Ladies and gentlemen, welcome to the conference call and live webcast of Lufthansa Group Q3 2026 results. My name is Sarah, and I am the conference call operator. I would like to remind you that all participants will be in 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, one, and one on your telephone. I would now like to hand the conference over to Marc-Dominik Nettesheim, Head of Investor Relations. Please go ahead.
Sarah, thanks a lot, and welcome, ladies and gentlemen, also from my side to the presentation of today's third quarter result of Lufthansa Group. Today with me on the call is our CEO, Carsten Spohr, and our CFO, Till Streichert, and both will present to you the results for the past quarter and discuss our commercial outlook for the rest of the year. At the end, you will, as always, have the opportunity to ask your questions, but also, like always, please limit yourselves to two questions so that everybody has a chance to ask a question. Please note that today, we will need to end this call on time because both Carsten and Till need to catch a flight to Lisbon. With that, Carsten, hand over to you.
Yeah, thank you, Marc, and a warm welcome from my side to our Q3 earnings call as well. As you're all probably well aware, this quarter was shaped above all by geopolitical tensions and following highly elevated fuel prices, but also by resilient demand across, in our case, all four of our business segments. Our performance, I think, demonstrates both, on the one hand, the strength of our diversified portfolio, and on the other hand, the growing maturity of our industry. The third quarter shows that we were increasingly able to reflect the higher fuel costs in our fares. On the one hand, surely our improved customer offer and quality on board, on the ground contributed to this.
On the other hand, this is another important sign of a more mature industry, as we see a much better balance between demand and supply compared to, for example, before COVID. Also, as mentioned before, the continuing supply chain challenges in our industry for our OEMs and others, in my view, will further enhance this effect in the coming years. For us as a company, though, besides being part of this industry, of course, the customer proposition remains the focus. Higher fares must be matched by a compelling premium experience in all travel classes, starting from reliable operations, better products on the ground and on board, and of course, consistently strong service. That's why our investments in fleet renewal and investments in premiumization remain central to our strategy.
In the current overall industry environment, our scale, our financial strength, and the breadth of our portfolio and network become more and more valuable. Despite the ongoing war in the Middle East, today we are reporting the highest quarterly revenue in our company's history. The revenue increased by 9% year-on-year to now EUR 12.2 billion. The growth was broad-based for the first time this year, with our Network Airlines, Lufthansa Cargo, and Lufthansa Technik all expanding their capacity or production output. The moderate development in cost is particularly encouraging. Unit costs at our Network Airlines increased by just 0.5% year-on-year. This helped, obviously, to increase the adjusted EBIT to EUR 1.4 billion, despite the fuel cost headwind of more than EUR 500 million . The adjusted EBIT margin reached 11.5%.
Flight-related ancillary revenues increased more than 20% year-on-year, demonstrating the growing demand for personalized offers. This quarter's results was driven by the strength of the Group as a whole, as mentioned before. We have Lufthansa Cargo and Lufthansa Technik reporting particularly encouraging earnings growth, and all of our airlines were able to more than offset the additional fuel burden, with only one exception, which I will come to in a minute. This demand resilience is evident across almost all traffic regions. The only exception here is, for understandable reasons, the Middle East. Overall, regional RASK at our Network Airlines increased by more than 5%, driven by a yield growth of almost 7%, while in parallel, capacity increased by 1.6%. This confirms that we are more and more successfully commercializing our modest capacity growth with our clear yield over volume approach paying off.
While the majority of our bookings in the second quarter were, not surprisingly, still made before the increase in oil prices and before the Iran war, this share declined now in the third quarter to just 30%, obviously going down further in Q4 into 2027. Also worth to mention is that the demand picture across regions clearly reflects our midterm strategy, which we have communicated to you, which for us means that we have capacity on routes to South America and Africa growing in the low teens, because we do believe the Southern Hemisphere becomes more important and relevant to us. While at the same time, both markets maintained a positive RASK growth, and that shows how robust the demand for flights to and from this region is. We also see demand in APAC, Asia-Pacific, remaining at high levels.
There surely is some element of stabilization compared to the second quarter, but demand in the region for European carriers, for our nonstop counterparts from Asia, and for us especially, remains elevated. In the third quarter, the capacity here increased 4%, while yields still grew by more than 9%. Last but not least, demand on the North Atlantic accelerated again. Capacity remained flat in our case, while yields in this key region increased by 9%, supported by exceptionally strong premium demand from both sides of the Atlantic, in Europe and from North America. We were able to compensate the fuel cost in this region by more than 100%.
While intercontinental business remains the main value generator for the Lufthansa Airlines, continental traffic also showed a strong trend in Q3, resulting in a yield increase of more than 5%, which was supported by a more streamlined continental network, as well as finally, if I may say, improved corporate demand. Let me now turn to the performance of our four segments. As mentioned, Network Airlines, starting as always with them, faced a strong demand environment, and revenues rose by 5% in the third quarter. The good performance was primarily driven by strong yields, but also by very strong ancillary revenues, which increased by 21% versus last year. This growth was supported on the one hand by an enhanced fare structure, but also by upgrades at an unseen level, and by the more differentiated offerings of our new onboard products, Allegris and SWISS Senses.
