Earnings Call: Q2 2018

Jul 31, 2018

Ladies and gentlemen, thank you for standing by. I'm Yasmin, your Chorus 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. Everybody who would like to ask a question. I would now like to turn the conference over to Dennis Viva, Head of Investor Relations. Please go ahead. Good morning, ladies and gentlemen, and welcome to the presentation of Lufthansa Group's results for the second quarter of 2018. 18. My name is Dennis Weber. I've taken over the responsibility for Lufthansa's Investor Relations activities from Andreas Hagenklink at the beginning of July. I'm excited to be part of the group and look forward to meeting you personally in the next few weeks months. In today's call, our CFO, Ulrik Svensson, will give you an overview of financial performance in the second quarter and the first half year, as well as the group's outlook. As always, he will answer your questions after the presentation. I look over to Thank you, Dennis. We are glad to have you here. Ladies and gentlemen, a very warm welcome from me too. Let me start with a summary of the group's performance in second quarter of 2018. Our key profit metric adjusted EBIT was down slightly compared to the previous year level. It reached 1000000 in the second quarter of 2018, $35,000,000 below last year. Integration cost at Eurowings partly masked a very solid operating performance across the business. Excluding the one off charges at Eurowings, Lufthansa Group would have recorded profit growth, irrespective of the fuel cost increase in the quarter. This demonstrates the progress we have made in structurally improving the group's profitability The group's airlines continued their growth. Despite significant capacity growth, especially at Eurowings, unit revenue improved by 1.3% at constant currency, demonstrating that one can go on hand with other. Unit cost at constant currency and excluding fuel would have declined by I will detail them in a minute. Unit cost reductions at the Network Airlines were even better than initially expected. Logistics, MRO and catering generated higher profits than in the prior year period and did better than in the first quarter. However, the Others and Consolidation segment, which includes the cost of the group functions, missed the benefit from prior year currency gains. Looking at the rest of good customer demand in key geographies such as Germany and the North Atlantic. On that basis, we raised our constant currency unit revenue outlook for 2018 from stable to slightly up. However, a better revenue performance will be offset by integration expenses at Eurowings and higher fuel costs. As a result, we now forecast the constant currency unit cost reduction to reach a lower end of the guidance. That is why the group's overall outlook of a slight decline of adjusted EBIT compared to the previous year remains unchanged. Let us look at the performance of the group's passenger airline in more detail. Revenue growth was driven by capacity expansion of 8% and unit revenue improvement. Every Network Airline as well as Eurowings grow their unit revenues. Across the group airlines, the increase amounted to 1.3 constant currency in the second quarter as well as the first half year. Unit cost at constant currency and excluding fuel were down in the quarter and 0.6% in the first half year. The Network Airlines continue to manage cost extremely well. Driven by the ongoing modernization of the fleet, the successful resolution of the labor disputes in 2017, and the streamlining of operating processes and structures, the Network Airlines achieved a unit cost reduction of 2.3% in the second quarter and 2.1% in the first half year, which is above our medium and long term target. In the reporting period, it became evident that the entire European aviation ecosystem is facing a lot of operational pressures. In the second quarter, in particular, flight cancellations and delays were caused by strikes and a general shortage of personnel at air traffic control operations. Infrastructure limitations at Airport and adverse weather conditions also impacted. We very much regret that this has led to, inconveniences from many of our passengers across the different group airlines. The resulting cost affected Network Airlines and Eurowings alike. At Eurowings, one time expenses in relation to the acquisition of large parts of former Air Berlin assets had a negative impact to In the second quarter, integration expenses amounted to 1,000,000, following a chart of around 1,000,000 in the first quarter. These costs, primarily related to higher charter and leasing expenses, the technical overhaul of acquired aircraft in order to bring it up to our standard took longer than initially expected so that we require additional wet leases to compensate for longer ground time. In addition, the repainting of aircraft as well as hiring and training the crews had an impact. We expect integration costs to amount to another 1,000,000 in the third quarter, but do not anticipate any further impact thereafter. Fuel costs increased by more than 1,000,000 in the second quarter, driven by a higher price, but also greater volumes. Turning to our aviation services, the sum of adjusted EBIT at Logistics, MRO and catering increased substantially by 1000000 to 1000000 in the second quarter. This was not enough though to offset the swing of almost 1,000,000 in the adjusted EBIT of the Others and Consolidation unit, which largely had to do with first half year group revenues were stable on a reported basis, but