Ladies and gentlemen, welcome to the Lufthansa Group Q1 2025 Results Analysts Conference Call and Live Webcast. I'm Moritz, your closed call operator. I would like to remind you that all participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Marc-Dominic Nettesheim, Head of Investor Relations. Please go ahead, sir.
Thanks a lot, and also from my end, a very warm welcome, ladies and gentlemen, to the presentation of our first quarter results 2025 on this sunny Tuesday here in Frankfurt. With me are today our CEO, Carsten Spohr, and our CFO, Till Streichert. They will present both our results for the last quarter and discuss our commercial outlook for the remaining nine months of this year. Afterwards, you will have the opportunity to ask questions. Like always, I want to ask you to limit yourselves to two questions per person so that everybody has a chance to participate in the Q&A session. Thanks a lot in advance. With that, Carsten, I hand over to you.
Yeah, thank you, Marc, and a warm welcome from my side as well to our analyst conference. Obviously, reporting on our first quarter results, which, as you all know, in our industry are the weakest of the year. However, for this year, I think we have started quite strongly with record sales for the first time going above EUR 8 billion with a 10% growth in the first quarter. What truly matters for us, more than the volatility of the year, is the significant progress we are making on our key strategic initiatives, which in the end position us for the future. There, without doubt, the turnaround of our core brand, Lufthansa, remains our highest priority. We are fully committed to re-establish Lufthansa Airlines as the proud flagship of our group, and we are clearly moving in that direction.
At the heart of this transformation is and remains operational excellence, knowing that in our industry, strong operational performance is the key to also sustainable financial success. With the Easter wave now successfully behind us, managed smoothly and efficiently, our confidence heading into the summer season continues to build. While underscoring our determination to deliver best-in-class performance, we successfully invested in recruiting, training, and qualifying additional operational staff, even further expanding our reserve capabilities on the fleet side. Maybe that's most important, further intensifying our cooperation and coordination with our system partners at the airports mainly, and also at least we are trying to do the same with air traffic control. These efforts are delivering results. Lufthansa Airlines' operational performance, which we measure in regularity and punctuality, is now not only stable but on the highest levels of the last 10 years.
At the same time, obviously, as we have stabilized operations, we are witnessing less and less stable or more volatile global political environments. It is always in turbulent times, the question is, how will these developments impact our industry? For us at the Lufthansa Group, at least, our structural setup and the various strategic initiatives of the last years have significantly enhanced our resilience, providing us with valuable buffers when it comes to the volatility of the current environment. There are indeed several good news. In the first quarter, we continue to benefit from robust sustained demand. Our airlines increased capacity by 5% compared to the same quarter last year, and we successfully translated that growth into higher yields while even increasing our load factors as well. That momentum has carried into the second quarter.
Pre-booking levels across all traffic regions are at least in line and in some cases above last year's already strong figures. As a result, we expect the positive trend to continue at least throughout the first half of the year. That said, we're beginning to see early signs of some softness in the third quarter, though. Bookings have slightly softened in the U.S. destinations to and from, however, mainly in the lower fare classes. However, we have often observed in the past that customers' booking windows become shorter in volatile times. I think we will see some of these bookings probably surfacing over the next weeks rather than disappearing for good. Moreover, we are seeing continued growth in demand from the United States, driving a further shift of booking towards the point of sales U.S.
This is also a positive development for us, given the higher yields by selling tickets on the other side of the Atlantic compared to Europe, even though the weak dollar is somewhat reducing this effect but not making it disappear. In this context, our combined sales force with our long-standing joint venture partners, United and Air Canada, are once again proving to be key to that strategy. Do not forget, we expect strong demand also from the short and medium-haul leisure travel this summer, which is as strong as expected. Nevertheless, we remain vigilant regarding our geopolitical and macroeconomic environments. Airlines have always been exposed to unforeseen developments, sometimes more than other industries.
I think it's also fair to say that this time we are, after all the crises we have passed in the last years, well prepared in terms of increasing our flexibility in case of a potential further slowdown of the global economy. We would be able to react quickly. We have, for example, already reduced our growth for the winter by reducing it from 6% to 3%, and we would be able to reduce that growth further if needed by retiring all the aircraft. Nevertheless, let's not forget that these current developments also bring advantages for our business. The combination of lower oil prices, lower fuel prices, and the effect of investment packages and the stimulus in the military and infrastructure announced by the incoming German government, plus the intended tax relief for our airline industry in Germany, should result in clear positive effects for us.
Even in this very intense time of daily news flows, you find myself fairly confident, without, of course, being naive. We are fully prepared to adjust if the global situation requires us to do so. With that in mind, let's look at the first quarter figures. Our passenger airlines carried 34 million passengers, which is matching last year's figures, even though Easter moved, as you know, from the first quarter to the second. We improved our adjusted EBIT by EUR 127 million to EUR -722 million, having in mind that the Q1 result was negatively impacted by the Easter effect, which amounted to roughly EUR 80 million. Our significantly improved operating performance led us to less so-called irregularity events and also allowing us to reduce the financial impact of these irregularities by 40%.
In the first quarter, the group's revenue increased by EUR 735 million, rising for the first time to over EUR 8 billion in Q1. This positive development is primarily driven by the strong performance of Lufthansa Technik and Lufthansa Cargo, on top, of course, of the growth of the passenger airlines. We have seen strong demands for tickets in the new Allegris cabin, with targeted bookings and a high readiness to pay for the differentiated business class seats we offer. Until this day, over 500,000 passengers have enjoyed a trip in the Allegris seat on more than 2,200 flights. At the same time, we have further developed our digital sales channels to allow additional services, and that's why we are seeing a pleasing overall trend in flight-related additional revenues, which has risen 18% year- over- year.
Ladies and gentlemen, for the North Atlantic traffic region, our booking outlook remains strong. In the first quarter alone, the number of passengers on flights to and from North America increased by over 7%. At the same time, we were able to improve our high load factors further and create a 7% rise in average yields. Given this, we remain confident for our planned 6% growth for the North Atlantic for this summer. However, as mentioned, we are prepared to reduce that growth already before the winter if market developments require it, which we don't see at the time. In Asia, we remain cautious due to the longer detours we must fly, not using the Russian airspace. We keep on focusing on protecting our earning quality there rather than growing.
