Ladies and gentlemen, welcome to the Lufthansa Group Q2 2025 Results Conference Call and Live Webcast. I'm Moritz, the call's 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.
Yes, thanks a lot. Also from my end, welcome, ladies and gentlemen, to the presentation of our second quarter results 2025. With me sitting here today are our CEO, Carsten Spohr, and our CFO, Till Streichert. They will present our results for the second quarter and discuss our commercial outlook for the remaining six months of the year. At the end, you will have the opportunity to ask your questions. Like always, I want to ask you to limit yourselves to two questions so that everybody has a chance to participate. Thank you very much. Carsten, now with that, I hand over to you.
Yeah, Marc, thank you very much. A warm welcome also from my side to all of you for this year's half-year annuals conference. By nature, it's a quarter. Three months ago, we were speaking about the summer. Till and I announced that we are convinced that the Lufthansa Group is heading for a positive summer in various regards. I think it's fair to say in the summary that now, at the end of July, Till and I can confirm this, despite, and you're all aware of this, a continuous challenging environment due to the geopolitical crisis and global trade conflicts. Nevertheless, we are operationally very stable, economically on track, and maybe most important in terms of sustainability and long-term value creation for our shareholders, we are making solid progress on our key strategic initiatives.
This is particularly remarkable given that, in addition to these global challenges, we as an industry, and even more we as Lufthansa, are still facing the specific issues of delayed aircraft deliveries, although I'm happy to say that there is now light at the end of the tunnel and signs of improvement in this area visible. The industry as a whole, but also we as a company, have become much more resilient. If I think about the geopolitical situation as of today, a few years ago, I'm pretty sure not only us, but also our competitors would give very different outlooks than what we are doing today. The resilience is also reflected, though not only in financials, but also by our high operational stability. Network reliability has significantly improved by 1% to now more than 99%. Our punctuality increased by an impressive 8%.
This shows that our investments and measures, especially those under the Lufthansa Turnaround Program, are delivering results, operational results, but also financial results. Till and I will come to that in a minute. Our customers, once again, now can rely on us to get them to their Holiday destination or to their Business destination on time, with Europe, top Mediterranean destinations once again leading the pack and basically being fully booked this year. On the long haul, it's Japan and Argentina, which are standing out, interesting enough, as much more popular than in the past. We're also on track with the integration of ITA Airways. Besides the turnaround of our core business, this is, next to the fleet modernization, our most important strategic project. We have already expanded the joint culture offering to include our long-haul flights and, of course, our short-haul flights already a few months ago.
We have now harmonized the two frequent flyer programs, Miles & More and Volare. Therefore, also due to these measures, earlier than expected, we see positive financial effects from our investment in ITA Airways already in the second quarter. The success of the overall engagement has exceeded expectations after only a few months already. While I remain optimistic about a strong summer 2025, my outlook is somewhat clouded by the development of our location costs, especially in Germany, but also in Europe in general. The competitive disadvantage tied to location costs in our European home markets is becoming increasingly evident. On top of this, we face constantly rising taxes and fees and a very one-sided regulation from the European Union that puts an additional burden on us as a European operator. Let's return to the positive side of things.
In the second quarter, our Airlines benefited from high demand for tickets and travel. In the first half of this year, we welcomed a total of 61 million passengers on board our aircraft. If you compare that to the previous year, we see an increased capacity of 3.8%, and we were able to successfully place this in the market. Thanks to the improved operational performance, we also reduced the financial impact of irregularities by 38%, which is significant compared to last year. We're also making progress, even though slower than we were hoping for, in our fleet modernization. In June, we put the 10th Airbus A350-900 with the Allegris premium product into service. It's not only the very positive customer feedback, which is coming back from this, but it's also showing a significant yield uplift.
Additionally, we're seeing a high willingness to pay for the various different seating options in the new Business class that confirms and outperforms our expectations for additional ancillary revenues due to Allegris. Nevertheless, this year remains a transition year, again, due to the delayed aircraft, for example. Nevertheless, we were able to achieve a one-third increase in our adjusted EBIT in the second quarter compared to the year before. We went up EUR 185 million to now EUR 871 million. Apart from the improvement we see in our Passenger Airline segment, we also benefit from the continued strong performance of Lufthansa Cargo, which doubled its result to EUR 73 million compared to last year. Even more important in terms of impact and volume financially, Lufthansa Technik is also on track, delivering once again a record level, not quite a record, but record level adjusted EBIT in the first half of this year.
These developments highlight, on the one hand, the improvement in our group's operational profitability and, on the other hand, confirm the effectiveness of our, especially Lufthansa Airlines-focused turnaround measures, which we have implemented for our core brand. Let's have a brief look at the traffic regions before I hand over to Till for more details in the numbers. As you all know, commercially, the North Atlantic remains our by far most important traffic area. We're now at more than 400 flights every week to and from the U.S., and they were, as we also promised you in the Q1 call, well booked in the second quarter. We have significantly grown on the North Atlantic throughout the past half a year, more than our competitors, and we're nevertheless, at the same time, able to keep yields up for this prior year.
The strong demand continues to be driven primarily by the premium classes. Connected with that, we're seeing an increase in ticket sales with a point of sale U.S. On the other side, and we already pointed at that in the Q1 call, we see that demand for flights to the U.S. from our home market, Germany, is growing with some softness and is growing less than the demand from other parts of the world. In the second half of the year, corresponding to that, we are still expanding our capacity on the North Atlantic by about 5%, a little less than the first half, but this will still be above the market average. Maybe more important even, we remain flexible regarding our capacity growth.