up 5.2% excluding the negative impact for the first time implementation of IRS 15. Adjusted EBIT was down 3%, but net income increased slightly supported by a better financial result compared to the previous year. From a regional perspective, the trading environment in Europe continued to be strong in the second quarter, especially in our home market Germany. In Europe, we currently focus on strengthening our leading market position. That is why we have seized the historical opportunity to consolidate the European market via the acquisition of significant parts of Air Berlin. The resulting strong growth has not has not had any negative impact on load factors. In addition, underlying yield performance continues to be strong. The reported constant currency yield decline in Europe of 0.9% in the first half year was due to structurally negative mix effect from the disproportionate growth of the lower reduced Eurowings business. Excluding this effect, that regional yield would have remained stable. Turning to our best performing region, yields in our North Atlantic business grew hand in hand with a visible expansion of capacity too. Asia and Pacific continue to hold up as well. Especially considering its strong performance in 2017. And finally, performance in Middle East And Africa which remains our smallest and most volatile region was weaker, mainly due to current political tension in the area. Overall, capacity grew at 7.8% and yields at constant currency increased by 1.1% in the second quarter at stable seat load factors. At a similar capacity growth, yields were up 0.7% and seat lubes even increased 1.1 percentage points in the first half year. Let me discuss performance in the different segments in some more detail. Lufthansa German Airlines gross sales by more than 3% in the first half Adjusted EBIT was up 16%, driven by higher unit revenues and lower unit cost. Swiss expanded unit revenues even more strongly. This was due to strength in Continental as well as intercontinental traffic. The letter benefited from the upboardging of the fleet related to the 2 to the addition of the 2 new 777s in the last 6 months, which helped to exploit strong demand on the North Atlantic Nation routes to an even higher extent. The comprehensive modernization of the fleet also yielded strong efficiency improvements which helped swift to significantly grow adjusted EBIT in the first half year. Austrian Airlines did much better in the second quarter compared to the beginning of the year. Demand was strong, especially on routes to key North Atlantic European and charter destination. However, increased fuel and maintenance cost as well as higher number of flight cancellations compared to the previous period put pressure on cost. As a result, adjusted EBIT just remained around breakeven in the first half year. In sum, the network airlines more than offset the burden from higher fuel cost for unit revenue growth and structural cost reductions. As a result, the segment's operating profit was up 26% in the first half year. On the one hand, we continue to be extremely pleased with Eurowings top line performance. This quarter, constant currency unit revenue grew by 3.6% on the 20% higher capacity, which was impressive once again. On the other hand, we continue to have work to do to lift wing's profitability to the levels achieved by some key competitors. We expect to complete the technical integration of all 77 Former Air Berlin aircraft by the end of the third quarter. This will allow us to focus on the optimization of the operational and organizational setup, including the streamlining of key processes and structures. The growth of Eurowings has been an unprecedented in the history of the European Airline Industry. However, largely inorganic nature of this growth has also resulted in inefficiencies and significant complexity. Host reduction would be a key driver of future margin improvement at Lufthansa Group. Coming to our aviation services, strong demand at Lufthansa Cargo continued into the 2nd quarter. Once again, the logistics business benefited from double digit yield increases, which more than offset a deliberate decline of load factors. This follows our strategy of making Having said this, we have not experienced any trend changes neither in Cargoes North Atlantic business which data has remained unaffected by ongoing trade disputes nor elsewhere. Benefiting from ongoing efficiency increases 2, the segment adjusted EBIT is up 60% year to date. At MRO, adjusted EBIT increased by 1000000 to 1000000. This reflects an improvement over the course of the second quarter after a difficult start of the year. Better performance was driven by the implementation of measures to turn around the engine business and increased throughput despite ongoing industry wide challenges. The component business continued to be strong. At our catering business, LSG Group, the transformation of the business model has advanced well. Good progress in the reduction of LSG cost base and lower transformation cost meant that adjusted EBIT improved strongly from a small base even though the top line was down due to adverse currency effects. The good performance of all the operating parts of the aviation services was offset by a normalization of the others and consolidation result which decreased by 1,000,000 compared to the previous year. This was largely due to the non recurrence of prior year currency gains. The resulting negative contribution of 1,000,000 in this unit reflects the cost of group functions which are not attributable