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Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Lufthansa Group First Quarter 2023 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Dennis Weber.
Good morning, ladies and gentlemen, and welcome to the presentation of our results for the first quarter of 2023. With me on the call today are our CEO, Carsten Spohr; and our CFO, Remco Steenbergen. They will show you where we are after the first quarter and ahead of what we believe will be a very strong summer. Afterwards, you will have the opportunity to ask your questions. In order to give everybody the chance to speak, I would like to ask you already now to limit your questions to two. Thank you.
Carsten, over to you.
Thank you, Dennis, and good morning ladies and gentlemen. Warm welcome from Frankfurt. And as every year, obviously, the interim reports for the first quarter gives us a chance to take stock for the first time in a new year, which will be one more exciting year, I can promise you already. But today, looking at the results from the first quarter, at the very beginning of May, we have already quite some good visibility on how the upcoming summer months will develop, how well we are progressing in our key areas of action for the whole year and how robust and resilient our flight operations currently are.
And I think I can summarize in all modesty, all three-in-one sentence that the Lufthansa Group is on track. We – I'm proud to say that we deliver on our promises and taking a few numbers into account that, for example, is shown by the fact that in the first quarter, we have halved our loss compared to the previous year and closed the quarter with an adjusted EBIT of minus €273 million only.
We increased our group revenues by 40% to now €7 billion and particularly encouraging is to further increase in the number of our passengers. Our airlines welcomed a total of 22 million passengers on board, which is 9 million more than the first quarter of last year. We also succeeded in maintaining the high yield level. In the first quarter of the year, yields were 19% above the level of 2019 and the yield levels reflected in our bookings for the rest of the year confirm our very optimistic outlook.
Our operating cash flow remained high at €1.6 billion, which enabled us to make investments in the magnitude of €1 billion in the first quarter only. And after all, this first quarter does show that we are on track economically. And Remco, of course, will go into more detail in just a minute. But ladies and gentlemen, I think it's also important that we are on-track regarding the operational stability and the operational reliability of our flight operations.
The Easter travel wave obviously, was the first major test for the year. And I'm very – somewhere between proud and relief to be honest, that I can say that we mastered it successfully. Over 4 million passengers flew with our airlines during the Easter vacations twice as many as in 2022. And the fact that this went very stable gives us confidence for the summer. But nevertheless, obviously, the preparations for summer remain a top priority for us across all our passenger airlines. And this is key as our advanced bookings for the summer months are very, very strong.
On short and medium haul touristic routes, demand already exceeds 2019 levels. Many flights are already fully booked. And we are on the verge of the strongest summer in our company's history in terms of traffic revenue. And there is no doubt the utilization of our aircraft will be at high levels for the summer. Regarding the passenger mix, the trend towards higher value bookings for private travel remains completely unchanged and thereby premium level – leisure travelers almost completely compensate for the share of business travelers in our premium classes who have not yet completely returned.
Incoming bookings from companies remain just around 60% of the pre-crisis levels in terms of passengers. In terms of revenue, we're already back above 70%. The further opening of Asia will for sure and very particularly lead to a greater booking momentum, especially in this corporate segment, so that number to previous figures before the pandemic will shrink further. And that, of course, will also have a very positive effect on further increase in demand for the premium classes.
And I think I speak on behalf of everybody in Lufthansa when I say that we are fully determined also in view of this very positive outlook to do everything possibly we can do to ensure smooth summer flight operations. In the first 3 months alone of this year, we hired 4,500 new employees worldwide, primarily in operational roles at our airlines and Lufthansa Technik. Including the month of April, this figure actually has risen to more than 6,000 people around the world.
The high demand for personnel results on the one hand, from regular staff turnover, obviously, which we have to compensate for. But on the other hand, we are deliberately increasing capacities in operational areas with the aim to obviously ensure stable and partial flight operations also at the peak times of this summer. At the same time, we have put numerous operational procedures and processes to the test. We have built-in additional buffers at critical points, for example, in crew scheduling and the rotation planning of our aircraft.
All these measures obviously cost a lot of money, and they cost some productivity, but we are deliberately accepting this for the year of 2023, not forever, of course, because operational stability and the resilience of our system are the top priority for this very year. Once we have achieved this, we were going to move then our focus again on making significant progress in efficiency and productivity in the coming year, 2024 and beyond. And then obviously, will have significant unit cost reductions with it starting next year.
Ladies and gentlemen, in Air transport every link in the process chain counts. That's why we have evolved our system partners very, very intensively in the preparations for the summer 2023. We're having conversations on quality with all our partners from airports and ground handling service providers up to air traffic control. In addition, we continue to develop our digital services.
For example, with additional functions in our newly designed app, this also includes improving the options for our customers, should their travel plans not go according to plan. Site operations will not be perfect this summer. I have emphasized that several times, but I'm very confident that it will be better than last year.