This is important, as I said, since our bookings for the coming months show somewhat of a mixed picture between premium and non-premium, and the yields are slightly below last year. We will not only take into consideration, but we will execute on reducing our growth for the fourth quarter, and details to be seen. We also remain flexible on our Asian routes. As you know, last year, we saw significant revenue declines, mainly due to the competitive disadvantage of the closure of the Russian airspace. Consequently, we have reduced our capacity towards Asia, and that succeeded in terms of stabilizing our yields. Nevertheless, we now see very promising developments, particularly to and from South Korea and Japan. We will look at that in terms of additional opportunities.
The bigger picture of things is the geopolitical circumstances, which need to enable a level playing field again, which will only happen when the Russian airspace reopens. Of course, once that happens, we are prepared to act swiftly and accelerate our promising recovery in Asia. Overall, talking about the intercontinental business, I think we're quite satisfied with developments in the second quarter. When we now turn to the European traffic, it's a more mixed picture. We surely see some spillover effects from the softer growth and the softer demand on the North Atlantic, which also results in a little bit softer growth and demand for connecting traffic on short haul. We definitely, in some of our markets, see more intense competition. The already mentioned high location costs in our home market, especially Germany, all that have not only put yields under pressure, but also our results in the second quarter.
We do see a similar market development in the coming months. As one answer out of many to this challenge, we will focus the way in how we steer our continental network. We will introduce soon a more centralized management of our continental network steering across all hub airlines, also for continental, as in short haul, as we have done it now for quite some years on long haul. This will further reduce complexity and increase the efficiency of our short haul capacity in the way how we deploy it among our six hubs. Let's shift our focus to a business segment that continuously withstands macroeconomic turbulences. As a matter of fact, it actually benefits from macroeconomic and geopolitical tensions. It's Lufthansa Cargo.
In the Lufthansa logistics segment, the positive trend in financial performance, which was already evident in the first quarter of the year, could successfully be carried forward to the second quarter. We achieved an adjusted EBIT in Lufthansa Cargo of EUR 73 million, which is an increase of EUR 37 million, or more than doubling compared to its result in 2024. This growth was mainly driven by volume, while the base yield was stable versus prior year. Despite increasing capacity by 3%, the load factor was. Able to be increased by 2% versus the previous year. I think that demonstrates that Lufthansa Cargo was able to profitably utilize its increased capacity based both on the expansion of its freighter network, but also the expansion of its belly capacity of the Passenger Airline business aircraft.
The high demand from Asian e-commerce players and semiconductor producers, as well as capacity constraints in sea freight, led to that underlying increase in demand for Lufthansa Cargo. It is obvious that some of the Cargo, which was supposed to go from Asia to the U.S., is now due to the tariffs redirected towards Europe. As you all know, we are not active very much between China and the U.S., but we are very active between China and Europe, and therefore this played to our advantage at Lufthansa Cargo. On top, since June, Lufthansa Cargo has been able to market the ITA Airways belly capacities, starting with the South American routes through its hub in Rome.
On top of this, we plan to gradually now extend the use of ITA's belly capacities to all continental and Intercontinental routes of our new partner airline, ITA, and basically copy and paste the success model of Lufthansa Cargo with the other belly Cargo airlines in the group. As I mentioned, the prevailing global uncertainties present both opportunities but also risks to the airfreight industry. I think the Lufthansa Cargo available freighter fleet ensures the necessary flexibility needed to adapt swiftly and effectively to those potential shifts in demand pattern. That is also seen by the fact that the recent approach to reestablish more charter contracts, as well as our expertise in handling special goods, leaves Cargo well prepared for what we believe is a positive outlook for Cargo in the next years.
That turns me to an even more strategic and more long-term optimization of another business segment, Technik, which demonstrated Lufthansa Technik once again its strength in the first six months of the year. We achieved another record with an adjusted EBIT of EUR 310 million, and the total revenue in the second quarter alone increased by 8% compared to 2024, which is, I think, reflecting the sustained high demand in this industry. The adjusted EBIT for Q2 stands at EUR 149 million, which is below prior year. It's important to note that last year's second quarter was somewhat inflated by catch-up effects following the strike impact in Q1, and on top, the release of variable compensation provisions. Despite challenges such as tariffs, cost inflation, and ramp-up cost for new international locations, Lufthansa Technik has strengthened its competitiveness through strategic measures, including renegotiations of maintenance contracts to include improved inflation adjustment clauses.
These initiatives not only enable the effective passing on of cost increases to customers, but also secure long-term recurring revenue streams. The growth strategy of Lufthansa Technik, Ambition 2030, is on track, and Lufthansa Technik is successfully focusing on further international expansion and digitalization and expands more and more into the defense sector. Now let me hand over to Till for the financial details and further insights, and then with a few thoughts on the strategic outlook, we will go to questions and answers later on. Thank you.
Thank you, Carsten, and a warm welcome also from my side. Thank you for joining us today to elaborate on our second quarter 2025 results and the financial outlook for the rest of the year. First of all, I'd like to walk you through our Q2 financial performance in a bit more detail.
With an operating result of EUR 871 million, we've clearly exceeded prior year's level, and we are on track to deliver an adjusted EBIT significantly above prior year's level by the end of this year. Let's start at the top. Our total revenues grew by 3% compared to the prior year, broadly in line with our capacity increase of 3.8% in available seat kilometers. Most importantly, this top-line growth translated into the bottom line. In the second quarter, the adjusted EBIT reached EUR 871 million, a strong 27% increase, leading to an operating margin of 8.4%, which is a gain of 1.5 percentage points versus last year. This year-over-year adjusted EBIT improvement of EUR 185 million was mostly supported by four factors.