to any additional segment. Turning performance, net financial debt decreased by 11 percent to 1000000000. Pension provisions, however, increased by 1,000,000 compared to year end 2017 mainly due to a 3.1 percentage point reduction of the IFRS discount rate. The group's equity ratio decreased slightly by 1.5 points to 25% as the balance sheet expanded. Compared to June 30 last year, however, the improvement is still significant, thanks to the strong profit generating generation over the past 12 months. The strength of our balance sheet allow us to invest in future profitable growth and value creation. In the 1st 6 months of the year, investments of 1,000,000,000, largely focused on the purchase of new aircraft to support the group's capacity expansion to ensure a premium customer experience and to generate cost efficiency improvements mainly related to the much lower fuel consumption of new versus old aircraft. As a result free cash flow declined by 53 percent to 1000000. The first time adoption of IRS 16 will change the way we look at our balance sheet structure going forward. As of today, we expect IFRS 16 to result in a balance sheet expansion of around 1,000,000,000 taking the renewal of existing contracts and some new projects in the second half of the year into consideration, we expect the impact to become larger by theendoftheyear. Based on the exact amount of capitalized lease obligation, we expect the ratio of adjusted net debt to adjusted EBITDA to increase slightly compared to our current levels. The effect on adjusted EBIT, however, will be negligible. We should be clear that this accounting changes does not change our fundamentals. The approach of IFRS 16 has been applied by the relevant rating agencies since long. Therefore, we do not expect any impact on our outlook. Today, we confirm our guidance of an adjusted EBIT slightly below the previous year. However, the composition of top and bottom line performance will differ slightly from our expectations at the beginning of the year. Compared to our initial outlook, we have reduced the total capacity growth planned for 2017 by half a percentage point to now 8%. This primarily reflects the delays integration of the former Air Berlin aircraft. Please note that this outlook includes organic and inorganic growth, which is increasingly difficult to separate given the progress in the integration of the former Air Berlin assets. The slight moderation of capacity growth will be offset by a better constant currency unit revenue performance. We now expect this metric to grow slightly compared to our initial expectation of a stable performance in the full year. Turning to cost. We expect the Network Airlines to generate substantial efficiency improvements also going forward. However, higher than planned integration cost at Eurowings will impact the group's overall cost performance. As mentioned earlier, we expect an additional 1 off charge of around in the third quarter but new further expenditure beyond this point. As we will complete the technical integration of all former Air Berlin aircraft, in the next 2 months. As a result, we expect the reduction of constant currency unit cost ex fuel to reach the lower end of our initial 1 to 2 percentage target range. This means that the cost reduction would be higher in the second half year, compared to the first half In addition, the fuel increase will be larger than projected at the beginning of the year. As of the end of June, we expect fuel cost in 2018 to become approximately 1000000 higher compared to the previous year. Finally, we forecast the year on year change in the adjusted EBIT contribution from Aviation Services to be slightly negative. This has little to do with Lufthansa Cargo, Lufthansa Technik and LST growth, where the operational outlook continues to be good. Instead, the forecast reflects the negative year on year exchange in others and consolidation in the first half year, we do not expect to fully compensate in you. Answer session. First question comes from the line of Jared Percel of UBS. Good morning. It's Jarrod Castle from UBS. Just coming quickly back to the fuel. I noticed on your slide, you've based the 850 on the 30th June price and I think you're using a forward of 79 So I guess if you do more of a mark to market today, I mean, are you is there actually, if you mark to market a lower fuel price and hence actually an upgrade Secondly, you also mentioned the cost of disruption in terms of flights canceled and the negative impact from first half. Earnings. Can you give a number in terms of what the cost was? And then, lastly, just anything in terms of current thinking on M And A and obviously you've been linked, with Alitalia and Norwegian and any updates on either? Okay. So start, thanks. So starting with the fuel cost. Yeah, the fuel, of course, is slightly down compared to end of June, but you have to bear in mind that we are having a ruling 24 months hedging program So although that of course will impact, at the tail of that hedging program, there is not so much upside on the 850 as you would initially think even if the market is down slightly today. Now in terms of cost of our irregularities, The case is that we have doubled the cost in the 2nd quarter compared what we had in 2017 So this indeed is an impact, which we see compared with the year before. And therefore, I think the network airlines cost reduction is even more impressive in light of that headwind they have in the regularities In terms of M And A, it's still much very much the same