Of course, also there, in the other direction, we are ready to adjust and grow our network if geopolitical conditions improve or if the Russian airspace opens up. In our core market of Europe, we have planned a capacity increase of over 5% for this summer. We, as mentioned, expect another strong European summer travel season, especially to the Mediterranean, but also to new, cooler destinations in Scandinavia. Obviously, as Europe's largest aviation group, we will take advantage of that healthy travel environment in Europe. Also, Eurowings in this context grew disproportionately in the first quarter, increased capacity by around 12%. We will see the financial upside of that, of course, mainly in Q2 and Q3.
All these figures I mentioned today are not including ITA Airways, which, of course, adds more or less the capacity volume of double-digit 10%-11%-12%, depending on the traffic region to the Lufthansa Group as it exists today. That volume will probably grow beyond what we see in other parts of the group due to the fact that Italy enjoys the so-called holy year 2025, which creates additional travel, especially to Italy, which we will then see in our numbers later on. For now, let's look at the financial details. Handing over to Till. Thank you.
Thank you, Carsten. Hello also from my side. Thank you for joining us today to discuss our Q1 2025 results in more detail and, of course, also the financial outlook for the rest of the year. I'm pleased to present you a first quarter that reflects progress in a challenging environment. For Q1, we can see a notable top-line improvement since revenues increased by 9.9% compared to the previous year. This was mainly driven by a healthy demand environment and a 4.6% increase in production. Revenues have also been positively influenced by rising ancillary sales that mainly originate from an enhanced digital customer experience, leading to additional online purchases. At the same time, we faced some counter effects with impact on our bottom line.
Among those were the lacking Easter business in Q1, accounting for lower earnings of around EUR 80 million, which we expect to see in the second quarter. Disruptions such as strikes by Verdi at German airports resulting in approximately EUR 30 million of extra cost, as well as general cost inflation amounting to about EUR 280 million of additional cost. This increase in expenses, while largely anticipated, represented a headwind in Q1. While fuel prices have been quite favorable, the remaining material cost increased by almost 16%. This increase was also driven by fees and charges, which rose by 14% compared to the previous year. Personnel expenses grew by 5%, just like depreciation did, mainly due to new incoming aircraft. We will have a closer look at cost increases in a moment.
All in all, we report an adjusted EBIT of EUR -722 million in the first quarter, and this represents a 15% improvement compared to last year. At the same time, our net income was below last year's level, and the reason is the temporary tax accounting effect in relation to loss carry forwards this year. Adjusted free cash flow amounted to EUR 835 million, significantly above last year's level. Main reasons were the improved earnings situation as well as lower net investments. As we have said during our full-year results presentation in March, we see the year 2025 as a year of transition. The main reason is that the measures we have initiated to improve productivity and efficiency will build up gradually and thus only partially into financial improvements to fully absorb the existing cost increases this year.
Let me now show you a breakdown of our operating expenses to shed some light on that matter. When leaving out fuel and emission cost, the material cost increase for the passenger airlines in Q1 was mainly driven by price and less by volume effects. For fees and charges, the year-on-year additional cost amounted to EUR 136 million, of which more than EUR 90 million can be attributed to price escalations of our service partners. Handling charges at airports, as the biggest building block in this cost category, rose by 12%, followed by ATC charges, which even grew by 19%. Further material cost increases were driven by maintenance and catering expenses, although partially mitigated by lower I-REC related cost. Personnel cost rose by 8%, of which around one-third was driven by headcount and two-thirds by wage increases.
Depreciation increased based on the 30 new aircraft we have received since Q1 last year. All these cost impacts combined led to a CASK increase of 3.1% versus prior year. Apart from the passenger airlines, our other business segments also faced cost headwinds, but they were able to manage them effectively. Lufthansa Technik implemented further contractual guardrails to pass on price inflation to customers, and Lufthansa Cargo was able to mitigate the cost pressure thanks to high volume growth. The other segment was roughly stable on a like-for-like basis. The apparent reduction stems from the non-adjustment for Air Plus in last year's figures. Ladies and gentlemen, the cost inflation, which we have anticipated and seen in Q1, will remain throughout the rest of the year. For Q2, we expect a higher year-on-year CASK increase compared to the one we've seen in Q1.
The main driver for this are labor cost effects in the second quarter, as planned tariff increases come into effect in the prior year comparison, which is lowered by one-off savings also in 2024. In Q3 and Q4 of this year, we expect this to level off again, mainly due to lower I-REC cost and the increasing contribution of the cost measures of the turnaround program towards the second half of 2025. Now let's walk through the results for our passenger airline business. In Q1, we grew our capacity by 4.6%, which was moderate enough to stabilize operations as well as yields. Our overall yield was slightly above the previous year's level, with intra-European yields being most impacted by the Easter shift. Meanwhile, intercon yields were strong, mainly driven by a 6.7% increase on the transatlantic.
The seatload factor declined by one percentage point versus prior year, which again mainly reflects the Easter shift. RASK, on the other hand, increased by 2.7%, also driven by a soft comparison base given the impact of last year's strikes on revenue. As mentioned before, unit cost increased by 3.1% and thereby outweighed the increase in unit revenues. In total, the passenger airlines' operating result amounted to EUR -934 million in the first quarter, which is roughly on prior year's level. However, bear in mind that the Easter shift effect of approximately EUR 80 million distorted the year-on-year comparison. Looking at our individual airlines' results, it becomes clear that Eurowings and SWISS have been impacted by the leisure carriers within their respective segments, namely SunExpress and Edelweiss, which have both been disproportionately affected by the Easter shift.