Of course, revenue growth at our Passenger Airlines, favorable fuel costs, which decreased by EUR 290 million versus 2024, despite the higher production level, or including the higher production level, and the growth of ancillary revenues, which contributed an additional EUR 71 million compared to last year. Lastly, our Cargo business increased its operating result by EUR38 million versus last year. However, one thing is clear cost pressures are not easing. They are there, albeit as expected. Let me highlight a few areas of continued challenges. Material cost excluding fuel rose by more than 9% versus prior year. Fees and charges increased by 11%, especially driven by 18% higher air traffic control costs and 13% higher airport charges. As Carsten has highlighted, this is a serious concern for Germany as a location.
If location cost stays at this level, it will continue to slow down growth and the recovery of flight activities, which is still below 2019 and below our European peers. Lastly, cost for third-party MRO expenses went up by about 19% versus 2023. Going to personnel expenses, they were up by 10%, largely due to the timing of tariff increases from the collective bargaining agreements concluded a year ago, higher variable compensation, and a small increase in workforce. All resulting in a step-up effect, which we already highlighted in our Q1 call. While all of the mentioned cost increases were factored into our plan, they remain out of proportion, and we need to continue tackling them by unlocking productivity gains. That is why the Lufthansa Airlines turnaround remains our number one priority.
Apart from the passenger airline segment, Lufthansa Cargo and Lufthansa Technik have also contributed significantly to our operating result. As Carsten has already mentioned, combined, they delivered an EBIT contribution of more than EUR 220 million and have therefore contributed more than a quarter of our operating result in the second quarter. In doing so, they have successfully mastered the current macro challenges. While Lufthansa Technik has dealt also with a headwind of EUR 20 million due to tariffs, Lufthansa Cargo could keep their base yield stable despite the tariff-related burden on global trade. In Q2, both segments, Lufthansa Cargo and Lufthansa Technik, have proven once again their strategic and commercial value as they stabilize our portfolio and profit streams even in times of volatility. Now, let's look at below the adjusted EBIT line.
Compared to last year, we've seen significant improvement in our financial results, which has helped us to more than double our net income, which is ultimately the figure most relevant for our shareholders. Key drivers include lower income tax expenses due to beneficial audit outcomes for prior periods, resulting in tax repayments and positive valuation effects, particularly from unhedged FX financial debt. On the cash flow side, adjusted free cash flow amounted to EUR 138 million, which is a solid second-quarter result. Now, let's have a look at the result of our Passenger Airline business. In total, the Passenger Airlines operating result amounted to EUR 690 million in the second quarter, which is EUR 109 million above the previous year's level. The overall operating performance reflects the impact of various factors.
In the second quarter, we grew our capacity moderately by 3.8%, which translates into a 95% recovery of 2019 levels in terms of ASK. While the seat load factor remained roughly stable versus the previous year, overall yields were slightly down, mostly driven by the short-haul business within Europe. Meanwhile, intercon yields remained on par with prior year and were driven by stable yields on an FX-adjusted basis in our most significant Intercontinental traffic region, the North Atlantic, while in euro terms, it was slightly negative by 0.8%, and positively strong yields in South America traffic with an almost 5% increase versus last year. Because of the yield softness, RASK also declined versus prior year, and the decline was mitigated to some extent by the positive development of ancillary revenues since flight-related ancillaries rose by 18% versus prior year.
Also, we achieved around EUR 30 million less revenue deductions as compensation payments, thanks to the improved regularity of our flights. These two positive effects are proof points of the success of our turnaround program, which I'll come to in more detail in a second. As mentioned before, cost pressure remains a challenge. As a result, unit cost increased by 4.1%. However, FX-adjusted unit cost increased only by 3.5%. Lastly, we are pleased with ITA Airways' contribution to our Q2 results. 41% of ITA Airways' earnings after tax are included in our adjusted EBIT. In Q2, this contribution amounted to EUR 91 million, largely driven by FX effects and improving operating results. Let me now turn to the Lufthansa Airlines turnaround program, our most critical lever for restoring long-term sustainable profitability in the core of our group.
The first half of 2025 has delivered tangible proof points that our efforts are bearing fruit. As Carsten mentioned, operational stability has reached its highest level since 2017. Punctuality improved by 11 percentage points year-on-year, averaging 77% across the first six months. Beyond these numbers, this performance sends also a very clear message. Lufthansa is regaining the trust of its passengers, and this operational progress has translated into financial impact. Irregularity costs were reduced by 35% compared to the first half of 2024, and this is a direct result of fewer disruptions and a better operational delivery. At the same time, we are taking difficult but necessary structural decisions, including streamlining our support functions while maintaining service quality through digitalization and automation. Additionally, we make progress on several measures all targeting higher efficiency levels.
One key initiative, for example, is the implementation of new crew planning rules and systems, which we expect to lead to a 5% increase in crew productivity next year, which is a considerable leap forward. On the commercial side, we are beginning to see first monetization effects from Allegris. We have achieved yield uplifts of up to 15%. This is a strong validation of our strategy to personalize and differentiate our offer. Ancillary revenues have also seen a significant boost, up more than 25% versus the first half of 2024, and this is driven by a more innovative and targeted approach to upselling, particularly in flight-related services. To sum up, the Lufthansa Airlines turnaround is progressing on all fronts, operationally, structurally, and commercially, and the first half of 2025 has laid a solid foundation.
Our focus now is to maintain this momentum and deliver further improvements in the second half of the year and the years to come. Let's now turn to the cash flow development in the first six months of the year. The operating cash flow was EUR 2.8 billion, surpassing last year's EUR 2.7 billion, supported by seasonally strong ticket prepayments. Compared to last year, changes in trade working capital were around EUR 180 million below the previous year's level. The main reason for the lower trade working capital in 2025 compared to 2024 is a smaller increase in unflown ticket liabilities combined with higher payouts for other payables. In addition, there was an increase in prepaid expenses relating to more wet leases and IT maintenance services. Net CapEx in the first half of the year amounted to EUR1.6 billion.