While regional RASK improved by more than 5% over the prior year, the overall RASK improved by only 4%. The main reason for this gap is an additional EUR 65 million follow-on impact related to the strikes earlier this year, which hit our financials now in Q3. This impact occurred in Q3 because the claim rate for compensation payments was higher than expected, and therefore exceeded the provisions we had recognized for that. The strike impact is also the reason for another trend. While SWISS, Austrian, and Brussels Airlines all improved their earnings compared with Q3 in 2025, earnings at the Lufthansa core brand declined. That is why the Lufthansa Airlines turnaround remains our focus and remains also our top priority on the management agenda.
Having delivered a successful turnaround in reliability and customer satisfaction, so-called phase one, and eventually also in customer satisfaction being phase two, we now need to accelerate the financial turnaround of our core brand through both already planned measures, as well as additional ones. Our goal is for Lufthansa Airlines to once again be the flagship and benchmark of the Lufthansa Group, also in terms of value creation for our shareholders. To this end, we will accelerate and drive forward quite a few of the initiatives wherever feasible.
Some examples of the big initiatives coming are, for example, the introduction of the Airbus A220 at Lufthansa City Airlines, or the introduction of the Airbus A350 at Discover Airlines, which range will allow us to expand the route portfolio of Discover Airlines, for example, to Seattle in the summer and then San Jose in Costa Rica in the next winter. The consolidation also coming to a third element of the technical operations and the administrations across all three Lufthansa Airlines in Munich and Frankfurt will create value and bring down cost. All in all, the adjusted EBIT of our Network Airlines stood at EUR 853 million, which is around EUR 100 million below last year, largely reflecting the mentioned strike impact. The CASK increase was limited to 0.5%. Till obviously will later elaborate on the underlying drivers.
Coming to [audio distortion] . At Eurowings, [audio distortion] . Maybe there was some technical problem. Should I go back? Maybe we can get some feedback. [audio distortion] We good? Then I will continue. Sorry for those technical problems, but we keep losing our microphones here. Nevertheless, the cost elements remained a headwind for the introduction of the Boeing 737 later in 2027. In total, earnings in our point-to-point segment exceeded last year's earning by EUR 16 million, which is reflecting a recapture rate of more than 100% when comparing the fuel cost headwind with the revenue uplift.
This performance clearly sets Eurowings apart from its European point-to-point competitors, as I mentioned before. The adjusted EBIT more than tripled year-on-year to EUR 162 million in the third quarter, which is typically actually the seasonally weakest quarter for air freight. The strong performance reflects a very robust demand environment with capacity increased by 5%, driven by double-digit growth in belly capacity, mainly due to the now fully integrated belly capacity of ITA. The chargeable weight, though, increased by even 7%, and as a result, load factors increased by more than 3 percentage points. At the same time, pricing remained very strong. Yields increased by 22% year-on-year, as Lufthansa Cargo successfully passed on higher fuel costs while also increasing base yields by 14%.
Demand remains particularly strong in Asia-Pacific, with India standing out as a key growth market, and also transpacific flows are becoming increasingly important for us, even though we are on the other side of the world. Currently, demand is driven by express deliveries on the one hand and by high-margin verticals on the other. These include semiconductors and IT equipment, but also pharma and automotive deliveries. More broadly, Lufthansa Cargo continues to benefit from current supply chain disruptions around the world, but it has also structurally improved its positioning by focusing on those markets and products that matter most in the air freight business and create highest yields and value. At the same time, looking inside Lufthansa Cargo, accelerated automation, productivity measures, and continued cost discipline are improving profitability within Lufthansa Group from a cost perspective.
With that, let me turn to our fourth segment, Lufthansa Technik, which also delivered growth in the third quarter. Global demand for MRO services remained high, driving Lufthansa Technik's revenue up 20% to EUR 2.3 billion, with external revenues actually growing by even more, but they grew by 24%. Engine maintenance and the components business performed particularly well in the third quarter, supported by important new contracts and renewals with airlines from the Gulf, from Japan, and from Canada. Overall, the adjusted EBIT increased by 54% to EUR 200 million, supported by higher shop volumes, now finally improved cost pass-through, and a positive one-off effect from the reimbursement of U.S. tariffs. Lufthansa Technik has also successfully implemented currency hedging to mitigate U.S. dollar volatility, which had impacted, if you might recall, last year's earnings. In addition, Lufthansa Technik's defense business is progressing.