Now let's shift our focus to our other business segments, Lufthansa Cargo and Lufthansa Technik. Starting with Cargo in the logistics segment, the positive operating and financial performance already evident in the second half of last year continued in 2025. Lufthansa Cargo achieved an adjusted EBIT of EUR 62 million, an increase of EUR 84 million. This growth was driven by both volume and yield effects. Capacity increased by 7% year-on-year due to additional freighter capacity from a Boeing 777F and expanded passenger flight operations. On average, across all traffic regions, yields increased by 11.9% versus previous year. Despite the increase in capacity, the load factor increased by one percentage point versus prior year, indicating that Lufthansa Cargo is well positioned to benefit from an overall strong demand environment.
Demand in Q1 was still predominantly driven by Asian e-commerce and additionally by current buildup of inventories in the U.S. ahead of anticipated tariff escalations. Operational expenses rose by 7% to EUR 787 million, mainly due to higher charter costs, fees, and charges, as well as personnel expenses. Effective cost management resulted in a slight reduction in unit cost compared to the previous year. The current global uncertainties provide both opportunities and risks for the air freight industry. Lufthansa Cargo's flexibility in capacity deployment due to its dedicated freighter fleet will enable us to adapt relatively quickly to any demand shifts or shifts in demand flows. Moving on now to Lufthansa Technik, I am delighted to present an outstanding performance for the first year of 2025.
Revenue reached an impressive EUR 2 billion, reflecting an increase of EUR 249 million compared to Q1 2024, which is a growth rate of 14%. Lufthansa Technik's adjusted EBIT amounted to EUR 161 million, marking an increase of EUR 53 million from the previous year. We continue the expansion part, including new Technik facilities in Portugal for components and engine parts, which will employ up to 700 people, and in Calgary, Canada, with up to 160 employees working in engine services. Additionally, Lufthansa Technik is growing in Malta with a new hangar for 787 modernizations. Also on our Hamburg side, this is also undergoing modernization to enhance our service offerings. Also on the product side, Lufthansa Technik has set the course for a successful future. Lufthansa Technik is a digital powerhouse already today with a comprehensive digital ecosystem.
As a global leader, our platform, AVIATAR, which provides predictive maintenance, already covers over 4,000 aircraft worldwide, and its growth continues. Let's now discuss the cash flow development in Q1. The operating cash flow was supported by a significant increase in ticket prepayments, totaling EUR 2.5 billion, surpassing last year's EUR 2.3 billion. This growth is attributable to three key factors: increased summer capacity, resulting in higher booking volumes at stable load factors and yields; the shift of Easter bookings to Q2, leading to the full Easter pre-bookings being reflected in liabilities at the end of Q1; and the negative impact of strike uncertainties in 2024 on pre-bookings, which did not reoccur this year.
At the same time, the trade working capital was limited due to counter effects like an increase in trade receivables from airlines, lower trade payables due to seasonally low activity, and increased prepay expenses due to charter activities. Lower gross investment compared to last year, since we did not receive any long-haul aircraft in the first quarter of this year, reduced our net CapEx, respectively. In total, the improved operating result, combined with a higher operating cash flow and lower net investments, led to a materially improved adjusted free cash flow of EUR 835 million in the first quarter of 2025. Driven by our strong adjusted free cash flow performance, which more than offsets the EUR 325 million payment for ITA, our total liquidity increased by approximately EUR 350 million.
During the first quarter of the year, we made use of the favorable market conditions and successfully placed a hybrid bond and several promissory notes, securing refinancing for about EUR 1 billion maturities in Q1. In total, net debt decreased by 8% to EUR 5.3 billion compared to the end of 2024. Our net pension liability reduced by roughly EUR 400 million due to slightly higher interest rates. Overall, this resulted in a net debt to EBITDA leverage of 1.7x at the end of March, an improvement from the two times at the end of 2024. This clearly demonstrates the continued strength of our balance sheet, which is also reflected in the full set of investment-grade ratings we currently hold. On fuel, I am pleased to share the positive developments regarding our fuel cost expectations for 2025, driven by a favorable pricing momentum.
As of April 24, with the view forward, as of April 24, our fuel bill for the full year 2025 is now projected to be EUR 7.3 billion. This is about EUR 600 million below our previous guidance, which was based on calculations from end of February. At the same time, it is EUR 500 million below last year's fuel cost, despite higher production capacity and additional soft cost. Of course, it goes without saying that this cost benefit will only fully materialize if fuel prices and exchange rates remain at the current level for the rest of the year. However, this reduction is a strong proof point for the success of our hedging strategy. Since our hedging strategy is option-based, we are always able to benefit from declining fuel prices while we are simultaneously hedged at a relatively high percentage against increasing fuel prices.
For 2025, we have already hedged 81% of our fuel requirements, with our passenger airline segment hedged at an even higher rate of 84%. This provides us with a robust field against fuel price volatility, ensuring greater financial stability and predictability. Additionally, the expected cost of sustainable aviation fuel remains stable at an additional EUR 0.2 billion as per our full year guidance. Let me now talk about the outlook. We are reconfirming our full year 2025 guidance, which we communicated earlier this year. Let me explain our rationale. Clearly, the level of uncertainty has increased since we issued our guidance at the beginning of March, and the news flow on a daily basis remains dynamic. Nevertheless, I want to provide some comments on factors that could impact our financial outlook. In general, demand remains strong, and we see a strong momentum for the second quarter.
However, as Carsten has mentioned before, North Atlantic bookings for the third quarter have slowed down a bit. There's limited visibility if this is due to lower demand or a shortening booking window, which has been quite typical and seen before during uncertain times. On the other hand, we see favorable developments in fuel prices and foreign exchange rates. While these factors are beneficial today, of course, it remains to be seen whether or to what extent these effects will persist. What does this combination of these risks and favorable factors mean? Just to illustrate, traffic revenues on transatlantic routes for the remaining nine months could decline by more than 10% compared to the previous year, and yet still be balanced by the favorable decline in fuel prices amounting to a tailwind of around EUR 600 million.
Please also keep in mind that other factors, such as the potential reopening of the Russian airspace, peace in the Middle East, and a financial stimulus resulting from the new German government, could also present a tailwind for us towards the end of this year. With the increased uncertainties in mind and based on what we observe in our numbers at this point in time, we are reconfirming our guidance. As you can imagine, of course, we will continue to closely monitor the global macro developments and trends and make frequent assessments in case of changes. With that, let me hand back to Carsten, who will provide you now with some more thoughts on the strategic outlook for this year.