Ladies and gentlemen, from the operational to the strategic side of our business. Here, too, fair to say, we think Lufthansa is on track. And also here, deliver – we are delivering what we promised. Our strategy is clear. It's mighty airline, mighty hub, mighty brand. And in regard to diversity, we consider it as a central and strategic success factor. Above all, because our customers benefit from it.
The quality of our road network and the individual choice we can offer our customers would be impossible without the diversity of our airlines, our hubs, and our brands. This is also reflected in the above-average loyalty of our customers, compared to other competitors. The number of our HON Circle members, our most loyal customers is increasing by 20% this year compared to pre-pandemic in 2019. But it's not only our most active HON travel or HON Circle frequent flyers who are easily awaiting the arrival of our first Lufthansa Allegris with the new Allegris class on board.
In the fourth quarter, Allegris will enter scheduled service on a Boeing 787 initially. And in January next year, the first 350 where the new Allegris also first-class will follow. Similarly, SWISS guests are looking forward to a refined long-haul experience as well, which will be introduced under the Swiss Senses brand by 2025 latest that's when the first Airbus 350 will also be delivered to Swiss.
In total, our airlines will receive 30,000 new seats in all travel classes and even if these come from the same manufacturers they will have an individual look and feel on board of our airlines, in-line with the positioning of the respective brand, but we naturally organized the development of the new seats, as well as the procurement of the whole cabin equipment centrally within the group for all the airlines belonging to the group. This is just one example of how we strengthen the character of our brands and create synergies at the same time.
The potential of our business model is particularly evident in the current phase of conjugation in Europe, different airlines with their own identity and brand, finally or firmly – sorry, not finally, firmly anchored in their home markets, successful at their respective hubs, and differentiated, not just by geography, but also by customer segment. And all of that under the umbrella of the Lufthansa Group.
With this formula of success, we're convinced to combine customer benefits and the creation of synergies. And only together, we can achieve as a Group, the scale to play in the top global league. And you might have already read that in my speech for our Annual General Meeting next week, we consider the expansion of our airline group through the potential acquisition of a stake in Italy's ITA to be a beneficial and logical next step in developing this business model further.
And the Italian government clearly considers the Lufthansa Group as the best home that will ensure a good future for its national airline. And that's why not surprisingly, our talks here are on the right track. The same applies to talks with potential investors on the possible sale of a minority stake in Lufthansa Technik in the coming months, we will also take a decision on this issue as well. The announced sale of the remaining part of LSG was finally agreed in the beginning of April. We expect this transaction to be completed in the third quarter of this year.
Ladies and gentlemen, as mentioned, we are convinced that we have put the Lufthansa Group back on track and we are proud to deliver what we have promised. We achieved an unprecedented turnaround last year, and we started with a very promising first quarter in 2023. We're well on track to achieve our targets for 2024, which is an adjusted EBIT margin of 8% and a return on capital employed of more than 10%.
Numerous product and service improvements at all airlines and in all areas are increasingly rolled out to our customers, new aircraft, new cabin interiors, modernized lounges, significantly improved accessibility of service centers, which was a big issue last year, and new and optimized additional digital offerings, much, much more, and the list is too long to mention in detail.
All that results in advanced bookings indicating a record summer for our traffic revenues and very important, we are back to creating value for our shareholders. We are also making further progress with the development of our portfolio. The sale of LSG has been agreed and as mentioned, talks with Italy are well underway. And last but not least, our economic recovery creates new prospects and very attractive career development opportunities for our existing employees and for the 20,000 new employees, which we are recruiting as a matter of fact, faster than planned.
To conclude, the team here is convinced that the Lufthansa Group is well-positioned for a successful future in our exciting global industry and now over to you, Remco for a discussion of our quarterly results in more detail and of course, our financial outlook. Thanks for listening so far.
Thank you, Carsten, and good morning, everybody. Let me start by giving you my perspective on our first quarter results. We recorded an operating loss of €273 million. This is related to the shape of the recovery, which means that the seasonality of our business is even more extreme than before the crisis. Leisure, the customer segment, which is recovering the fastest and the strongest plays an only minor role in the first quarter, especially January and February are almost exclusively corporate travel months where the recovery progresses more slowly.
Having this in mind, though, we are pleased with these results as the adjusted EBIT in the first quarter was better than the 2019 loss of €336 million. Adjusted free cash flow was €482 million, with a disproportionately high CapEx of around €1 million, due to the carryover of last year. Our net CapEx for the full-year is still expected to be in the range of €2.5 million to €3.0 million.
