you still see that or exceed your price, something that makes that a bit of a challenge? In the short term. And and then it's what I asked, and if it comes there, it comes to the markets where the Middle East and Africa possibly accelerating. And I just wondered how the general comments on that, particularly in the week where, hit them both as as obviously launch the the new airport. That will be great. Thank you. Yes. I guess I start with the question regarding Eurowings. So, clearly, we expect Eurowings to break even in 2019, ma'am. But it's a large number of actions. And I alluded to some of them in terms of receiversification, reduce complexity, getting more one day of fees in, each of the bases. With all having our hands. So despite that the fuel headwind, we do indeed expect them to break even 2019. And also, longer term, and we expect them to get to the we said that at some stage here, the NCC margins EBITDA 2017, which in other words was 8% in 2017. So the plan is still holding, yeah, very, very firm. In terms of this company, what was it about, Sebastian? Well, I'm quite sure, but caught the question. Right? You're wondering what the future outlook of the overall market in particular. Yeah. Just general problem, Carson, do you think that Middle East, the super connectors are just going to, you know, after a respite, their their further expanding capacity again. It's it's sort of easier for capacity is there now. Well, the airport capacity has not been the issue in the Gulf Vauxhall region in general. Including in the last year, I just need to do it on myself. Looks like plenty of capacity available there because see how empty the airport was. But definitely, there will be fighting for the same passengers between Istanbul, Dubai, Dubai, and Abu Dhabi. So I think see a more an impact of those 4 and 1 each other than necessarily for us, where we have regained market shares under premium. Seats, especially to the Asian market over the last years due to our product improvement. So we are actually improving on market position further by adding new services to Asia, adult music to start in March, which shows our confidence in that market. Okay. Thank you very much. Thank you. The next question comes from the line of Gary Kessel of UBS. Thank you. Good morning. I'll just focus on the balance sheet. So firstly, you know, as you point out, your your earnings are down call it 10% this year and your stock price is down over 40%. So does it change your thinking in terms of using the balance sheet for share buybacks? Secondly, you mentioned IFRS 15, but any further clarity on IFRS 16, And then lastly, just on M And A, just just on the disposal front, is there anything, that that will be done going forward in terms of the group? Thanks. Yes. So starting on the dividend side, we are having a dividend policy of 10% to 25% of our EBIT, because the dividend policy we will continue with. We are having a net debt to EBITDA of 1.5, but 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 be as tight as some of our competitors. There might be interesting, opportunities ahead. Of course, long term, if you do not find any opportunities, indeed, we will look again at the subject of the buyback for potential larger dividend policies. In terms of IFRS 15, we are thinking about around the 2,000,000,000 effect estimated at year end. In terms of the disposals, we are continuously looking at our strategy, whether all the different businesses, have same amount of serious with our airlines or not. So this is something which we are regularly doing over but that's nothing new to report, for the moment. The next question comes from the line of Daniel Vesca of Bernstein Research. First, on the operational excellence program, I get the aspect around improving functionality. Let me just quickly comment on the bottom line impact it seems that adding aircraft to a kind of awkward work, and, significant modest staff could amount to significant amount of cost. And how much of that do you think will you be able to offset? So what's the P and L impact you're targeting for that operational excellence program? Secondly, on the, balance sheet off maybe a little bit more to CapEx. So we have an incremental sheet order news over the past couple of weeks for months Could you just give us, a little bit more specific range how that is saved over the next couple of years to our kind of CapEx level? In 1920 21. If you're willing to give me a number, I'm happy. If not, I'll tell for our relatives, comments between, you know, 18, 19, 20 1. And then, lastly, maybe a little bit more on the strategic side. The pilot deal you did last year with the has a lot fewer restrictions than the previous Cartier Fowler. He's moved through 19 to 59. Could you maybe longer time frame next 2 to 3 years, comment on what do you think this contract will also enable? What are the additional steps you're planning or envisioning to getting them to become a mainline business to secure the cost efficient as now that you have a larger freedom from the policy and the agreement? Good morning. On the operational 1, we are indeed a quote investing money, not just aircraft offering IT solutions, additional people, But we definitely expect a positive bottom line effect compared to the extra costs we had this year. So we had 250,000,000 