Thank you, Till. Following your presentation, let me outline the key productivity improvements we are actively pursuing, driven by, of course, the arrival of long-awaited aircraft.
We're currently still waiting for the overdue Boeing long-range aircraft. As a matter of fact, of the 100 aircraft we have for an order, wide-bodies, 41 all Boeing are missing. The latest certification tests confirm that we can now expect those 787 deliveries at least this summer, and they will enter service at Lufthansa Airlines in Q3. Of course, 777X will be still not to be delivered until 2026. We will use those 787s initially on medium-haul routes with some blocked seats in the business class. However, this 787 operation will allow us to ramp up operations for our pilots, for our cabin crews, for our technicians, because we are expecting an unheard-of number of 40 aircraft to be delivered to our airlines in 2025 and 2026. That's in just 20 months, so two per month in average.
It is obvious that that positive effect of this fleet renewal will finally be felt across our entire offering. That applies to all classes. We, as a matter of fact, also expect another 350 equipped with our new Allegris first class over the next weeks, I think setting somewhat new standards in our industry. It is also all these 10 aircraft, a total of 33 even, which are going to the Lufthansa core brand, Lufthansa Airlines. We are investing heavily into the core because we believe in the turnaround project and want to go back to being an icon of the industries, as we have said before. It is obvious that we are also investing in other airlines within our group. SWISS, for example, will receive its first 350 with a new SWISS Senses cabin in September.
Edelweiss in Switzerland has already launched its first 350 this month and will receive three more by year-end. Austrian Airlines is expecting three additional 787s by the end of 2026. Also, for Brussels and Discover Airlines, we just approved an upgrade of the 330 cabin, including a new business class with aisle access for every seat. This fleet renewal is further enhanced by the cabin modernization. For example, for our Boeing 747-8s, all 19 of them will be refitted starting this year. The remaining eight 380s, which our customers love in and out of Munich, will also receive a state-of-the-art cabin featuring new business seats starting this winter. I think this in total demonstrates the extensive and far-reaching modernization of our long-haul fleet.
At the same time, we are also enhancing comfort on short and medium-haul routes, new seats in Lufthansa and SWISS, larger overhead bins, and a significant catering upgrade. Coming to an end and coming to your flash questions, let me highlight also the process of the ITA integration into our group. Just four weeks ago, we successfully relocated our new group airline to Frankfurt and Munich into our own terminals. Already, we have now more than 40,000 passengers to and from ITA connecting and benefiting from these better connections on the ground. As you might know, the membership of ITA into Star Alliance is underway, and we are actively integrating flight schedules already done for the neighborhood traffic, short-haul, and then long-haul to come throughout the rest of the year. Soon, we'll be announcing first joint activities on cargo, air cargo, and also IT systems are underway.
For me, I've been around for some of these integrations before. The positive sentiment in Italy, in Germany, in the other airlines, in ITA, in Lufthansa remains, and we are convinced this integration will be a success. In the end, ladies and gentlemen, let me say a few words about the political situation. As you might know, Germany is about to elect a new chancellor. The coalition agreement outlines key plans for transport and aviation, and we are confident that these plans will be implemented. In a world that is becoming increasingly complex, but at the same time rich in opportunities and possibilities, our claim has not lost any of its significance. Connecting people, cultures, and economies in a sustainable way.
Our sustainable multi-hub, multi-brand, multi-AOC strategy, as well as our more balanced portfolio, including value-creating subsidiaries like Lufthansa Cargo and Lufthansa Technik, ensure stability and long-term profitability even under the current uncertain geopolitical and macroeconomic conditions. With that, let me finish here. After half an hour of monologue, we now look forward to the dialogue with you and your questions. Thank you.
Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question.
In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from Jaime Rowbotham from Deutsche Bank. Please go ahead.
Morning, gentlemen. Two questions from me. Apologies, the first one's probably a bit predictable, but on slide nine, you flagged that without Easter timing, the airline's loss would have been about EUR 850 million, not EUR 930 million. So an improvement on last year at EUR 920 million. Without the strikes last year, would not the loss have been about EUR 300 million lower at more like EUR 620 million? Is it unfair to suggest that on a truly underlying basis, you have still got quite some year-on-year profit degradation in the passenger airline business despite the decent revenue trends?
With that in mind, I wonder how you're thinking about the two-queue trajectory for the passenger airlines' profit. Second question is just regards the concerns about the North Atlantic. Slide five, where you say looking out to Q3, there are some volume gaps in terms of non-premium demand, but at the same time, yields stable. I appreciate the discussion about deciding whether it's demand or just a shorter booking window. I just wonder at what point might you start to see the need to discount the fares to protect load factors, fill the economy cabin, and presumably then you won't be telling us that the yields are stable. Any thoughts on that? Thanks. Let me start off with the first question, Jamie. In terms of the airline business as such, first, you've identified the Easter effect.
Clearly, that would have improved and turned it positive in the year-over-year comparison. Let me remind you, however, that between last year, Q1 2024, where indeed we had a substantial strike effect, obviously a number of cost increases did take place, largely at the system partner supplier side. We have flagged them, and we've equally anticipated them and catered for them also in our plan and outlook for 2025. In that regard, the first quarter is on track with what we had expected in terms of cost. That's the main point I would add here. In terms of the second element, just evolution going forward as we progress through the year. Obviously, I do expect, and that's what we've got in the plan, that the step-by-step ramp-up of the Lufthansa Airlines turnaround will contribute more in the second half than in the first half.
Let me give you one just kind of idea or proof point also on the success of executing one pillar of the Lufthansa Airlines turnaround program, which was the focus on operational stability. Q1 has been, you've seen it in the KPIs that Carsten has shown, a real success that directly resulted in substantially lower I-REC cost, which we are already benefiting from in the first quarter. Therewith, thinking of our confirmation in terms of guidance, obviously throughout the year, I expect progression in the airline business also from a contribution to EBIT point of view.