as we have said earlier. Italy is a very important market for us. We have handed in a concept to the Italian government, on a much smaller, much more focused airline with heavy cost reductions. But before that is being made, there is nothing new to report from the Italy front. In terms of Norwegian, I'm clearly, we are a supporter of the European industry being consolidated. I think Carsten Spohr said it very nicely at some interview. Everybody speaks to everybody in this industry, but we have nothing special Next question comes from the line of Neil Glen of Credit Suisse. If I could ask 3 quick ones please. The first one on the Network Airlines, they seem on track for a record EBIT margin this year despite higher fuel you're pretty much passing it on despite disruption, it seems. Just interested, how does this impact your thoughts on capacity planning? And does it make it's slightly less fuel dependent in a more concentrated market these days. The second question on the steering of Eurowings and it's it's network network development. Should we expect a major recalibration once the dust settles and all of the ex Air Berlin planes are integrated? Have difference will the 2019 network look in some parts relative to 2018, for example? And then on free cash flow. I guess if you look at the first half, the 9 77,000,000, which is an impressive figure, I would think adjusted EBIT seasonally will be bigger in the second half than the first half. CapEx probably similar or lower in the second half than the first half. So going to suggest that free cash flow could be over 2,000,000,000 for the year. Just wanted to a sense check as to whether there's anything I might be missing in terms of major restructuring outflows or other outflows in the second half? Thanks, Neil. Well, starting on the network, yes, it is indeed a very impressive network performance, Network Airlines performance here in the first half year, which we do indeed expect to continue, Gradly, I think you're right. A more consolidated industry, it will be quicker to pass on fuel price changes to the market. I think also historically, they have always been passed on. It's just a question of, how long is the lead time until that actually happening. But we hear the same signals from many other airlines that, that gradually this fuel headwind is being passed on. In terms of the Eurowings network going into 2019, well, clearly, we work a lot on reducing complexity in the network, but in terms of the passenger offering, it will not look fundamentally different when it does today. Our focus will be very much on getting to stable operations. In terms of the free cash flow, Well, we don't give any guidance on the free cash flow, but your basic reasoning is sound. The next question comes from the line of Damian Brewer of Royal Bank of Canada. Good morning. I guess just statutory 3. So first of all, on the Network Airlines, you explain a little bit more about the development of the individual airlines operating margin in particular, Swiss stands out having lifted 300 basis points versus Lufthansa passenger only up 60. If you were to identify the differences there, what would the 3 key ones be in terms of what Swiss has done that Lufthansa Passenger Airlines has yet to do to achieve that margin differential. Secondly, on coming back to subject of disruption, when you think about planning forward, not just for winter, but for summer next year, you thinking of any different balance between aircraft utilization and avoidance of disruption cost and how is the group addressing that And then very finally on the cargo side, clearly, the volume comparatives are now much tougher as we go into remainder of the year. But how are you thinking about the sort of the pricing backdrop given the very impressive performance in Q2? Thanks. We're starting with Swiss. We have to remember, of course, that Swiss have always been the more profitable airline in the group. There are a number of reasons for that, since I'm originally from Swiss myself. Of course, I have a bit of a heart in there. And as you do remember, we went through some enormous tough times 12, 13 years ago, which of course made it possible to be much more fundamental when it came to, restructuring of the business. And than is possible in a more profitable environment. But there are some late changes as well here, which are indeed helping we have had a very successful integration of a number of 777 aircraft, which has added very profitable growth for us with the very young fleet has also helped, to have a substantial lower maintenance cost and the weakness the Swiss, currently, we must also admit, has helped to make the airline more competitive. In terms of the network going forward in 2019, is it going to be looked dramatically different because of the of the situation with the operational performance. Well, short term now, indeed, we are making sure we have enough reserves to meet the very challenging operational problems we have on the whole European basis. This is nothing special for Lufthans, as we all know, I mean, the whole industry has been suffering from the same, same problems, I don't think you're going to see any dramatic changes, what looking into 2019 it's a more of a question from an operational point of view that we as an industry has to tackle those challenges we have in terms of ATC, in terms of capacity constraints in the airport and so on. Your last question on cargo, Well, indeed, there are no changes as we speak today in terms of how strong the airline cargo business looks like. But we know that this is a notoriously difficult business to estimate. It is extremely short term bookings And that's the reason we are not sticking out too long here when it comes to forecast. We are just ensure that we have enough flexibility in case the market would turn. But as of today, there are no signs at all that that will happen. Thank you very much. The next question comes from the line of Daniel Ryska of Sanford Bernstein. Hi, good morning, Ulrich. 