The number was mainly driven by 10 aircraft deliveries, including one A350, as well as investments in the Cargo hub in Frankfurt and Lufthansa Technik's new facility in Portugal. In total, the adjusted free cash flow amounted to around EUR 1 billion, marking an approximately EUR 150 million improvement versus the first half-year result in 2024. Our balance sheet further strengthened in the first half of 2025. Net debt as of June 30th, 2025, was EUR 5.5 billion, down EUR 289 million from the end of 2024. This decrease, of course, is also relating to the weaker U.S. dollar. Our strong liquidity position ensures that we are well positioned for the upcoming aircraft deliveries and debt maturities. Net pension obligations reduced primarily due to the increase in the discount rate by roughly EUR 340 million, down to EUR 2.2 billion.
The leverage ratio for the last 12 months was 1.7 times as of end of June, which was below the level at the end of 2024 and stable versus the first quarter. This underscores the continued robustness of our balance sheet, as evidenced by holding full investment-grade ratings by all our four rating agencies. Since the beginning of the year, we've seen encouraging developments regarding our fuel cost, and I'm pleased to report that this trend still holds true. As of July 25, which you can see there on the slide, our projected fuel bill for the full year stands at EUR 7.2 billion, which is another EUR 100 million lower than our previous guidance based on April 24 calculations. Remarkably, this figure is also EUR 600 million below last year's fuel costs, despite increased capacity and the additional expenses associated with sustainable aviation fuel.
This positive development reflects the effectiveness of our option-based hedging strategy. It allows us to benefit from falling fuel prices while maintaining a high level of protection against price increases. As of now, 81% of our total fuel requirements for 2025 are hedged, with the Passenger Airline segment well covered at 86%, providing a solid safeguard against fuel price volatility and enhancing therewith our financial stability. For 2026, we have already hedged our Passenger Airline business at about 60%. Finally, the expected cost of SAF remains stable, with an additional expense of EUR 200 million included in our total full-year fuel bill. Of course, the projected fuel cost savings will fully materialize only if fuel prices and exchange rates remain at the current level throughout the remainder of the year. Let me now comment on the financial outlook.
We are confirming our full-year 2025 guidance, which we communicated earlier this year, and the underlying rationale does not differ much from the one presented at the end of April, also due to the fact that the global uncertainties still persist. Those uncertainties still bring both risks and opportunities. Let me share my thoughts on these while reflecting on the progress we've made and also, of course, on the challenges ahead of us. Starting with the broader environment, the demand situation continues to be affected by overall volatility, resulting in current demand softness on the North Atlantic. On the positive side, favorable fuel price developments and FX trends appear to persist for the time being and have already materialized in our half one numbers, as you can see. Taken together, risks and opportunities appear to be broadly balanced.
We are working on what we can control, and we've made good progress so far. The turnaround at Lufthansa Airlines is well on track and has already made meaningful contribution in the first half. We are making progress on fleet modernization. The ITA Airways integration is advancing as planned, and the market for MRO is structurally a growth market. We are ramping up operations in Portugal and Calgary, and Lufthansa Technik continues to be well on track to deliver the Ambition 2030 plan, and Lufthansa Cargo continues to demonstrate its agility in a dynamic market with a strong start into the year. For me, these are proof points that we are capable of delivering against our financial targets, even in the more complex macro environment.
Finally, I want to remind you again that 2025 remains a transition year, but an important one for us to lay the foundation for the successful turnaround of our mainline Lufthansa Airlines. To summarize, the environment is challenging and remains challenging overall, but in total, we have delivered on our half one plan, and our full-year guidance remains in place, and we are actively managing the moving pieces with a clear view toward long-term value creation for our shareholders. With that, let me hand back to Carsten, who will provide you with some thoughts on the strategic outlook.
Still, thank you. Just a few minutes, indeed, on how we jointly believe that we can further strengthen our group for the years to come. An obvious pillar is the modernization of our fleet.
On top of that, of course, also a commitment to innovation, to sustainability, but also to premium customer experience, as we now saw in the recent months. As you probably know, we have by now introduced 10 aircraft offering the Allegris product, being 10 A350s operated out of Munich, and we expect to welcome the first Boeing 787 with the Allegris cabin late this summer, operating out of Frankfurt, with up to nine more to come by the end of the year. In between, we will also welcome the first Airbus A350 in Zurich with a new Swiss Sensus product on board, hopefully just in a couple of weeks. That means that next year alone, we anticipate new aircraft almost on a weekly basis. As a matter of fact, by the end of 2026, we expect another 63 next-generation aircraft to join our fleet.
Looking now at 2028, that means that on wide bodies only, that number, of course, before was including narrow bodies. On wide bodies only, by end of 2028, we will operate 41 Boeing 787s, 16 Boeing 777-9s, 44 Airbus A350-900s, and another 12 A350-1000s in our long-haul fleets. These investments deliver benefits on multiple levels. Of course, the financial impact of our fleet modernization will become clearly visible at our bottom line starting in 2026, full swing 2027 and 2028. Also in terms of customer satisfaction, we have made significant progress compared to last year's levels with Allegris and soon then Swiss Sensus on top. We believe these further premium investments, we are now back to redefining standards in every compartment of our airplanes. On top of that, we're making progress in integrating ITA Airways into our services, including our digital services.