The next question comes from James Holland from, I'm sorry.
There was another question on yields.
Jamie, let's be honest, those people, families on the lower booking classes who didn't book out of Europe to go to the U.S. in the last four weeks, probably due to the news flow from Washington, they wouldn't have booked for 5% better prices either. In our view, it would be not value-creating to bring down yields and try to convince those people who didn't want to go to the U.S. to do it for less yield. You would rather bring the overall yield situation down for those who are willing to travel anyway. I think this is not a time to bring down prices in our view. As Till said, some of these bookings might well come over the last weeks when maybe the news flow has somewhat become less exciting, which we currently experience. Let's see.
There's no need for us to get nervous, as we said before.
Thanks, Carsten. Helpful.
The next question comes from James Holland from BNP. Please go ahead.
Yeah, thanks very much. Till, if I could please just push you a bit on that cost cadence, as I like to say in the U.S., as we go through the quarters. Now, clearly, Q1 CASK is fuel up 3%. You flagged Q2 higher than that. Maybe you could, if my thinking is plus three goes to plus four and then it levels out in H2, would it be right in thinking maybe + 3% for the full year is a good start point? Or maybe you can tell me what's going on there. Probably for Carsten, again, talking of the U.S. names, they say pretty much apart from government travel, the U.S. has not seen any business travel weakness.
We all know that German business travel isn't quite what it was. Perhaps you could run us through any trends you've seen, either on the negative effect from tariffs or that business, or maybe on the positive effect on German politics. Thank you.
Let me take the first question, James, on the CASK evolution. Let me just shed some light on Q2 specifically. Q2, year-over-year comparison, I expect to be higher, largely driven by a one-time effect in two directions, literally. One that took place in prior year in 2024 when we started to release variable compensation provision after seeing the full-year results and adjusting for that or the expected full-year results last year. This helped the basis, the comps. On the other hand side, in the second quarter, 2025, labor costs, personnel costs will also, in line with the tariff agreements, increase.
That's the next step that was contractually already agreed. This is why numerically, the second quarter will see a higher CASK growth. After that, indeed, in the third and fourth quarter, I expect normalization in that regard due to, on the one hand side, step-by-step kicking in the turnaround program effect, but also supported by more effective fixed cost degression. Bear in mind, when you put all elements together, we are obviously confirming here our full-year guidance. Therefore, also the second quarter evolution, which I've been hinting to, is planned and anticipated, so fully reflected in our plan.
Yeah, James, it's Carsten. Indeed, we don't see anything different than our U.S. peers. Corporate travel remains stable. We actually have seen a slight increase in Q1 2025 versus last year, 2024, driven by the north and landing in Asia-Pacific, which I also think makes sense.
Even the tariff situation rather requires more corporate travelers to go and fix supply chains or find new supply chains than staying at home. At the same time, if you believe in the German stimulus package, which hopefully will drive the German economy out of its development of zero, it should even create some corporate travel. That is too early to say. Indeed, to answering your question, no weakness to be seen there yet and not expected either.
Lovely. Thanks very much.
The next question comes from Ruxandra Haradau-Döser HSBC. Please go ahead.
Yes, hello. Thank you for taking my questions. First, on intra-European traffic, some recent surveys point to lower willingness year-over-year to travel to the Mediterranean hotspots during peak summer this year, but higher willingness to travel to less popular destinations. Carsten pointed to Scandinavia. Surveys highlight also particularly Eastern Europe.
You have a strong exposure both to Spain and Eastern Europe. Are you noticing these trends in your Q3 bookings? Second, you had the network group with the strongest presence in Eastern Europe. Could you please talk about the relevance of this region for your medium term? Several key airports in Eastern Europe start to be congested. Do you see the need to increase capacities in the region to secure additional slots at the airports? Thank you very much.
Ruxandra, indeed, I kind of answered your question, I think, already in my opening remarks. We see this undisturbed strong demand to the Mediterranean, but indeed also our new northern-bound Scandinavian routes show very nice load factors.
I would say we are seeing the best of both worlds. Travel is strong towards the Mediterranean, additional leisure and tourism towards colder parts of Europe, and we try to take advantage of both. Do not forget, there is a strong Lufthansa element of Americans, Latin Americans going via our hubs to the Mediterranean and also Scandinavian destinations. It is a big trend both directions coming from the Americas, which we take advantage of as a hub carrier. Eastern Europe has always been relevant for us. I think the two biggest questions for Eastern Europe are, when is Ukraine opening up? We had 104 flights per week to Ukraine before the war started, and we had 110, so almost the same flights to Russia before the war started. We believe we can be ready within 100 days to reopen operations.
When it comes to slots, of course, we are looking at those airports where slots become scarce and rather put in another frequency or keep a frequency with a long-term strategy in our mind than giving that up to others. That is with 300 destinations we are serving, of course, daily business.
Thank you.
The next question comes from Stephen Furlong from Davy. Please go ahead.
Yes, good morning, gentlemen. Maybe hi, Carsten, hi, Till, hi, Marc-Dominic. Maybe more for Till. Can you just talk about the turnaround plan again in just a bit more high level? Because I certainly felt that it was more going to have an effect incrementally from next year onwards. I thought even at the full year, so this year would be pretty minimal as it kind of gears up. For example, maybe just talk about Discover in that or Lufthansa City.
I saw you got, for example, A220 neos just delivered. Maybe just reiterate there what you said about the North Atlantic would actually have to, I think, traffic declined by 10% for the rest of the year to offset if the fuel bill tailwind was still EUR 600 million. Thanks a lot.
I mean, as you rightfully said, turnaround plan is gradually building up. Just as a reminder again, target is EUR 2.5 billion gross contribution in 2028, EUR 1.5 billion in 2026. As I said before, we are making good progress. Overall, a lot of over 700 measures identified and to the largest extent as well fully defined. Of course, the implementation is ramping up step by step as we speak. I have given you one example with a big focus on ops stability, where we have seen already quite a bit of good improvement.