3 if I may. Number 1, on Eurowings and strategy growth a little bit more medium term 'nineteen, twenty twenty one outlook. Can you give us an beyond the current integration phase? And what you're planning or what the medium term targets in terms of growth and strategic priorities for Eurowings would be? Secondly, let me follow-up on cargo and press that issue a little bit. H1 was up kind of $50,000,000 in underlying EBIT. And you're guiding to below previous year, which would mean that H2 would need to be down by more than 1,000,000, which seems unlikely. I'm just wondering whether there is a potential, whether it looked in the cargo guidance is a little bit maybe a little bit too pessimistic and there's a little bit of more upside possibly in the terms of cargo. And lastly, you've said it before, you'd like to move a bit more towards medium term targets for the group. Just what's your current progress on that? And any light you can share on how you think about capital allocation and shareholder returns kind of over the medium term? Yes, starting with Eurowings. Clearly, we mentioned, the focus for the time being is operational stable It is clear that we want to get the same EBIT levels as some of our competitors And to be able to do that, we need to work very hard on the efficiencies that is, in other words, getting increased a number of hours we run the aircraft and so on. That has to be done in a fairly stable environment. So in 2019, that is clearly the focus. At some stage, of course, we will like to grow this business it will, of course, be very much also how we are increasing the element of the digital business how we can become a very innovative travel platform, but it is too early to say today what are the percentage in terms of ASK growth and so on. So that is something we need to come back to. But I cannot stress enough that short term, this is all about getting the inefficiencies in there and to become profitable again. In terms of cargo, Yes, indeed, looking at the first half year, the guidance might look slightly cautious But we have to bear in mind that the extraordinary performance is so on fourth quarter of the cargo business, is going to be very, very difficult to repeat. But again, as of today, there are no signs that the trends we have seen in the second And the first quarter is going to change, but the first and the second quarter is not reflecting what that extraordinary, profit generation is still in the fourth quarter last year. In terms of medium target, well, we are having a target of when it comes to capital allocation of 3,400,000,000 guidance in terms of CapEx for this year. We have said long term that our CapEx is between 8% to 10% in terms of revenue. I think that's the most likely going forward. We are running a program of renovating our fleet, as you all know, and that reflects that eight 10%. Yeah, I think that's what we have on that front. Next question comes from the line of James Hollins of Exane. Hi, good morning, Orie. 3, please. First one, just I think previously you've given a lot more detail on premium versus non premium unit revenue. Trends. I was wondering if on that Q2 RASK 1.3, if you could give us some quantitative detail on premium versus non premium, The second one, it's probably hard to give too much detail, but love some quantitative detail on this as well. Eurowings RAS cut or unit revenue up 3.5% in Q1 and Q2. I mean clearly there's a lot of mix effect massive growth in different airlines and the rest of it. I was wondering if you could just maybe give an underlying figure of like for like, whatever you call it, of our Eurowings unit revenues trade trading? And then thirdly, on the Middle East, you called out as weak due to political tensions. I'm no geopolitical expert, but I thought largely that was behind us. I was wondering if maybe there was an impact of golf carriers growing again or anything like that any detail will be, will be welcome. Thank you. Yes. So starting with the political tension no, indeed, we are having the benefit of the Middle East carriers growing less than they have done earlier. So that not what we're referring to here. It is more a political tension in some of the African countries, which have impacted us negatively. In terms of premium and, leisure traffic, I think the best indication of that is that, the network airlines increased by 1.2% RASK while Eurowings, which mostly leisure traffic, increased their RASK by 3.5%. I think that's the clearest signal to how it split between premium and leisure. What was your second question again, James? You wanted about the underlying run performance at Eurowings, what do you mean by underlying? Well, it's just, I mean, clearly, it's growing capacity enormously. I was wondering if there's any stage length issues or whether, you know, if you could just give, you know, comparable same route analysis year you how that would look in terms of Eurowings performance. It may not be possible. I was just checking Ah, okay. So then, then, I understand your question. Well, there's not a long distance traffic in place, last year. So that mix effect is really negligible. Next question comes from the line of Mikhail Koon of Societe Generale. 