additional costs irregularities this year, definitely want to reduce the number after investment made operational excellence on quite positively achieved that. On the investments in aircraft, it's already calculated for between 8 to 10% of our revenue we are willing to invest. If the aircraft and etcetera can deliver. The problem was the last month has not necessarily been our CapEx availability. The ability to produce those aircraft and engines on time. So if there is any impact at all, I think it's rather comes from that side, it might reduce our CapEx but we are definitely moving on this modernization of our fleet because feedback of passengers and my controllers alike is very positive on leasing aircraft. On the filing cockpit, we already mentioned one big step. We are now able to bring mobile batteries of the Airbus fleet to 59. We'll be starting to do for the next sprint. We're also looking at bringing through 'twenty to air bilibili to operate out of Italy for Italian labor costs And we are looking at moving Airbus 330 into our hub transit and Munich operated by Eurobase. To compute, measure other entities. So I think we're using the new freedom quite significantly Of course, at the same time, we are remaining that we are in a 25 aircraft equivalent under the collective labor agreement. Which we have promised, but there's nothing going to have to move aircraft around, these are outbreak in that unit, which of course, we do not because indeed we also significantly improved relationship to the power unit, which is just as important as the fuel numbers. Okay? Thank you. The next question comes from the line of Lu Gren of Credit First. Oh, good morning, everybody. If I could ask you through local, please. The first one, Sebastian, you mentioned the sound message on pricing passing on the higher fuel costs, but also I guess that's balanced with the market share focus on short haul. So I'm interested in what what you need for from the behavior of your competitors, and also your partners, I guess. On long haul in terms of how that, educates your view on the ability to protect margins and long haul into next year. Wanting some of the coming quarters. Second question with respect to capacity. For next year, obviously, some of growth light is, model lighting, but will you be sending frequencies or calling rates, or is it just the passion of smelling growth across the network? The final question, on peak season profitability, clearly, as, as was mentioned, a number of times, irregular it was irregularity impact if I can pronounce it for, before 2018, does it have to impact your thinking on my structural profitability going forward. And we've asked these issues, may well persist, without a solution being findable, it seems. And here, good morning to you. First of all, we're using capacity growth in general in being done. So by Lufthansa, 0 is number 1. It's really sensitive to the industry in itself. But also listening to our competitors over the last week, asking their expression towards growth has to come more moderate. Even though it would have been growing more aggressively over the last year. So I think the message was received by a more rational industry that we need to look at our growth and shouldn't over stretch it. 1st of all, because of you, but second is a operational requirement. The infrastructure just cannot take that road anymore. So I think there are 2 impacts on reducing roads across the industry. One infrastructure not allowing us b, we all offer some, you know, consolidation going on are more rational players hopefully by now. On the long range you have, 75% of our revenue on long range by now is in joint ventures. So we legally are allowed to talk to our partners about prices and growth which of course has the stabilizing impact. And if you add to that on the North Atlantic to other big joint ventures, we obviously know that there has been much more rational behavior that now in some short European market. In terms of the sorry, and not always, in terms of the last question, yes, indeed, there were in Q3 around 180,000,000 in total in irregularity costs, which is reduced amount term. But as Casper said, I mean, there is not only a the top political level, an action plan of 24 action points to address this because this is not only Of course, the cost question for this time, sir, it's an accessibility level for our customers. It is just not, out of the question to accept it going forward. So I think the pressure is on at all levels within the Asian industry to change that. But 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 that will happen externally. Some of that will cost something, as we said earlier, but the benefit will be larger than the cost. And here's something that keeps your question. How are we actually managing the capacity with which is capacity growth production. In general, we are moving larger aircraft to Munich and some smaller adds up, we'll move to sensors to, of course, make sure we don't lose market shares here when it comes to drop and also, to to do the load and transfer the airport. So it's not necessarily cutting waste. It's rather reallocating capacity to those top which can take it on the ground or in the air. And, by that, we'll be able to bring down the growth to 3.8% without enduring our network quality. The next question comes from the line of James Holland of Exane. Good morning. 