One milestone in this harmonization process, for example, will be the availability of the Lufthansa Travel ID starting September 1st, which will give ITA Airways passengers full access to Lufthansa Group's digital services. That also brings us another step forward strategically in maybe one of our most important targets, the ongoing internationalization of the Lufthansa Group. To this end, we are continuing to build international partnerships and collaborations, such as the expansion of the Lufthansa Cargo United Cargo Joint Venture, which will now include Swiss Cargo as of tomorrow, actually. Already today, we are seeing the benefits of the highly integrated business units across the group, the consistency in operations throughout the customer journey, or when it comes also, of course, to our financial performance.
We will, however, further intensify integration across the company, and thus further improved customer experiences will generate value for our shareholders, and of course, it also will create value for us in the management team in terms of leaner processes, allowing for quicker decision-making. Let me conclude with an outlook on the future development of the group. At Lufthansa Group, we want to increase the level of integration across the group as a driver of value creation for our stakeholders. At the same time, we are very deliberate about our brands, about our products, and the process variety. In general, when it comes to brands and products, we definitely believe in the diversity, in the feel fight of the group, which in a way also reflects the USP of Europe.
When it comes to varieties in processes or in structures, we will only allow that in the future when it either drives commercial value because customers are willing to pay for it. Think about the different styles in Swiss first class, whether it's a Lufthansa first class, or it contributes to cost saving. Think about different CLAs, or, of course, when there are regulatory legal requirements. Think about, again, different AOCs in different countries due to traffic right reasons. These will be exceptions to streamlining processes and organizations. Everything else, we will try to act as one. At the same time, as mentioned, maintain the feel fight where the customers enjoy it. Going forward, I think that's a big step to further optimize the way we work.
We will share more of this with you soon in September when we all welcome you, hopefully, here in what we will have as our first Capital Markets Day since many years, September 29. Till and I would like to invite you to join us most likely in Munich. That's the idea to share with you where we are moving forward in our organization, where we are moving forward with our Lufthansa Technik, Lufthansa Cargo pillars, but also share with you how we use digital and artificial intelligence to further lean processes and reduce cost in the group. We look forward to that, and the invitation will go out for Marc-Dominic Nettesheim soon. With that. Of course, we will also talk about mid-term financial targets and how we believe that we will drive sustainable shareholder returns over the next years. I think today results mark a solid step towards that.
I think it's also obvious thinking about the airplane deliveries that what lies ahead is even more compelling. With that, let me leave it for now and open the floor together with Till for your questions.
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. 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 Jarrod Castle from UBS. Please go ahead.
Good morning, everyone. Just a little bit more on ITA. You included it in your adjusted EBIT number, and I guess if you strip that out, the underlying operating performance is not as good. At the same time, I imagine that you're moving things around across your hub network, so maybe that's the right place to put it. Just to get some color in terms of how you're moving things around and why with the current stake, you think it's right to put it there. Secondly, it looks like the TAP sale process has kicked off, and obviously, relative to Air France and IAG, South America LATAM is a lower part of your mix, and I guess it's something you want to tap into. Do you have any idea of how long the process will be and where things stand there?
A question I asked also on the Air France call was just about Cargo. I know it's very short term, but just to get your color in terms of comps in Q3, Q4, and how you feel about air freight at the moment. Thanks a lot.
Yeah, Jarrod, let me start with your second and third question. I think on TAP, first of all, we all have seen back and forth on this process in the past, and I think also in this, what is the last quarterly call where I said this will take longer than people think. I would think latest developments have confirmed that. It's still no surprise that all major European players being based in London, Paris, or Frankfurt are looking at this. For right now, we are quite happy to focus on ITA, so no rush on our side.
We will then talk about things on M&A when things happen and not only when we forecast them. Cargo, as you rightly said, is the shortest-term business of everything we operate. I think the logic, which I mentioned, that the more geopolitical tensions exist, the more unpredictable the world is, the less predictable our supply chains, and that usually plays to our favor. I would think that, and on top of the fact that Q3 and Q4 are the strong Cargo results, would make me optimistic for Cargo for the rest of the year. On ITA and how we put that into our numbers, I hand over to Till.
Jared, hello. The way we account for ITA is obviously at equity, and it's the 41% that we are putting into our adjusted EBIT. That's the way also in the segment, indeed.
This is the way we handle the minority shareholdings, quite comparable also to SunExpress within the Eurowings accounts. Equally, the joint ventures from Lufthansa Technik, for example, that sit in there. Of course, when you think of ITA, and rightfully, you alluded to the fact of kind of further and deeper integration, which forms part of our synergy case, it is the segment performance which it belongs to.
Thanks very much.
The next question comes from Stephen Furlong from Davy. Please go ahead.
Yes, good morning, gentlemen. Two for me. Just maybe, can I just ask about the weakening U.S. dollar, how you think about that? Obviously, it's going to help fuel, maybe you look at it from aircraft purchases perspective. Or even the way the network is shaped into next summer. I mean, maybe the west to east could be weaker, particularly in economy.
I don't know how you think about that overall. Since I'm talking about aircraft purchases, I think it's very important for your long-term strategic plan. Are the manufacturers telling you, whether it's Boeing or Airbus, that the delivery profile, it's looking more certain now when you'll get deliveries, and you can be pretty confident as you put those plans out to 2028 and beyond that. They won't be kind of delayed by the OEMs? Thank you.
Let me make a start just a little bit on the FX side. Maybe just a short comment only. On the operational cost side, of course, you know that we are U.S. dollar short as a group, which is obviously impacting on the FX impact. We've got a slight benefit from that. It helps the airline business generally.