3 from my side. Firstly, on the competitive situation at your key airports, can you give us an update there with a focus on Vienna where it seems there's currently a capacity rush for the next upcoming winter season. What do you expect to happen in Vienna, a competitor recently spoke about an aggressive price war coming up? To longer term targets. You mentioned CapEx as percentage of sales, but I think in earlier calls, you also mentioned that at some point, you would be willing to provide some medium term profitability targets, how far away are we from those targets? And then lastly, on ATC, in the absence of any strikes, there were quite heavy problems in the German ADC systems recently due to capacity shortages, and I think you have a dialogue with them. Do you have assurance from the German ATC side that they can solve their capacity issues soon and that we won't see further disruptions in the next peak season next year? Indeed, there is a large gathering of many competitors in Vienna, But I mean, this is nothing, which is new for us. As you know, we have had some interesting entrants also here in Frankfurt, We are not afraid of that, even if we take every competitor very seriously, we have a very good offering in Vienna with an with Austrian, with a very high frequency, very good product, which at least here in Frankfurt, it's shown that the customers are indeed appreciating a high frequency timetable and are indeed appreciating our product. So, we are well prepared for that competitive increase there. In terms of long term or medium term targets, we are working internally to put those kind of targets in place. But I think it would take a little bit of a time until we go out externally with the medium term targets as we all know, there is a shecked past with Lufthansa of giving long term targets and I'll be slightly cautious before we go out and do that. In terms of ATCs, we have had very good talks with the ATC here in Germany. It is not only, of course, a German issue. It's also a whole European issue. There is a lot to be solved. I think that both, politics and the industry realize this is a very serious issue. It's all about how do we make quality growth and not just growth in the future. Can I guarantee there are no further issues? No. This is this will take some time to resolve. But there is a commitment from the German ATC to be better prepared next year? Oh, there is you might have seen that even our minister of transport was having a public announcement to get with customs for yesterday. So there is indeed, from the highest political decision makers, a very serious commitment to have these things resolved. Excellent. Thank you. Next question comes from the line of Johannes Braun of MainFirst. Yes. Hi. Good morning. Thanks. 3 questions for me as well. Firstly, if you talk to corporate clients, these days, any indication that the General Motors worsening or changing that people get strict on travel budgets, or anything like that? Secondly, how do we have to think about cost development next year. I mean, obviously, the Air Berlin integration costs are falling away. I think airport and turn, navigation fees are flat or falling. And I guess there will also be more benefits from streamlining the business. So I guess, it seems that unit costs next year look quite easy to further reduce probably more at the higher end of the 1% to 2% guidance. Any details on that? And then just lastly, Ryanair is obviously accusing you to hold back planes and also withdraw aircrafts from motor motions. Can you just give an update on that and what you've focus on that. Okay. So starting on the corporate clients, Well, now, and then of course, there are clients who are, reducing their travel budget, just due to a different cost saving programs, but we see no generic change among our clients that times would get tougher. And therefore, there is a reduction in the travel budgets. So our corporate client and premium traffic is holding up very well. In terms of cost development, We have this long term objective of 1% to 2% every year reduction, which we are sticking to. In terms of specific guidance for 2019, we typically give that guidance at the very beginning of the year. And I think also this time, we will wait and give you that guidance in January next year. In terms of Ryanair, Well, we are not, you know, holding back any aircraft as a matter of fact, have a number of aircraft, with the Laudamotion or Ryanair where they just haven't paid the lease rate. And that's why we have this whole issue with them. So it is a very simple case actually. Or the statements you have seen from them are just simply false. Next question comes from the line of Andrew Lobbenberg of HSBC London. Hi, Dennis. Can you talk a little bit about the dynamics in the relationship with Raaport and also the relative trading of Frankfurt against Munich since you've now taken to disclosing on a monthly basis what the traffic stats are and they look quite healthy at Munich and with the larger aircraft going in there, I would imagine the unit costs go down. So yeah, how we meant to think about the future development of capacity between the 2 and is that leverage going to work on for airport. Can I ask about Brussels Airlines? There was an announcement that they're going to be within Eurowings but keep their branding. How is that going to play into your efforts to simplify the Eurowings