2 for me, please, a follow-up Just on the 3.8% capacity for the summer. If we went back a couple of months, there's only one figure that would have been And on that figure, if you could just give, some detail on how that splits by by region or handled by airline I'm maybe just noting where some above 3 point 8 and some are below. And secondly, again, following up on the on the CASKX fuel for you, from Daniel's question regarding to the operation excellence investments that play yourself back in the same year, should we still be thinking about cash down about 1 percent for full year 2019. That's similar to 2018. Thanks. Yes. So talking 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, it really, whirlwind 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 high growth. If, for example, in switch, short haul, So it's gonna be a mix between different airlines, but basically, the 3.8% average it's most of it will be, but it's not going to be a huge outlier anywhere. In terms of the CASK ex fuel ex currency, yes, our ambition is indeed to continue with our cost reduction program we have, as you remember, a long term objective of 1 to 2% reduction. And we are, we look, 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 cost at Eurowings. So, we will indeed not only with Eurowings, but also with the Network Airlines continuing with that ambition. Perfect. Thanks, Stewart. The next question comes from the line of James O'Brien of Deutsche Bank. Morning, gentlemen. Yes. Just two from me, please. Firstly, just thinking about unit costs ex fuel and at constant currency in the fourth quarter. To get from flat year to date to minus 1 in the full year looks like a big ask, but I appreciate there are several moving parts. With Evelyn and hopefully also disruption headwinds hopefully easing. But any thoughts on on that, please, in more detail, and and whether this might allow you to grow EBIT in the fourth quarter. And secondly, just a clarification. So year to date irregularity or disruption costs for 3.50, and I think you just said those were 1.18 in q3. The €250,000,000 number you mentioned earlier for 2018. Is that your expectation of the year on year headwind, and and if so, what have you assumed for Q4? Yes, starting on the Q4, CASK. Yes, indeed, we expect the CASK reduced substantially in the fourth quarter. As you rightly alluded to, there are a number of specialities going on in 2017. Which means they are going to be, less Ewing cost, one off cost in 2018, furthermore, regularity costs naturally since, clearly, within the season just have lower regularity costs will not have as high increases ahead earlier in the year. And also MRO cost is supposedly not going to increase in the same way as we did, in the in the first three quarters. So he's very, very confident about that, guidance, when it comes to the 250,000,000 number, which was mentioned in the room earlier, yes, the 250,000,000 is indeed our headwind for the full year. That's the extra liquidity cost we expect for 2018 car market. The next question comes from the line of Andrew Lobbenberg of HSBC. Oh, morning, guys. How many were, yes, stay on your owing, like everybody else, and and ask a bit of a simple, but but potentially brutal question. Which is, you know, why was Eurowings so much worse than we expected or the new expected this summer, what what judgment's decisions or processes did you guys not do as well if you might have done And what gives you confidence going forward into next year that that you can actually deliver having having struggled this year. And then related to to that question, is is is around your owing previously, you said that you saw your owing with your key consolidation tool for the group, and it was gonna be very easy to plug and play things in, you know, the evidence seems to to suggest otherwise. So do we still believe it is a consolidation tool? And then as the final one, can you tell us what the heck's going on in Italy, please? Andrew, good morning. Well, when part of our Eurowings and what made it more difficult than we expected to transfer capacity, we're going to the very basic of aviation. It will take a lot longer to transfer aircraft from one ASP to the other, because that together with the German authorities, it will be a lot longer time to transfer the maintenance documents. Some of them have been in languages I have heard of Some of them had not been very complete. All full work had to be done. So this was very basic bureaucratic work to transfer the aircraft. Also, transfer include took a lot longer, don't forget, never ever in German Aviation, their husband, 77 axos transferred in such a short time. So we accumulated 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 in that magnitude date it again. So we were talking about it. At plug and play, your second question has the same color implication. We, certainly, the new link is the plug and play model of what the plug in has to work. In Berlin, we didn't buy a company. We just gathered assets, staff, aircraft, staff, staff, these passengers' method, puzzles them back together. Usually, talking about the conversation with a buyer running company the plug and play through the system. I think that's much easier than it should in the future. So