On Lufthansa Technik, on the upside, it's slightly negative because that's where we've got more contract, more revenue. In U.S. dollar. To your point, taking a view on embedding a dollar rate 2026 into the flight planning, though I'm a bit cautious, we need to see a bit. We'll first focus on where we've got visibility on the aircraft purchases. As a matter of fact, that's where obviously the largest part of it is indeed U.S. dollar based. We've got a hedging strategy, so we secure, we hedge the result at point of purchase with about half of it, and then we'll build up a layered strategy. That's basically on the aircraft side. That's the way I would describe the situation.
Stephen, it's Carsten. On the aircraft manufacturing side, I would like to repeat what I said before on numerous occasions.
We believe that until the end of the decade, we will see bottlenecks in the supply chains of the OEMs and airframe manufacturers, obviously resulting in then delays towards the end customer like us. Nevertheless, of course, we have a plan for 2028, and if I might say that the bad luck Lufthansa had, that we were hit at the worst of all times with COVID and those delays, I think is being reduced now every year starting in 2026. I think 2025, we call it a transition year. We definitely need for the last time on the complete darkness of these delays. The number I gave you, 63 new aircraft by the end of next year.
Of course, I don't know if all 63 will come on time, but just the sheer number shows you that we are now really seeing customer benefits and also financial benefits starting next year of the catch-up of our airplane deliveries, including the doubts if everything will go as promised until the end of the decade.
Can I maybe just add one more point, Jared? Just on the yields, I just want to highlight one more time that on the U.S. On an FX base, or it's only negative right now due to the U.S. dollar, actually. If you would do an ex-FX view, we would have stable yield realized on the North Atlantic. You can see also there the effect.
Okay, thank you. Thanks, Carsten.
The next question comes from Harry Gowers from JP Morgan. Please go ahead.
Yeah, good morning, gents. First question, Till, just on the costs.
I mean, you talk about the consistent cost pressures, so maybe you could talk about your ex-fuel cask expectations over H2. If you're able to walk us through the gross kind of inflationary pressure you still expect to see across those key cost lines, and then maybe how much, if you can give the color, how much absolute or percentage benefit you expect from your various initiatives, restructuring programs, etc., over the second half. Just on the demand outlook, I wanted to ask, in terms of Q3 RASC or early bookings for Q4, has the pricing or the RASC backdrop got worse, do you think, since you last spoke to us a few months ago? In particular, Germany point of sale demand, has that got worse or has decelerated versus earlier this year? Thanks a lot.
Harry, let me start off on the CASC side.
Technically, we are not giving specific CASC guidance for the year or for the specific quarters. Just as a reminder, Q2, obviously, 4.1% CASC increase. Here also, I'd like to add again, excluding FX, it was about 3.5%. In the first quarter, we have achieved a 3% CASC. If you now think of the second half, I would describe it in a way you shouldn't expect any surprises on CASC evolution. We are benefiting from the ramp-up of the Lufthansa Airlines turnaround plan as we progress throughout the year. Of course, then the question of ASK growth, in terms of fixed cost, the digression plays a role into what ultimately the CASC figure is going to look like. Let me be a bit more extensive on the turnaround plan and the progress. We've started some months ago. We've got more than 700 measures.
Three quarters of those measures are fully defined, and we've got more than 300 measures now indeed in flight. It's a very big program, but it is quite impactful already for this year. You can see, and this is a point which I'd like to highlight one more time, the focus on operational stability, which you can see in punctuality and regularity, has had already a substantial impact on the so-called IREC effect, which we were basically able to substantially reduce. This is big progress, and equally, it's not only cost, and you can see many of the examples on the slide, what we are working on. Also on the revenue side, good progression on ancillaries, higher ancillaries, good progression on what we see on Allegris in terms of yield evolution.
These are things that set us up for 2026 and beyond as we ramp up to improve and ramp up the growth of the Lufthansa Airlines turnaround program.
The next question comes from Jaime Rowbotham from Deutsche Bank. Please go ahead.
Oh, thanks very much. I noticed there wasn't time for management to answer Harry's question about RASC and bookings for Q4 and whether the backdrop's got worse or not, so I might let you revisit that. The two topics I'd like to explore, first is for Carsten. In Europe, where you've talked about intensifying competition, are you just alluding to Condor adding low-cost services to feed the long haul, or is this also competition from other low costs? In terms of your lobbying of government on the high German location costs, do you see any evidence at all of openness to potential change, perhaps through lower aviation taxes?
My second topic is for Till. I wanted to come back to the strong ITA result. I think I've understood that the non-operating one-off there meant the contribution was about four times bigger than it would otherwise have been. So $91 million might have been more like $21 million. Perhaps you could confirm that. Then looking at what you've said on slide 10, it sounds like ITA doesn't have any balance sheet hedging for FX, hence moves in dollar-euro can mean material unrealized FX gains and losses through the P&L from mark-to-market belief liability. I presume that's what happened in Q2. Perhaps it's a bit soon, Till, but is there anything you might do there, either putting hedging in place or stripping out the unrealized FX moves so that we get a less volatile contribution from ITA within the Lufthansa results? Thanks very much.
Jaime, Carsten, hello.
Yeah, when it comes to competition in Germany, the biggest competition actually we feel on domestic routes is Deutsche Bahn, the German subsidized railway system, which is very aggressive. We do see, due to the short distances between some of the cities, that that doesn't really hurt us on the connecting traffic because people still prefer to fly to Frankfurt and Munich. On point-to-point, we definitely see that. With this cost structure in Germany to fly point-to-point, like other airlines have pulled out. Of course, partly doing the same thing in Eurowings, we do see more competition, especially from Deutsche Bahn. When it comes to other competitors, obviously, we take everybody seriously. From Istanbul, Paris, Dubai, Neu-Isenburg, Berlin, we look with respect to everybody and find our commercial answers.