group? And yeah, why did Brussels Airlines belong in the Eurowings group when Austrian belongs in their network carrier group? That'll do. Okay. Starting on Fraport, Well, I think what is indeed very positive that we have constructive talks with Frankfurt with Fraport, which is indeed moving in the right direction. But at the same time, we have to say it's it's a long way to go. As I indicated earlier, they are 20% higher than the average of our other hubs And as long as that is the case, of course, it is more natural to grow where we have lower costs. And as you rightly indicate, that will, of course, on the margin lead to lower unit cost, which is indeed the case as So before then is resolved, we will continue to grow in Fraport where we will grow even higher somewhere else. In terms of Brussels, we are, as we all know, slightly delayed in our integration of Brussels with Eurowings due to this one off opportunity we got by getting the possibility to buy part of Air Berlin now it is happening and now we have a new management in place in Brussels. We will keep the Brussels Airlines brand name in Brussels, it is a very strong brand name locally in the country, And as we have shown many times before, to keep the local brand name very successfully, for example, in Swiss We can do that at the same time as we take out cost, which the customer doesn't see. In other words, in the, in, in operational backdoor admin and so on. So I think the keeping of the branding, you should not see as, as a problem in itself, to take out a lot of costs by integrating these two businesses. Okay. All right. Thanks. Next question comes from the line of Gerald Ku of Liberum. Morning. Two questions if I can. Firstly, on MRO, in your prepared remarks, you talked about industry challenges, for that business. I was wondering whether you could band on that. And secondly, on the passenger side of the business, I was wondering whether you could perhaps give a split on the RASK outlook between network airlines and Eurowings, please? Okay. Starting with the MRO business, clearly, there are a number of different challenges in this business, and it's very much due to spare parts for engines. I think that issue is is gradually being a result, but it is an industry wide issue. And it is nothing really to do with we had looked at the techniques, but something which is gradually resolved on a worldwide basis. So that will probably continue to be a challenge going forward in the next couple of months as well. In terms of the RASK guidance in terms of network and Eurowings. The trends we have seen in the first half year are the most likely to continue in terms of, higher risk increase in Eurowings compared with what you see in the Network Airlines. The next question comes from the line of Malte Schulz of Commerzbank. I have one question also you talked in the past, particularly about allocating close to profitable airlines. And, I mean, if you look now at the figures. So, will you shift more and more capacity to towards Swiss? Or how satisfied are you with development at Austrian, you talked about, if they're not earning their costs, we will not allocate growth there. Do you see any changes here? Well, clearly the Swiss business is the most profitable we have. And we announced only, very recently that we will allocate and buy 2 new 777 aircraft to them. So indeed, we are growing where we get more, more bang for our buck, so to say. In terms of Austria, we have seen a large improvement in terms of profitability compared with the last couple of years in Austria, but there is still more to be done, in terms of cost savings and so on. And before we get to different levels of profitability and supported cost levels to that, your questions are alluding to the right conclusion, we will allocate more growth to other airlines. Thanks. Next question comes from the line of Russandra Radaldosa. Of Kepler Cheuvreux. Good morning. Just one question on 2018. You guide 250,000,000 higher fuel costs. The non fuel cost guidance is weaker. The guidance for aviation services is weaker. This sum up to a negative on adjusted EBIT of probably $400,000,000. To offset that, right, needs to improve around 3% in H2, but it was up just 1.3% in H1. So could you please give some details on what you mean with slightly below the level of last year? Thank you very much. Well, I think what you're doing, you're comparing full year guidance with the half year numbers. And that's why the numbers doesn't really make sense. I think that's the short answer. Excuse me, there are no further questions at this time. Please continue any other points you wish to raise? Well, back over to Ulrik for some closing remarks. Well, let me just summarize our key messages of today. Well, first, the RAS have increased both of our network airlines at Eurowings. 2nd, the network airlines decreased their CASK very substantially and more than our target. 3rd, profits at Eurowings have suffered from a significant one off integration cost But however, we accept these costs as part of the great opportunity that the acquisition of the former Air Berlin assets represents. These costs will come to an end shortly so that we can fully focus on lifting Eurowings profitability to the level of its peers going forward. And 4th and lastly, we are upgrading our unit revenue outlook today we continue to be confident wish you all a good day and look forward to talking to you talking to you soon again. Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. You for joining and have a pleasant day.