The contractual framework has been agreed with Boeing for the future maintenance of the Bundeswehr Chinook heavy-lift helicopters, where, in general, I think the defense sector will clearly support Lufthansa Technik margin improvement over the medium and long term. Before I conclude, let me say a few words about our multi-hub model and our ambition to move from a group of airlines to one airline group. As we showed you in detail at our Capital Markets Day last year, the consolidation of our continental network is a key structural efficiency lever. By optimizing connectivity across our six hubs, soon seven, by the way, we can maintain overall network reach while reducing complexity and the number of aircraft required.
At the same time, we can reduce transfers from one short-haul continental flight to another short-haul continental flight, our lowest yield and lowest profitability segment, and on the other hand, excuse me, increase the share of more valuable intra-European point-to-point passengers. We have by now already implemented this approach for more or less half of our European destinations, which is 100 out of 200, and this already is allowing us to operate with 23 less short and medium-haul aircraft. For next year, we are targeting a further reduction of seven aircraft, but nevertheless, even though we reduce the group fleet, we are able at the same time to continue significant growth in our most efficient German airlines, Lufthansa City Airlines and Discover, by 12 this year and even 15 next year. And very importantly, this translates directly into financial value.
This measure alone improves the contribution margin of our European business by around one percentage point, or roughly EUR 100 million on a full-year basis. And I think this is a good example of how closer integration across the group is delivering tangible and sustainable efficiency gains, and therefore creating value for our shareholders. But network optimization also means closing gaps. In this context, the news from Lisbon that the Portuguese government has selected us as the successful bidder in the privatization of TAP Air Portugal marks a major step in the long-term development of our group in our strategy to become an even more European company. As you can imagine, I could talk probably for quite some time about the benefits of this deal, but let me narrow it down to the most important strategic and economic aspects. One, our networks are highly complementary with very little overlap.
We currently hold only a 9% market share in traffic flows on the South Atlantic, ranking only sixth. Together with TAP and their 11% market share, we obviously reach 20% combined, bringing us into line with our key competitors. Second, TAP adds Lisbon as an attractive new hub, complemented by established capabilities in MRO, in cargo, and also in loyalty in this growing market. This strategic rationale is underpinned by a compelling and solid business case. We see up to EUR 450 million of annual run rate net synergies, with the transaction expected to be accretive to both our ROCE ambition and earnings per share. For this TAP deal, or for this TAP represents the next steps in our proven consolidation strategy.
We are adding a strong airline and a strong market with a complementary hub to our multi-airline, multi-hub system, while remaining firmly focused on value creation and capital discipline. As we will be in Lisbon, as mentioned by Marc, later this afternoon to actually sign the transaction in the presence of the Portuguese prime minister and the members of his cabinet, I will save further remarks for that occasion. Now happy to hand over to Till, who will provide a further insight into our Q3 financials before we are looking forward to your questions.
Thank you, Carsten, and a warm welcome also from my side. I will now walk you through our third quarter financial performance in a bit more detail before looking at cash flow and our balance sheet. Finally, I will present the outlook for the remainder of the year, as well as the first building blocks for 2027. Let me start by taking a closer look at our Group P&L. In the third quarter, we delivered a solid financial performance exceeding last year's earnings levels, despite a significant fuel cost headwind of more than EUR 500 million. Three factors drove the earnings performance in Q3. First, revenues increased by 9% to EUR 12.2 billion, supported by strong demand across passenger airlines, cargo, and MRO.
At our Network Airlines, disciplined capacity growth of 1.6% in terms of ASK supported pricing and yields, while stable load factors demonstrated our ability to successfully commercialize additional capacity. Lufthansa Cargo also benefited from the additional belly capacity. Second, we maintained tight cost discipline. Excluding fuel, material costs increased by 8% compared to the prior year, primarily due to higher MRO activity at Lufthansa Technik, the ramp-up of Eurowings Holidays, and higher catering expenses.
The latter, of course, together with higher depreciation due to progressing fleet renewal, reflects our continued investment in premiumization at the Network Airlines. In other words, where controllable, cost increases have been limited to those cost items that are either inevitable or do generate value. Third, fuel, however, remained a significant headwind, adding EUR 543 million of additional cost versus last year.
This was net of a positive hedge result contribution of more than EUR 600 million. Despite this 27% fuel cost increase, adjusted EBIT increased by EUR 76 million to EUR 1.4 billion, corresponding to an adjusted EBIT margin of 11.5%, which is only 0.4 percentage points less than last year. All segments improved earnings year on year, except for the Network Airlines, and they are driven by Lufthansa Airlines, where limited capacity growth and additional strike-related customer compensation payments weighed on the result. The Lufthansa Airlines turnaround program will therefore remain a key lever for further earnings improvement. Net income increased by almost EUR 300 million compared to last year, partly reflecting an improved operating result, a negative prior year tax effect from the revaluation of deferred tax assets in Germany, driven by a tax rate change, as well as some book gains from the sale of a 747 aircraft.