When it comes to lobbying location costs, of course, we had a setback just a few days ago that the aviation tax was not yet reduced. If I may say, whenever I go to Berlin, people do understand not so much the problem for Lufthansa because they see our numbers and they see that we are able to move towards Rome or Zurich, but they more and more see the problem for the German export-driven economy. There are parts of Germany, Paderborn, Friedrichshafen, midsize economic centers which are cut off from aviation. I think that argument is working in the heads in Berlin and will eventually feed my optimism that we have seen the worst when it comes to regulatory costs. Have we seen concrete improvements yet? No.
Jamie, thanks for the question on the ITA topic.
It's true that the about EUR 90 million contribution contains an FX effect, which is about EUR 70 million. Nevertheless, you can see that also on the operating result, there's a positive contribution already, even if you strip that out, this effect. You're quite right. When you probably have looked at the results of ITA from also last year, you could see that the fleet is largely a lease fleet. I would phrase it like that. ITA is currently, for us, a minority shareholder, as you know, and therefore I would say at the latest, hedging, of course, would be aligned to the way we look at things and we manage things once we would increase our stake to control. It's true that we are currently also looking at that. For me, that's an open topic at the current stage.
Thanks very much.
The next question comes from Antoine Madre from Bernstein.
Please go ahead.
Yeah, good morning, everyone. For me, please, the first one on Allegris, how are new ancillaries revenue from this product tracking versus plan? Second, how the blocked seats are going? Thank you.
Okay, I understood the second question was about the blocked seats. This is only a topic on the 787. We expect the first aircraft to come in September with blocked seats in Business class. A big part of the Business class will be blocked. We will only use the aircraft initially, for example, to destinations like Montreal, where we don't have much Business class demand, and we already put it into the booking system. By the end of the year, the partners, which are Boeing, Collins, and the FAA, expect that certification to be arriving. By the end of the year, we hope to release then all seats to the market.
When it comes to the yield lift, it's in a double-digit framework easily, and we only have 10 aircraft at the time. We believe that this will even further increase once we are able to put the aircraft on all the routes where yield upselling abilities exist. Overall, as I mentioned, I think in the numbers with Till, our exterior revenues have significantly outperformed our expectations, including Allegris, but not only in Allegris. I think the best is yet to come here as well. This, as you know, was one of the big innovations of Allegris, having differently priced seats in Business class. I even know that some in the capital market were critical.
We are now five different seats, and it works not for all five the same way, but for sure, the strategy and the innovation behind it is proving right, and we will further now optimize that with more aircraft to come.
The next question comes from Andrew Lobbenberg from Barclays. Please go ahead.
Hi, Carsten. Hi, Till. Hi, Marc. Can you talk a little bit about Discover Airlines? Where are the numbers? Where do they sit in? How's it trading? How does it compete against its stripy competitor? My second question might come back to ITA. Till, you precised that it made $20 million in the June quarter benefiting from ITA. I think just recently, there was a business plan approved by the board of ITA. Are you able to offer us any color as to what's in the five-year business plan?
In the context of that $20 million profit in the June quarter, can you offer any color on what the expectations for its profits are for this year? Thank you.
Andrew, Carsten, hello. Discover Airlines, we consolidate the numbers in the Lufthansa Airlines, so we don't show them. As I mentioned before, and I'm happy to repeat that here, they are profitable. They are growing, both now not only in Frankfurt but also in Munich. We expect them to operate up to 33 aircraft by 2027. We are just about to also take a decision on the new generation widebodies, which Discover will need to receive to replace the 330-200s for the longest flights. We are about to do that as well. That, I think, is as much as we are willing to, let's say, publish on this.
You know from our previous comments, we are quite happy how we found initially a niche, but that niche is widening and widening and widening to have leisure-oriented travel out of the German market. With the latest stimulus from the German government, we especially expect in this segment additional fuel for the success of Discover. On ITA, and you maybe saw it on some of the disappointed reactions of some of the Italian unions, we were basically having the option of going on value creation first or to go for market share first. In the dialogue between ITA and us, we have decided to go for profitability and value creation first and not stretch the growth of ITA too much.
That was decided yesterday, and that caused some disappointment in unions who were hoping, of course, for even more jobs to be created, which was a little bit in the Italian media today. We believe that's the right way of going. The profit outlook for 2025, I think it's fair to say this will be the first positive year of ITA, partly due to the first synergies with us, but also due to, of course, a very positive development of the Italian market. On top of that, we have first synergy effects, which I mentioned in my speech. Think about Volare and Miles & More. We have put the first flights from Lufthansa to ITA due to its lower cost and other things. I think there is more to come on that. Already profit in 2025, I think, is a black zero, the CEO of ITA calls it.
It's what also we expect. A little more than zero, to be honest.
Thank you. Just a flag, I've got the clients inviting me to welcome you to answer Harry and Jamie's question on Q3 unit revenues, but I'll leave with you.
Say that again, Andrew? Sorry, we didn't get that.
I think there's a curiosity about, I think there was a question from Harry and also by Jamie. To what extent do you expect Q3 unit revenues, Q3, Q4 unit revenues? How are advanced loads and what commentary can you offer on unit revenues? I appreciate you don't guide, but what commentary can you offer?
If we get you right, this will be a CFO answer. We don't guide on RASK, Andrew, and you know that. That's why we're wondering if we didn't quite get your question. Let me repeat in qualitative terms what I said before.
We said it in Q1 with very soft data. Now we have better data for Q3. There will be a weakening of lower booking classes towards the U.S., especially in Germany, to a little less degree in Austria and Switzerland, and to almost no degree in the rest of Europe. Living in Germany, I do believe there surely is an element of media effect on German. Consumers on the lower end of our price range spending a vacation in the U.S. who are worried about, let's say, the hospitality of the United States. There have been some crazy stories about immigration, which we try to counterargue by saying that we have no proof of additional problems on U.S. immigrations whatsoever on all the 26 airports we serve.