Clearly, what belongs to the overall objective is to increase productivity. We've spoken about that. That means that implies as well that we need to increase, of course, at crew level, at cockpit level productivity. Of course, it belongs as well to that strategy that we continue to make use of more productive platforms that we are using. As we said as well at the beginning of the year, we do plan to ramp up this year another 13 aircraft into c in order to support this. We're seeing good growth at Discover and at City Airlines both. In that regard, all in all, Lufthansa Airlines turnaround program, as we stand now, I'm confident in terms of the progress that we are making so far.
Thank you. Just on that, the 10%, you made that comment. Just wanted to get that right again.
Yeah, this is just to illustrate basically a bit of the sensitivity that we see between basically North Atlantic revenue decline versus what we see at the moment, just looking forward in terms of benefit from the fuel price decline. This obviously, it does not correlate strictly, but obviously it belongs to a similar context in that regard. I think you did the math probably on your own. We just wanted to highlight the dimension of the tailwind from fuel on the basis of the hedging strategy that we have got in place and also the unhedged element, which is obviously floating with vis-à-vis sensitivity at the revenue level. If you just think of a revenue decline of 10% at North Atlantic, that obviously would be a very sizable decline compared to also anything that we have seen in the past during pretty severe crises, actually.
This is why we are saying in combination with the hedging strategy, which gives us an element of taking benefit, we feel able to confirm our guidance.
The next question comes from Jarrod Castle from UBS. Please go ahead.
Thank you. Good morning, everyone. Carsten, you spoke about fleet delivery, and I just wanted to get your views on what tariffs could mean for deliveries. I mean, we've had a lot of news coming out of China, U.S., obviously, some airlines talking about maybe pushing deliveries out even. What do you see the impact is on tariffs? Can you mitigate it? Also, if there is a tariff, and you guys are obviously very focused on return on invested capital, I mean, for the whole industry, does this possibly mean increased pricing given CapEx is seeing upward pressure?
Then secondly, just in terms of ITA, and I know it's early days, but how should we be thinking about that airline's performance during the course of the year? Is it, I guess, in your books, possible that it generates some profitability this year? Obviously, you're going to record it as an associate, or should we be thinking a lot of costs this year as things get integrated and no profits to be had? Thanks.
Jared, hello. On fleets, I think, and you know this as well as I do, in our industry, there is no room to increase the prices of aircraft by 20% on tariffs. I think some of my competitors have made that statement. I'm happy to repeat that. We're not just going to see airlines paying a divisional 20% and take aircraft as plans.
That's why one reason that on all these talks going on, I think the risk of those tariffs has come down, especially since there's a very asymmetrical risk for Boeing, whether it's European competitor Airbus, because the export level is much higher from Boeing. And as you all know, Airbus is producing in the U.S. already, which Boeing is not in Europe and other parts of the world. I think the people who deal with this, including us talking to people in the administration, both in Brussels and in Washington, are doing their best that these tariffs will not come. If they ever would materialize, I think all airlines will find or try to find their ways around them, including us. That's for me almost a plan B scenario.
I think currently plan A is that these tariffs, as they were announced or threatened to be implied, will not come. Just this morning, China already moved back a little bit on the airline side, willing to talk to the United States. We see similar messages from the administration in Washington, be it towards Europe, be it towards China, that these things will end up in a deal one way or another. I think that risk has come down. ITA will announce its own numbers, I think, next week already on their own. Of course, the full year with full synergies, as you well know, will be 2027 because we have an 18-month period. In 2025, we have both some of the integration costs, but also some initial upsides. I think you will not be disappointed when you hear their numbers.
I think the focus is the full integration following 2026. There, as I said, we still believe that beyond the short-term topics like the Holy Year and the strong inbound traffic to Italy, we currently see that the strategic move to buy, invest into an airline in our strongest European market outside our home markets to have an airport, as you well know, which has room for growth and cost advantages to our existing five hubs will pay off, and it will not be long before we can show those upsides in numbers as well.
Just one additional point. Indeed, we account for it as an associate. Obviously, we've got 41%, and up until that would change to control, we would also not consolidate in full.
Yeah. Great. Thanks very much.
The next question comes from Harry Gowers from JP Morgan. Please go ahead.
Yeah, good morning, James. Thanks for taking the time. Just two questions, if I can. The first one, I mean, just on your comments on limited visibility into Q3, can you just confirm that you're finding that people are booking later because of the uncertainty compared to previous years? If so, how much later have booking curves moved generally, or how much less visibility do you now have? Just second question, when thinking about the EBIT guidance for the year and all the moving parts, can I ask what you're baking in or what you're thinking about high level in terms of the group RASK percentage change for both Q2 and Q3? Thanks a lot.
Let me start maybe with the second question. Just a look. With today's Q1 announcement, we obviously are confirming our full year expectation that EBIT is going to be significantly above 2024.
That is a factor of everything that is happening on the RASK and on the CASK side, ultimately. Please remember that we have stayed away from providing detailed RASK and CASK guidance for 2025. That is what I can say on the first question in terms of limited visibility for Q3. I mean, first of all, obviously, even at any point in time this year, there would be limited visibility in terms of the Q3 bookings because it is just the way it is that people actually start booking for summer rather after Easter than during or before. That as such is kind of similar to what we have seen before. Of course, it is true. If you now ask the question, where do we see a little bit of a slower element, that is largely on the seat load factor side.
As we said before, we've seen in periods of uncertainty, and Carsten has commented on that in his part as well in terms of behavior, customer sentiment. We've seen that before, that people wait until things are clearer. Therefore, it is a question of a booking window or booking timing, ultimately. We will see over the next few weeks how it will evolve.
Understood. Thank you very much.
The next question comes from Antonio Duarte from Goodbody. Please go ahead.
Good morning, gentlemen. Thank you for your presentation and taking my questions. Two for me, if I may. One of them is regarding costs. You mentioned their material costs, excluding fuel, rose by about 16% year on year. My question is here, what can you do or how could you possibly mitigate these costs in case of a slowdown in demand?