Let's have a closer look into our unit cost development, or more precisely into CASK ex-fuel versus prior year at our Network Airlines. Q3 was the first quarter this year in which our Network Airlines returned to year-on-year capacity growth, with ASK increasing by 1.6%. At the same time, we limited the increase in CASK, excluding fuel, to just 0.5%, and this is a significant sequential improvement from 2.5% in Q1 and 3.1% in Q2. Looking at the individual cost items, cost increases were largely driven by higher catering costs as well as higher depreciation based on progressive fleet renewal. Keep in mind that both these cost buckets contribute to premiumization that will support customer satisfaction and a stronger development in unit revenues. Apart from that, maintenance costs remained elevated given high material cost.
Also, personnel expenses rose given salary increases for cockpit, cabin, and ground staff, while the cost increase was mitigated to some extent by a lower number of admin FTE versus prior year. At the same time, we observed cost relief mainly coming from two areas. First, fees and charges declined compared to prior year. While we were able to grow our capacity, we saw a lower number of flights, passengers, starts, and landings, which are the key drivers for fees and charges rather than ASK. Second, other expenses decreased compared to prior year, which was largely driven by a reduction of discretionary project spend. Also, the Lufthansa Airlines turnaround leads to improved operational stability as well as further optimization and digitalization, which additionally ensures that our cost measures are increasingly gaining traction.
While there is clearly more work ahead, Q3 demonstrates that we can combine capacity growth and continued investment in our premium proposition with disciplined unit cost development. Now, let us move to cash flow. Despite lower year-to-date earnings, we generated EUR 1.8 billion of adjusted free cash flow in the first nine months, and that is broadly in line with prior year's level. Operating cash flow amounted to EUR 3.4 billion and was therefore roughly EUR 500 million below last year's level. Apart from lower earnings, lower ticket prepayments based on shorter booking windows led to the year-over-year reduction in operating cash flow. Net CapEx benefited from our increased use of sale and leaseback transactions, amounting to 15 aircraft year-to-date, as well as the cash in from Boeing 747-8 sales.
The sale and leaseback approach supports our objective to maintain a strong balance sheet while continuing the substantial modernization of our fleet. Overall, cash generation therefore remains robust despite the earnings headwinds we have faced so far this year. This brings me to our balance sheet. At the end of September, total liquidity stood at EUR 11.8 billion, comfortably above our target corridor of EUR 8 billion-EUR 10 billion. Our strong liquidity position provides us with headroom in volatile times while also ensuring financial flexibility to invest in our fleet and the strategic development of the group. Net financial debt decreased to EUR 5.9 billion compared with EUR 6.4 billion at year-end 2025, while net pension liabilities decreased by also broadly EUR 500 million versus end of last year as the discount rate in Germany increased by 0.7 percentage points.
Compared to end of 2025, the leverage ratio remained broadly stable at 1.7 x. We continue to hold investment-grade ratings with stable outlooks from four rating agencies and assume that this remains the case in the context of envisaged M&A transactions. Recently, all rating agencies have confirmed that our planned TAP stake acquisition is considered credit neutral, and they view the transaction as strategically positive and strengthening our market position. Let me now proceed with what remains the most significant external headwind for our earnings this year, and that is fuel. Based on current forward curves, we expect a total fuel bill of approximately EUR 9.3 billion for full year 2026. This already incorporates a positive hedge result of roughly EUR 1.9 billion. Nevertheless, our expected fuel bill is still around EUR 2 billion higher than last year.
For the remainder of 2026, 80% of our overall fuel exposure is hedged. For our passenger airlines, the hedge ratio stands at 86%. Lufthansa Cargo does not hedge its fuel requirements directly, but uses its air freight fuel surcharge to mitigate fuel price volatility and pass on fuel price. The 86% hedge ratio at our passenger airlines comprises approximately 50% gas oil options and 35% Brent options, complemented by around 20% jet crack swaps. We introduced these jet fuel hedges opportunistically to make our hedging even more effective, which worked well given good timing decisions during summer. They cover the second half of this year and have meaningfully improved the effectiveness of our hedge portfolio. Going forward, our rule-based hedging strategy will focus exclusively on refined products, which means that we will use only gas oil options and phase out the Brent options.
We are convinced that this is a sensible approach, particularly given the restored high correlation between gas oil and jet fuel prices. Also, for 2027, we have already secured a meaningful protection. More than 60% of our passenger airlines fuel exposure is hedged for the full year and 75% for the first half. These positions were built both systematically since early 2025 and selectively during attractive market windows this year.
While outperforming the market is not the general objective of our hedging strategy, it demonstrates the attractiveness that our hedge portfolio currently provides. Still, hedging can only mitigate, not eliminate, the impact of higher fuel prices. With prices having increased again recently, the absolute level of fuel cost remains a substantial earnings headwind, particularly in the fourth quarter. Let me now turn to the other key lever to mitigate the fuel cost headwind, namely revenue acceleration.