Still, that seems to be an issue, especially in the mind of Germans, interesting enough, not in the mind of our other European travelers going towards the U.S. From the U.S., of course, we have a little bit of a U.S. dollar effect, but putting that aside, as Till said before, we see strong demand from the U.S. in all booking classes. Another third comment, when it comes to premium, we see no weakness in both directions whatsoever. As a matter of fact, first class is even going better than Business class. Business class is going better than premium economy and premium economy better than economy. Nice staggering there. That's what we can say about the North Atlantic. Sorry, Till.
If I may add just one point, of course, at a low level of booking, when we look into October, we see also a positive evolution as we see, but this is, of course, on a lower seatload factor, respectively, sales.
Okay, thank you.
One comment on that. My perception living here is the worst was the Easter days. Remember when there were the crazy announcements made from the White House, Rose Garden, and the people thought globalization blows up? I think with recent developments, still not all to my liking, but still, I think we see now a rationalization of this question, what's happening on the North Atlantic, and that's maybe already reflected in the October numbers, as Till said, too early.
The data point of proof, but looking at the papers and the media, I think we have seen the worst, and I'm pretty sure that what we have seen in Easter is not, and it's proving not to be the trend for the whole future.
Thank you.
The next question comes from Ruairi Cullinane from RBC Capital Markets. Please go ahead.
Good morning, Ruairi Cullinane , RBC. I've got a question linked to the previous question. Just given the later booking profile, can you talk about how close-in bookings have evolved at the end of Q2 and start of Q3? Secondly, just in MRO, how quickly should we expect cost increases and tariffs to be passed through to customers?
Let me start off maybe with the second question, and then we'll, I think the first one we answered already to a large extent in terms of booking evolutions. Look, MRO, as Carsten Spohr has explained already in his part, we've made good progress in terms of generally increasing the recovery or pass-through of inflation-related input cost. You remember that has been one of the topics we talked in the past. There's good progress in terms of new contracts being on a different model, which allows us to recover more of the inflationary cost, and also existing contracts are being renegotiated. The way I would phrase it is good progress. That's clearly there.
Tariffs is a little bit of a different animal because, of course, this came also relatively short-term and appears to be always an almost volatile topic, where also kind of part lists are varying in terms of what tariffs are applied where. Generally, as I said, we suffered in the first half of the year about $20 million headwind from the aluminum and steel tariffs for Lufthansa Technik. We now need to see the exact definitions, how it will play out in the second half of the year. Again, of course, if you just think of the longer term, in the end, this is also an input cost. If it goes up, there needs to be also a certain way of sharing that or passing it on in the end. Okay?
I think it's worth to mention, both Brussels and Washington have confirmed that not only airplanes are out of the tariff scheme, but also aircraft parts. They don't seem to be agreeing on much what they agreed on in Scotland, but this one, interesting enough, both sides of the Atlantic sent the same messages to the industry. Not only airplanes are out, also aircraft parts. That, of course, applies to Lufthansa Technik in a positive way.
The next question comes from Antonio Duarte from Goodbody. Please go ahead.
Good morning, gentlemen. Thank you for taking my questions. Two for me, if I may. One of them is relating to ancillaries. You clearly mentioned quite good performance and growth here or near. I would like to know if all the projects that you intend to roll out are now being completed, or if you're still seeing this type of growth going forward into the full year and into the next year. My second question is about the Middle East impact, if it would be possible for you to quantify this impact, and if you're seeing any adjustments in terms of capacity and deals dropped from this region. Thank you.
Yeah, maybe worth to mention on ancillaries, they're up 25% at Lufthansa Airlines only. If you now look at the fact that a big part of that comes from Allegris, and we only have 10 aircraft out of 200 widebodies now being Allegris, I think that gives you an idea how much more there is to come on ancillaries. Also, the commercialization due to our improved app and the Lufthansa digital hangar, which is continuously improving our app, I think it's the right tool to take advantage of this. In short, yes, we do believe there's much more room for growth. We are very convinced to be seeing. The second question, sorry, none of us caught. If you can repeat that, maybe with a closer to the microphone or a better microphone.
All right. The second question is related to the Middle East. If it would be possible for you to please specify the impact it had on your operations, namely going forward, and any adjustments you're planning to do in terms of capacity and its impact on yields. Thank you.
Thank you. That is the very last question of our conference. I was waiting for that question all morning because the Middle East being taken away from us has a huge impact on profitability for us, which is very unfortunate. There was no question on this whatsoever yet. Yes, we're actually starting Tel Aviv tomorrow. Don't forget, for us in Lufthansa at least, it's not only the traffic between the Middle East and Europe. There's a huge amount of people going onto the North Atlantic out of the Middle East, be it Iran, where we are one of the few operators who have flown to Tehran at all, but also we are very strong as a group in Tel Aviv. Yes, this had a huge impact. We're very happy for various reasons to restart tomorrow.
This is easily a three-digit number we have lost due to the developments there out of the Middle East, which we are now hopefully able to recover step by step starting, interesting enough, tomorrow.
Perfect. 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.
Thanks to all of you for your interest, for dialing in, for the questions, and for the constructive discussions. Thanks to you, Carsten, and to you for your answers. We from Investor Relations are looking forward to continuing the dialogue. To all of those who go on vacation, we wish you a great summer. Thanks, Dr. Suhn.
Ladies and gentlemen, the conference is now concluded, and you may disconnect. Thank you for choosing Coruscore, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.