we have not diverted from our strategy. On Italy, there's nothing more than what I read in the media. I understand they're now looking at a national solution. I'm sure that we will not be interested to be co investors with a government in an airline which needs to be restructured. So position remains. The market is our most important foreign market after the U. S. We are growing Italy with Aaron's unique going into 3 20s. Doubling the size of aircraft on the Embraer side, more new wings and blue triangle switch lights into Italy. And when it comes to Alitalia, we need to see what the Italian government is up to like you. All right. I know that you talked about this so much. Also, please look at how our competitors who took much smaller chunks of Evelyn. EBITJet and, of course, Ryanair, how they started with a fairly small number of aircraft they were trying to integrate. And we're surprised to see there are numbers of integration costs that we showed you, not necessarily ruined issue with more than ever an issue. Holly, and and that's slightly why I'm curious because easy to, I mean, 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, big amount they cited. But but what they told the market is that their integration experience of the Eberlyn Crune aircraft went faster than they had budgeted for, which is what what is slightly in in contrast to to what you're reporting, to be honest. I don't know whether it's just playing with numbers. Yeah. I just saw there are 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. Clear enough. Thank you. Next question comes from the line of Mr. O'Korn of Societe Generale. The, question, the usual question on the on the trading environment. And Mister Centrel, in his opening remarks that the political turmoil now has some of on the, on the real economy as well as Mr. Spohr research to cargo as the economic parameter and set things are still cognize. So what's the current experience and how do your, forward geared and forward, load factors look like? Secondly, one simple question, what would the Q3 CASK number, excluding disruption and coding integration costs look like. And 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. Well, on the on the typical outlook, whether it's the market outlook, I think what I said about cargo is also true about passengers. We do see a strong forward booking situation. And demand seems to be very much intact, nothing. I've said that in my remarks, I'll list it as well. At the same time, we're all reading the papers and the world doesn't need to become a more stable place. So we are indeed, you know, always prepared for potential downturn, which is not inside yet. There's always subleased, which are fully depreciated weekend ground. We always make sure we some cooling over time so we can reduce flight hours without having additional costs. So we always in this, let's call it free. Try with modes as professionals, but there's nothing to be seen at this very point. On Vienna and with that, I hand over to Ulrich with all our friends gathering now in Vienna for the biggest aviation party ever, you shouldn't forget that there's still less aircraft of all our new competitors combined, then our former competitors are Nicky, has been operating out of Vienna. So the headlines in the Austrian press not necessarily caused some to the market pressure that we have seen there because it has been tougher before with nearly half past being an extension of what we see today. In terms of the CAF numbers, sir, so we look at the group CASK, excluding, the increase in the regularity cost, in the third quarter instead of the cash going up to 1.2%. We could actually go down by 0.4%. If you look at your rent alone and then look at the the one off cost, in Q3, instead of having an increase of the cast in new wins, it would have been a minus 3.3% uh-uh cash number in the 3rd quarter excluding the one off integration cost. The next call comes from the line of Damian Blue of Royal Bank of Canada. Good morning, Felicia. One question just because I think I learned this from the presentation or couldn't see it. And could you give us some feeling of how the last has developed particularly between premium non premium cut ins given that the, the growth in the market seems particularly focused on the non premium segments. Sort of the premium rest if you could give that please for Q3 rather than the 9 months. And then coming back to Eurowings, Again, could you tell us how many AOCs are in euro wings at the moment and how many you'd aim to have by the end of 2019? And then there's 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. We're talking with the RASKA number. So clearly, the RASK in premium cabin is holding up very well. Where we are seeing the vascular pressure is very much, in Europe and very much in, economy class. In terms of the AECs, in Erowings, it is a mix So in some cases, we are all the way up to 4 AOCs. And, well, let's kind of choose the complexity You have the with, of course, the limitations to remove crews and aircraft in a simple way, in one single base. In terms of how long is that impact, going forward, well, as we said, we're going to have a breakeven result in 2019, and we are ultimately aiming at, in the margin of around 8%. The majority of that delta public is actually coming for taking out that