Encouragingly, we entered the fourth quarter with strong commercial momentum. At our Network Airlines, regional RASK improved progressively throughout Q3 from 3.1% year-over-year growth in July to 5.3% in August and to 7.2% in September. This improvement has been primarily driven by strong yields. Our revenue management continues to deliberately prioritize yield over load factors at an early stage of the booking curve. This means that the load factor gaps close through higher-yielding bookings closer to departure.
We saw this pattern working well also throughout the third quarter. Based on the current booking intakes, this momentum continued into October with regional RASK running above 9% versus prior year in comparison. This gives us confidence in the underlying demand environment, which shall ultimately lead to a fuel cost offset. This requires a low double-digit RASK increase, total RASK increase versus prior year in Q4.
Current pricing trends seen in October support that goal. However, closing the remaining load factor gaps remains an important factor for the rest of the year. Let me conclude with our financial outlook. As we approach year-end, we are narrowing our full-year adjusted EBIT guidance to EUR 1.7 billion-EUR 2.0 billion. This reflects two factors. First, with less of the year remaining, this naturally narrows down the range of potential outcomes. Second, fuel prices have increased since our half-one results release, raising the earnings headwinds we need to offset in the final quarter. As mentioned earlier, we now expect a full-year fuel bill of about EUR 9.3 billion, around EUR 600 million higher than anticipated three months ago. At the same time, several swing factors persist, which explains the remaining guidance range. First, fuel.
Continuous price volatility still leaves some uncertainty around the fuel bill, which we have to face. Second, demand. Demand remains difficult to predict. Strong yields of 12%-16% higher compared to prior year are encouraging, but the eventual RASK performance depends on closing load factor gaps shortly before departure, as explained before. Keep in mind that current load factor gaps can still amount up to 5 percentage points versus prior year.
Revenue management will steer each month individually, as each month has a different dynamic based on seasonality, leisure versus corporate, et cetera, to capture demand in the best possible way. Third, cargo. Given that year-to-date earnings are already at EUR 361 million and there's no sign of earnings softening going forward, adjusted EBIT of Lufthansa Cargo is likely to comfortably surpass EUR 500 million in full year 2026, with possibly even more positive dynamic.
While this upside potential is very likely to materialize, a high degree of uncertainty still remains as visibility in the air freight business is usually limited to about two weeks booking in advance. For net CapEx, we now expect around EUR 2.1 billion, down from EUR 2.5 billion, mainly due to fewer aircraft deliveries. We expect 38 aircraft this year versus 45 at the beginning of the year, and adjusted free cash flow guidance remains unchanged at around EUR 900 million, with lower CapEx offsetting the lower operating result. Looking ahead to 2027, our priorities are clear. We intend to shift growth further toward intercon flying while keeping con capacity broadly flat. In total, we target a mid-single-digit growth rate in terms of ASK in 2027 compared to 2026, and growth will focus on intercon traffic.
While the overall growth rate might sound high at first glance, please keep in mind that the 2026 comparison base was affected by capacity cuts due to the strikes, Middle East disruptions, and the grounding of CityLine. When adjusting for all these effects, the ASK growth rate is rather low single digit, with cont capacity expected to shrink year-over-year. Capacity growth will support fixed cost degression. Moreover, strict cost discipline will, of course, be maintained, and as a result, we aim at a year-on-year reduction in CASK across ex-fuel across Network Airlines. At Lufthansa Airlines, we plan to reduce the share of wide-body reserve aircraft by about a fourth. This will improve asset utilization and productivity.
And let's not forget, 2027 will mark the next major step in the ITA integration, as we soon expect to complete the acquisition of the additional 49% stake in ITA Airways, subject to the required regulatory approvals, taking Lufthansa Group's ownership to 90%. This will pave the way for ITA's full organizational and financial integration into Lufthansa Group. Let me close with one important point. Fuel cost pressure will remain with us, let me say the industry, into 2027. Despite our comparatively strong hedge position, based on the current forward curve, we expect next year's fuel bill to exceed the level of 2026. For sure, if the geopolitical situation improves, fuel prices can also come down again. At the same time, the fundamentals remain supportive. Demand is robust, and the industry-wide supply-demand balance remains favorable.
Most importantly, we are focused on what we can control, selective capacity deployment, disciplined commercial steering, and rigorous cost control. Delivering on these priorities will keep moving us forward toward our midterm targets. With that, Carsten and I are happy to take your questions.
Thank you. If you would like to ask a question, you will need to press star, one, and one on your telephone and wait for your name to be announced. To withdraw your question, you can press star, one, and one again. We would kindly ask that questions are limited to two maximum per person. Thank you. We will now start with our first question, and this is from James Hollins from BNP Paribas. Please go ahead.
Yeah, thanks very much. Firstly, Till, well, congratulations on your new contract, Till. Well deserved. If we go back to ITA, I was wondering if you could give us an update on when it's likely to complete. I don't know if you have any more clarity now than you had before. More importantly, Till, how you would see that impacting your balance sheet, you know, taking on ITA leases, et cetera, once it's fully consolidated. The second one would be on the 777X. At the last call, I think you were hopeful that in Q1 2027 you'd see deliveries. I assume that's moved. So I was wondering how we're thinking about that aircraft, as well as 2027 deliveries and CapEx as a whole. Thank you.