Also considering that you mentioned that it was more price than volume focused. My second question is regarding cargo demand. You mentioned a strong Q1 in cargo and also in yields, partially due to the front loading to the U.S. How can we see cargo yields moving onwards considering the rising uncertainty compared to the front loading? Also taking consideration that some data regarding cargo yields across the world has been declining in the previous couple of weeks. Thank you very much.
First of all, your first question in terms of demand, in the case of demand slowdown, any cost that will be variable, so that is directly demand related, will also going to flow with that, i.e., will be reduced. Of course, it is true, and that is what we reflect, that the first quarter has seen significant increases in certain cost categories.
Here, once again, as we've spoken before, because those cost increases are not new, we knew about them, they haven't surprised us. Here we've got a strategic setup or a strategic approach with the Lufthansa Airlines turnaround plan and obviously also cost-saving programs across the entire group to counter that and build up measures to manage our cost structure in line with the targets that we have issued. Short term, of course, if we were to face a slowdown in demand situation, we would also assess to what extent we can short-term flex cost savings with effect for 2025. They would be less structural, but they would be more in the range of short-term measures that you do in order to secure a result. Your second question in terms of cargo demand in the first quarter and front loading.
First of all, we are seeing the Cargo business as such has got by nature lower visibility going forward. Bookings are taking place or reservations are basically taking place with a week or two weeks, everything that is beyond the base load that is booked through other contracts. However, I would highlight that due to the fact that we've got a freighter fleet of size, we've got a high degree of also flexibility to manage and respond to where cargo streams will going to evolve and float. In the first quarter, we've seen indeed Chinese e-commerce and Chinese e-commerce taking a large share of that. At the moment, we are still seeing that this is relatively healthy in demand. I would just conclude on generally in a more volatile world, it's probably out of all freight options that are there, air freight should benefit the most.
That's okay. Thank you.
The next question comes from Conor Dwyer from Morgan Stanley. Please go ahead.
Thanks very much. My first question is just on the Cargo as well, which is it sounds like China is actually still doing reasonably well, but I'm wondering in other regions if they have seen an acceleration in volumes basically since the announcement of tariffs on China. Secondly, just on the CASK point, so obviously it's due to kick up in Q2 and then improve in the back half of the year, partly because of improved fixed cost spreading.
I'm just wondering around the North Atlantic demand and if you do indeed take the decision to start decelerating capacity to offset some of that pressure, is there a chance here that actually we get H2 unit cost inflation above Q1 as well and closer to actually what we're going to be seeing in Q2? On that, will the trimming of capacity be down to the fact that bookings don't improve from here or if they just kind of remain as you're currently seeing them for Q3? Thanks very much.
Conor, it's Carsten. On Cargo, I think it's interesting to know that we, of course, are exactly on the right traffic flows to even take advantage of these tariffs. We are flying things from China, from Asia to Germany, to Europe, which is an increasing business, as Till mentioned.
We are flying, of course, strongly from Europe to the U.S., which is also due to the mentioned warehousing positive right now. I think the traffic flow from China to the U.S., which for sure I must imagine is going down, we are not present on. I think at this point, what Till has said about the volatility of the global economy helping us in general in air Cargo, in our case, we're even sitting on the soft spot, I think, of what's currently happening.
In terms of your question on cost CASK, let me just remind you the context of what I highlighted for the second quarter was really about the kind of comparison to prior year as we've had two effects that were both known prior year release and this year the tariff increase step.
This is why I wanted to give you a bit more visibility on what we see or what we expect for the second quarter. We expect this to normalize in the second half of the year in line with our plan. This is an integrated part of our overall guidance buildup as it was two months ago and beginning of March, and it is the same now.
Perfect. Thanks very much. On that, just kind of the potential trimming of capacity, would that happen if you do not see improvement from here or would it need to worsen from here on Q3?
That we reduce capacity, you were saying? I did not hear that.
Yeah. When you are talking about the potential or the willingness to trim capacity growth on the North Atlantic, would bookings need to worsen from here or just remain as they currently are?
If they worsen, if the trend would not meet what we expected to happen, then of course we would continue beyond obviously the revenue management initiatives that we've got in place now, also start gradually to moderate capacity growth. Let me say again, this is moderating growth. This is still growth that we would do, and we would obviously do that very carefully.
Thank you very much.
The next question comes from Jaina Mistry from Jefferies. Please go ahead.
Hi. Thank you for taking my questions. I've got three questions. The first one on your transatlantic business, what proportion of that is European point of sale versus U.S. point of sale? Till, it was really helpful to hear your scenario. If revenues are down 10%, it could be offset by fuel.
Is that currently what you're seeing on the transatlantic softness in Q3, a revenue for transatlantic down 10%? Second question, I might have missed your answer to this earlier, but I wondered if you could quantify the level of cost efficiencies that you've seen so far in Q1 and kind of what's left for the remainder of the year, which buckets do you see the greatest savings potential? My last question, would you mind giving us some guidance for the tax rate for 2025? Thank you.
Let me just be very clear in terms of the kind of equation that I've been talking about in terms of North Atlantic potential revenue decline versus potential fuel upside. No, that's not what we are seeing at the revenue level there.
This is purely a sensitivity, and this is why I said to illustrate by how much that could fall vis-à-vis the fuel price projection based upon current fuel prices. To be very clear, that is not what we are seeing. The second point is, if I have taken note of that correctly, just efficiency, what's left to be done. To be very clear, across the entire portfolio of our Lufthansa Airlines turnaround plan and also the group efficiency programs, we are kind of six to nine months into it. There is still quite a lot to be done and implemented, and this is why I expect the ramp-up as well to happen over the years to come. One component, which has already been in the first quarter, which I think you've been asking for, quite prominent, was the result from much, much better operational stability.
It was very visible in terms of punctuality, regularity, and that has directly translated as well into a 40% reduction in I-REC cost, for example. This is an element tangible. It's there. We can see it and also obviously significantly improving our customers, our travelers' experience with us. The third question on tax rate, look, our mix of the different tax rates across our different destinations leads you to a statutory tax rate of a bit below 25%. Of course, we always have got some elements which alter this tax rate from time to time. It would be probably a plus-minus two-three percentage points with actually the expectation that it would be towards the lower side of that, i.e., below 25%.