complexity, increasing the productivity of aircraft and through It is less coming on the revenue side. Okay. Thank you. And just to be clear, in terms of premium risk, you say holding up well. What is well. Have a look. That number, I'm gonna have to come back to you on the I don't have that in hand. Okay. We'll take that. Thank you. Next question comes from the line of Johannes Braun of MainFirst. Yes. Good morning. Just three for me as well. Firstly, can I just come back on the message being taken to to better manage disruptions next year, because I think apart from the measures you mentioned in presentation, there was also an initiative from your site recently to CAT slot at the German Airports? So can you just elaborate on that a bit on how realistic that is? Secondly, apparently, you are in discussions with going for a €5,000,000,000 tumor order instead of more 83 fifties. And I was just curious, sir, what make you prefer to minus over a 3 fifties. And then 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 account of this accounting effect is. Thank you. Yeah. Good morning, I understand. On, the various measures taken, you, of course, know all of the additional people that's on aircraft. I think the activation is on communication with passengers, but I think your question is more for the thing on the fraud initiative. I think you 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 Africa controlled. So my realistic expectation is that we will not see any growth in number of shops at German airports for next year. I said before, the lease, I expect this plate number is not to grow. I would even prefer them to go down on some airports. Which is really made in the process to achieve that. And there's a lot of discussion about this issue, which makes me purposes that this is not the end of our discussion, but we think from next summer, but just at the beginning, we just had more movement to our than the whole system can take For example, in Ukraine, you guys are having a overall number of movements for the whole effort to control in the country. That's something we're looking at which will help us significantly. And we have been successful, for example, in this regard, not to have additional number of movements there, which was initiated by the airport, Also, frankly, I'm very positive we don't keep growth in the next years looking at the bond charity we have here. On the our campaign out there between outlook and Boeing on long range aircraft, basically, obviously, if we add 787 to replace the additional complexity, which has to be compensated by the offer of both. So we're running containers together deal in the end will win, of course, the deals not only include prices of aircraft, but also include our operational cost of operating with aircraft and we have the in the focus. Then finally, on the accounting questions, when it comes to other end conservation. So the results in Q3 is basically increasing, you know, due to timing effects, integral to the transactions. And this is primarily related to the MRO If you look at the numbers, for the 1st 9 months, this segment is still below prior year. And that we expect to be the case also for the full year of 2018. Thank you. But just to clarify, so if you say time effect that would that would, imply for me that this is something that will turn around and common quarters. So can you just verify whether this is the case? Yeah. That is that is indeed the case, So the the positive effect that you see now in, in Q3, there is a corresponding negative since it is intercompany in the airline, and that means depending how much, intercompany transactions you have that This can be between, between the different quarters, but, typically, on a full year basis, it mellows out. So we had corresponding your negative number in Q1 this year. Alright. Thank you. The next question comes from the line of Michael Schulz of Commerzbank. Joshua. Your line is open. Can you hear me now? Sorry. My question would be, would you feel comfortable to me the first one to hike, prices based on the higher oil price in the industry and go ahead and maybe in in advance of IAG or Air Force, Kevin. And the second one, I mean, given that you generally at 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? I mean, you weren't quite confident on premium yields. Was there an issue on the, letter side? Well, when it comes to prices, for this limited 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 a very strong demand situation, the record load factors to bring our yields up wherever the market position allows that. It's part of running the airline in a more positive way. On the Americas within Yeah. In terms of, North America in the third quarter, yes, it was not as strong as it been in the first half year, This is just because of a comparison basis in q3 2007. It was extraordinarily good. But we do indeed expect Americas going forward in the 4th quarter to be strong. Okay. Alright. Based on gentlemen, thank you very much for your time this morning. We look forward to speaking with you and meeting you over the back few weeks and months, and we'll come back then with the publication of our full year results in March next year. Thank you and good bye. Thank you so much. The conference is now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.