Perfect. James, thanks for the question. Let me take the ITA section. We do expect completion of ITA in Q1, of course, still subject to some outstanding regulatory approvals, but we are reasonably confident that it will going to happen then. I am quite pleased with that, because with that, obviously, we have got full consolidation. We are giving you actually a fair amount of detail on the ITA financials in our disclosure this time around, so you can actually also work through that and see what the financial impacts are. The first one, which is noteworthy, is, of course, that with that, we lose the volatility on the lease liability movement, which right now still comes at equity to us. This obviously, through the effect of hedging, will be eliminated going forward, and we have got proper line-by-line contribution of ITA into our results.
And there, let me also say, year-to-date, ITA has positively evolved. Also year-over-year, their adjusted EBIT has positively evolved. And of course, I am looking forward to see that in our numbers. That is the one thing. The other thing is, of course, when you do full consolidation, you do full balance sheet, including also the debt side. You can see that. Nonetheless, when you think of it, I think I spoke about it in our Q1 or Q2 results, I expect investment-grade rating to be unaffected, and we have got the requisite rating confirmations from S&P and Moody's. As you know, they published it a few months ago, so quite comfortable on that.
Yeah, just quickly on the 777-9. As you probably know by now, Boeing has officially confirmed what we already hinted at the last quarterly analyst call, that there will be no delivery in Q1. We are now looking at Q2, which means for us that we already activated what I called plan B, no 777-9 in the schedule for the summer, but rather in additional numbers of Airbus A340-300 to cover those routes. We expect a low single number of deliveries in single-digit number of deliveries in 2027. Once the airplane arrives, of course, it will replace a 343. And then going into 2028, also with lower numbers of deliveries, we are currently looking at reallocating Boeing 787 deliveries, which were intended to go to Vienna, to bring them to Frankfurt to cover that gap to make sure that the schedule can be maintained.
There, of course, will also be an impact on CapEx, but that probably is too early now to define in more detail. So we have a solution, but I wish the airplane was there, no doubt.
Okay, thank you.
Thank you. We will now take our next question. This is from Jarrod Castle from UBS. Please go ahead.
Thank you. Good morning, everyone. Can you just give an update on staff negotiations, how they're going, and how you see maybe costs going into next year, please? Then, maybe this is one for 12-plus months' time, but you're going to have seven hubs. I mean, is there scope to kind of rationalize the number of hubs, maybe sell one of the partner airlines, Brussels, for instance? Just how you're thinking about that. I guess related, I mean, is there scope to go beyond seven hubs, actually? Thanks.
Jarrod, yeah, thanks. I think when you talk about unions and staff, you probably think about our two specialized unions for cockpit and cabin crew in Lufthansa Classic, because you probably know that the union for all other staff by now is Verdi, with whom we have reached long-term agreements over the last years and months. So, when it comes to Lufthansa Classic, I'm happy to say that we are in constructive dialogue with both, and there is joint interest to reduce the speed of shrinking of the Lufthansa Classic fleet, and therefore number of jobs. I think that's a common denominator which drives these talks, and that's why my optimism is remaining. When it comes to costs, I think there's somewhat of a natural hedge. The more the cost will go down, more airplanes will be operated in the core.
On the other hand, the less costs go down, less our aircraft will be operated there, and more will be operated with our lower-cost airlines, City Airlines and Discover. I think when it comes from an investor perspective, we have kind of a hedge either way, and we will see how the talks turn out. Number of hubs, I think we do not operate our hubs as only contribution to the overall system. We also operate the hubs to create value in itself. If you look at Vienna, if you look at Brussels, these are profitable operations, and therefore, they do create value. But of course, your question probably points to the direction, do we need to reduce the overall complexity admin functions? Do we need an AOC at every hub? Can we put them together? These are things we are looking at.
Surely Brussels and Vienna, we believe there could be less local value creation in terms of admin, in terms of things which can be done jointly. That is something we are looking at. I explained in my little opening how we are now using all our hubs to reduce, for example, the number of short-haul aircraft to create the same long-haul complexity. This was called Matrix Next Level in our transformation process, and I think we have come a long way. I mentioned that 1 percentage point of value creation from short haul. Lisbon, I think, is a different topic. Lisbon is 2,000 km away, hardly any overlap, very much focused on Portugal, Africa, and Latin America. But I think it is the closely co-located hubs in the center of Europe where we see efficiencies both on the network side and potentially also the way we manage the airlines themselves.
Thanks very much.
Thank you. We will now take the next question. This is from Harry Gowers, JP Morgan. Please go ahead.