That's very helpful. Yes. On the transatlantic fleets. Yeah.
On your first question, that's a moving target depending on which destination in the U.S. and also which time of the year. Obviously, June, May, we've moved significantly towards the U.S. because that's when the Americans travel to Europe. In July, when Europeans go to the U.S., we shift to Europe. As I said in my opening, we're seeing a shift towards the U.S., which results in better yields for us because purchasing willingness is higher in the U.S. than it is in Europe. Also, we are seeing stronger growth from the U.S. than we're seeing out of our home markets and even out of our non-home markets in Europe.
Do you have a sort of?
Don't forget, we have a joint venture with United, so it also depends on which metal you look at, United Airplane or Lufthansa Airplane.
There is not a single number we communicate on this one.
Okay. That's helpful. Thank you.
The next question comes from Andrew Lobbenberg from Barclays. Please go ahead.
Oh, hi there. I'm sorry. I was very late joining the call, so this may have been asked. And if so, I'm sorry. What's the latest on the stranded 787s in the U.S. and how many might come back because there were press reports about them potentially coming over in April, and we're rapidly running out of April? My second question, again, sorry if it's unanswered, is what is the status of the productivity negotiations with the Heinz and FOX for Lufthansa Passagers?
Hello, Andrew.
On the 787, I mentioned in the beginning that we are currently looking at four to five arriving as early as this summer to be operated in Q3 with some limited number of seats being blocked and another four to five ending up anywhere between nine and ten by the end of the year, arriving late in the year without any blocked seats. That is the current status between Collins, Boeing, and the FAA we are looking at. Of course, those with blocked seats would also release the blocked seats by the end of the year. We could be looking at nine to ten aircraft by the end of the year fully usable. As long as we have blocked seats, we will be using the airplanes on medium-haul routes, mainly to ramp up our operations in mechanics, crews, cockpit, and cabin. Productivity negotiations with—sorry.
How many seats on the aircraft are blocked at this time?
We are not exactly sure yet. It will depend on the FAA in the end, but it will surely be a significant part of the business class cabin, which is why using the aircraft on long haul is out of the question for the first weeks. The exact number will be determined by the authorities in the U.S. On productivity negotiations with the Flying Cockpit, I think it's worth to say already we are seeing a significant contribution from Flying Cockpit to the lowering of our crew costs because it's only the latest contract of 2023, which allows us unlimited growth in Lufthansa City Airlines and in Discover. With the contracts we had before, that would not have been possible, but they decided in 2023 to rather go for high salary increases.
On the other hand, for that, we got the freedom to use growth in those airlines I just mentioned. There is already a contribution from the cockpit union towards lowering our crew cost, but not in the main airline. Now, more and more pilots in the main airline indeed have been approaching us, and now formally also Flying Cockpit has approached us, even though the contract is still running. Let's talk if we can find improvements which create a win-win situation. In that case, of course, we would be willing to do so. So far, these talks have got us nowhere. We are continuously increasing the number of airplanes in City Airlines and in Discover and, of course, continuously also, on the other hand, pay the increased salaries at the main line. That's where we currently are. There is a contribution on the cockpit side.
For me, that's important. It would not be fair to say that we don't see a contribution from Flying Cockpit. It's really the contract of 2023, which allowed us these strategic options which we are currently pursuing and Till also referred to.
Nice. Thank you.
The next question comes from Alex Irving from Bernstein. Please go ahead.
Good morning. Two from me, please. First of all, I'd like to circle back on the North Atlantic. Had plenty of discussion on the call about Q3, but given there's limited visibility, I'd like to focus closer in. How are your closing yields on the North Atlantic performing now that we're through Easter? What warning signs, if any, are you seeing there? My second question is on staff numbers. You've spoken today about coming aircraft deliveries and the need to increase labor productivity.
Is it therefore accurate to conclude that you are overcrewed for your current level of production and therefore staff numbers could be flat for an extended period as that growth comes in? I look at your reporting pre-pandemic. It looks like you've got more employees in the airlines now despite lower production. Thank you.
I'll start with the North Atlantic, zooming in a bit more into Q2. I mean, the simple message is with what we are seeing, this is good. We've got more passengers than last year. We can see also business class is performing well. Point of sale U.S. is performing well. In that regard, what also Carsten has commented on in terms of Q2 performance, we are looking at a strong second quarter.
Alex, Carsten, I cannot confirm the over staff because when you introduce 40 aircraft in 20 months, you need to ramp up in staff to be able to bring those airplanes on. Think about cockpit type ratings, which will take easily more than half a year to have one pilot train from one aircraft to the other. Now, with the delays, of course, indeed, this effects last longer than we were hoping for. We will be far or not far. We will be away from going to the same efficiency levels we have seen before COVID with all these new aircraft entering. That is why Till and I on numerous occasions have called 2025 for sure a transition year. To a certain degree, even 2026 will have transitional elements before we go back to full efficiency when the whole rollover has been done.
Yes, the numbers you are seeing are not showing the same efficiency. They cannot with all the new aircraft coming in and different aircraft coming in. Of course, one 320 to another one doesn't make a difference, but the significant refleeting we are doing is causing this not only in cockpit to a certain degree, also in cabin. People always underestimate that also in maintenance, it does take time to train a mechanic for a new airplane. We're doing that currently. Therefore, yes, there is an efficiency and cost impact, which is what Till referred to, the cost we are seeing now. We are very optimistic. It's not the trend we will have when these transition and the Lufthansa Airline turnaround project is over.
All right. Thank you.
Ladies and gentlemen, this was the last question.
I would now like to turn the conference back over to Marc-Dominic Nettesheim for any closing remarks.
Yes. Thank you very much for all your questions, Carsten and Till. Thanks for your answers and the lively discussion. We from Investor Relations are looking forward to continue this discussion over the next weeks. I wish you a lovely afternoon. Thanks and goodbye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect. Thank you for joining and have a pleasant day. Goodbye.