Morning, gents. First question I just wanted to ask was, I mean, you're obviously saying that fuel will be up year-over-year next year, which I think is quite clear looking at the forward fuel rates. Maybe what sort of magnitude of fuel headwinds you're looking at year-over-year for 2027 versus 2026 when you look at the forward picture? Second question, I wanted to ask you as well on 2027 capacity growth. I mean, I get the comparatives in terms of the strike impact in Middle East from this year means the underlying growth will be a bit lower. But why is mid-single-digit percentage ASK growth the right number for next year, just given the fuel backdrop as well? It just seems at face value to maybe be quite high relative to how other airlines are thinking about growth next year.
Are you worried that that could put some pressure on the very strong pricing we're seeing at the moment? Thanks a lot.
Hi, Harry. So, look, in terms of 2027, to be honest, it's also a bit early to really draw meaningful conclusions on how 2027 we're going to look like. If the geopolitical situation improves, I would also hope and expect that you see some improvement in the forward curve. But it's true, as of now, it is where it is. Let me also say, and maybe there I can give you some pointers why I'm saying, yes, I see it above 2026 levels as it stands right now. But we have, for the first half of the year, about 75% of volume hedged, and for the full year, about 60% of the volume. And the pointer is, about close to 40%, 38% were basically hedged on pre-crisis levels, pricing levels.
That was available in the portfolio, that we had in the portfolio already before the Iran crisis actually started. The rest we obviously did selectively during this year. The total value of that, just mark to market for next year versus today's forward curve, is in excess, well in excess of EUR 1 billion also. So, that's where you can also see the effectiveness of our hedges in the future. Capacity growth, let me answer that. Mid-single digit. Look, just at first glance, it looks high. Please bear in mind that there is a low comparison base this year. Where is it coming from? Just as a reminder, the Middle East cancellations we had, we had the strike days, which were basically reducing capacity, and of course, the grounding of CityLine, which all lowered the 2026 base.
And if you look at an adjusted base, so like for like, the low single digit, it is more low single digit instead of mid-single digit. Now, where does it go? Where do we allocate that growth? Why do we think that is the right capacity allocation? Growth is only in intercont, while cont is actually expected to shrink. This is in line and following what Carsten also explained in terms of cont consolidation strategy, where you see us making further inroads. You can see also this year how successful this has been, and I expect more to happen in 2027.
Thanks a lot, though.
Thank you. We will now take the next question. This is from Muneeba Kayani from Bank of America. Please go ahead.
Yes, good morning. Thanks for taking my questions. Just wanted to understand some of the moving parts on Network Airlines. In the third quarter, the headline RASK had the strikes impact. For 4Q, thank you very much for the details on the regional RASK trend and the improving trend you have seen over the last few months. How should we be adjusting the over 10% regional RASK outlook to the headline number? Is there anything that you would point out, is the first question. Then secondly, unit costs, 0.5% in 3Q, big improvement. Can you give a steer on what your expectation is for the fourth quarter on unit costs? Then, on the RASK question, is that 10% trend, is that continuing into the early part of 2027 to the extent you have bookings at this point? Thank you.
Hi, Muneeba. I will start with the CASK question. Q3 was a bit of a turning point. Again, also, I mean, that was not unexpected because Q2 was obviously a quarter where we suffered also a number of extraordinary events, as you will remember. Q3 was the first quarter where we returned back to some moderate growth. I expect that also Q4 is showing some moderate growth. Cost discipline worked, and we continue to progress, and therefore, the 0.5% in the third quarter, it is maybe not the perfect blueprint for painting the way forward, but I would expect that the fourth quarter is not too far off that 0.5%, give or take, or maybe below 1% roughly, in terms of CASK growth. As I said before, into 2027, I would actually foresee for the Network Airlines basically a CASK reduction. That is on cost.
On RASK, happy with the momentum that we have seen in the third quarter. Please bear in mind that the third quarter, Carsten mentioned it, we still had 30% of bookings from prior Iran crisis beginning, and of course, only for the remainder, you could basically reprice. That in the fourth quarter is improving from a volume point of view. October, we have given you the figure at a regional RASK level, kind of 9%, but I do expect for the fourth quarter at a total RASK level to actually be in the teens. How is this moving forward into 2027? We have, of course, bookings also into 2027, and we see basically this trend continued.
Thank you.
Thank you. We will now take our next question. This is from Ruairi Cullinane from RBC Capital Markets. Please go ahead.
Yes, thank you for taking my questions. Perhaps if I could follow up on the last question. Clearly in long haul, the prior year comps in terms of RASK start to step up. How should we expect you to price from Q2 onwards? Secondly, perhaps if I could follow up on Harry's question on fuel. Would you be able to tell us how your hedge prices compare in FY 2027 year-over-year? Is that something you could help us with? Thank you.
Look, on the hedge side, on the fuel side, I won't be going into too much detail on this, but you can assume that those hedges in the portfolio that we did prior to March obviously are orientated on the price levels at that point in time. I gave you the figure, it was a bit less than 40% contribution. Of course, those hedges which we selectively did during this year at good times, still, I mean, look at where the prices were, have come in at a higher level than basically those ones prior to March 2026. Therefore, the blended portfolio, of course, is a little higher than what we've been facing basically, or what we've been benefiting from in 2026. Let me put it like that.
Look, more to come when we speak on our full-year results, then I think we're also going to have a clearer picture on fuel and jet fuel pricing. RASK beyond, if I understood your question correctly, you were asking Q2 2027 RASK. This is pretty long out. Of course, we've got some bookings, and they are in line with our strategy to build the portfolio yield-based. There, yields are looking strong, but of course, seat load factors to look into Q2 2027, it's still early.
Thank you.
Thank you. Due to time constraints, we do need to close on time today. Could we please ask the next callers to limit to one question each? Thank you. Next question is from Axel Stasse from Morgan Stanley. Please go ahead.
Yeah. Morning, everyone. Thanks for taking my two questions. Just coming back, sorry, on this RASK, because the sequential pickup is quite interesting here. Are you seeing any competition coming from the Gulf carriers, especially on the leisure traffic going to Q4 and to Q1 2027 as well? On the second question, it's on the CASK ex-fuel. I think you guys did a great job on the network side. What about point-to-point? I think it was slightly higher than the 50 basis points in the network. How should we look at this going to Q4, and potentially any clarification you could give going to 2027? Thank you.
Okay, I'll start off with the CASK question. Yeah, so network, we covered point-to-point. When you look at it quarter on quarter, actually the third quarter was improved in terms of CASK evolution, so kind of happy with that. Bear in mind that, of course, fourth quarter is a bit of a different one in terms of capacity, also for the leisure segment. Of course, we also have got a little bit of a stage length effect in that, because Middle East routes that have also been flown or serviced by Eurowings have been replaced with basically more European destinations. That's it. In the third quarter, Eurowings, I mean, the main item I would highlight is probably MRO cost, which was relatively high and basically still kept CASK in comparison to the Network Airlines on a higher level.
When it comes to the Gulf carriers, it's obvious that what we saw in Q2, where the Gulf was probably maybe blocked, we have not seen in Q3. Still, if you look at our Asia-Pacific numbers, you see both, I think, the dynamic of the market. I was actually there last week. Japan, we're growing 50% compared to two years ago, with very attractive profits. As well, of course, we do have, especially on the corporate side, some European companies, some Asian companies who don't allow their staff anymore to go via the Gulf, which is also stabilizing, allowing our premium cabin loads on our Asia-Pacific flights. Nevertheless, at the lower end of the business, usually right, there are some very competitive offers in the market, but that's not what we are looking at to optimize our profitability as much as we look at the premium cabins.
Optimism also now for the winter season continues that we will see a different profitability and also share of our traffic to and from Asia than we have seen before the Iran war.
Thank you.
Thank you. We come to our final question today. This is from Marc Zeck from Kepler Cheuvreux. Please go ahead.
Thank you very much for taking my question. Just another one on RASK again. Given the current fuel curve and your hedge book, what RASK uplift would you need in 2027 to recover the higher fuel costs? That's the question. Thank you.
Look, it's a bit early to really speak about 2027. Let me say, I'm building on Q4 momentum. Q4, as I said, total RASK expected to reach the teens. Our ingoing hypothesis is, with the demand that we see on the traveler side, on the customer side, we'll pass on fuel cost into ticket prices ultimately. That's the assumption. Therefore, you have to build on a Q4 and basically take it from there. As I said, also Jan/Feb bookings are currently, we see that basically progressing in the level we see in Q4. Again, it's a balance of demand strength and supply scarcity that ultimately forms also the fundamentals of the industry. Therefore, I think this is beneficial as such. Let me also say, Q4, we do target with the figures I've given you, 100% recapture rate at the fuel level.
There was this principle, we will also move forward into 2027.
Marc-
Thank you.
Because we have to come to an end, Carsten here, because Till and I need to catch our flight to Lisbon. The schedule is not as dense yet as it will be once we have invested. I think that question and the answer of Till wonderfully rounds up our opening. The industry has matured. I'm very aware that today is not about the industry, but our company results. But the behavior in the market, of course, fuel, but also the shortage of airplanes, but also how we all have learned that our products can be sold at higher values and customers are still there. As one of my U.S. competitors said before, "We sold too cheap for many years." The market, of course, has created a new equilibrium.
And that, I think, wherever the fuel is, gives me confidence that this industry has learned to maximize the value of its products in a different way than we have done it before. That's partly the optimism fueling us going into 2027 beyond the numbers we showed you today. Thank you all for your interest. Sorry for cutting it short, but the Prime Minister is waiting, and we worked so hard on getting that deal. I do not want to miss the signing. Thank you very much.
Thank you. This concludes today's conference. Thank you for participating, and you may now disconnect.