In the first quarter, we were very satisfied with the demand and the yields of the bookings that we collected. Therefore, we are optimistic about our financial performance for the rest of the year. In our Passenger Airlines business, we have halved the prior year loss, thanks to higher yields and an increase in the load factors. Yields were 19% above the 2019 level, driven by ongoing strength across all long-haul markets as well as good performance in the short haul, where the year-on-year improvement was even higher.
The load factor increased to almost 80%, nearly 2 percentage points above 2019 so that the RASK was 25% higher than pre-crisis. All airlines improved performance versus the prior year with SWISS even generating a €77 million profit. For the full-year, we expect the operating result to be positive for all airlines in the Group. Also from a cost perspective, performance in the first quarter was in-line with our forecast.
The planned expansion of our operations in the summer clearly comes at a cost even more so as we deliberately invested in operational stability to offer our customers a smooth travel experience. This means that we are currently operating at a productivity level, which is 10% to 15% below pre-crisis levels.
We expect this to improve, especially in 2024, when the ramp-up curve flattens out, crews have been retrained and additional cost and efficiency measures take effect. In 2023, better fixed cost leverage from more capacity will help us to keep unit costs flat year-on-year, despite heavy cost inflation.
Turning to our other businesses. Cargo profits normalized from the prior year record base. However, yields in the first quarter are still up by more than 60%, compared to 2019. Lufthansa Cargo continued to enjoy significant premium over the overall market because of its favorable positioning and superior offer in the high-yielding specialized parts of the market.
Considering also the cost benefit from a new and streamlined fleet, adjusted EBIT in the quarter amounted to €151 million. The supply-demand ratio is no longer as favorable as it was in 2021 and the earlier part of 2022. However, the return of belly capacity en routes to Asia is slower than many would have expected and many operators have started to decommission old freighters. And on the demand side, inventory destocking and the comeback of the Chinese economy should be supportive going forward.
So, we see no reason to deviate from previous expectation of Cargo generating a profit of more than €0.5 billion in 2023. In the MRO segment, demand continues to be supported by the global return of air travel. Revenues were up 16% year-on-year, and the operating profit increased to €135 million in the first quarter, despite rising labor and material costs.
In our catering segment, progress in the recovery of the Asian business helped to reduce the operating loss to €6 million. Note that the segment results is no longer included in the Group adjusted EBIT, but shown in the results from discontinued operations line right above net income.
Finally, the improved results in the other businesses and Group functions segment was mainly due to the recovery of AirPlus. The adjusted free cash flow was €482 million positive, despite a negative operating results. The increase in the balance of unknown tickets of €2.3 billion highlights the strength of bookings and yields at €7.2 billion, this balance sheet position is €1.4 billion higher, compared to the same time in 2019, despite capacity still down 10% to 15%.
Net of higher receivables, which relates to bookings made by travel agencies and credit card payments, as well as to growing business at AirPlus, operating cash flow reached almost €1.6 billion. Net CapEx amounted to €1 billion in the first quarter, including payments for aircraft deliveries, which were delayed from the prior year, as well as prepayments related to the order of 22 new generation long-haul aircraft placed in March.
A strong balance sheet is the prerequisite for being able to invest in future profitable growth. And a strong balance sheet we have with available liquidity of more than €10 billion and a further decline of financial net debt to €6.7 billion. The rating upgrade by Standard & Poor's to BB+ with a positive outlook two weeks ago, acknowledges the progress we have made in restoring the strength of our balance sheet. With just one more notch to go, we are confident that we were able to return to investment grade soon.
We, hence, reconfirm our intention to start paying a dividend again for the financial year 2023 in 2024, assuming that we reach our financial targets for the period. The sale of the LSG Group that we announced in early April was an important step in the execution of our portfolio strategy. We are pleased that the LSG Group and its employees will benefit from the expertise and know-how of AURELIUS, the European private equity firm, whereas we can focus even more on our core airline business.
The LSG business, we just sold, mainly includes activities in Americas and Asia Pacific, where the Lufthansa Group Airlines are not among the largest customers. We had already sold the European LSG businesses in 2020. Regarding the sale or floating of a minority stake in Lufthansa Technik, we completed the first round of talks with interested parties that helped us to reduce the number of potential buyers.
As said before, we seek to find a buyer who can contribute to further growing the business based on relevant industry expertise and insight into markets in which Lufthansa Technik has great potential to create much more value. Nonetheless, an IPO remains an option to. Finally, we're also continuing the process for the full sale of AirPlus with the outcome dependent or whether we can find the right owner and can agree on the right price for the asset.
Before concluding with our financial guidance, let me give you some more detail on our fuel cost outlook. The recent decline in the oil price means that our fuel cost expectation for the full-year 2023 has declined to €7.5 billion, around €0.5 billion less compared to the outlook we gave at the beginning of March. Other than for airlines hedging with futures or swaps, our option-based hedging strategy allows us to benefit from the decline in the price of crude oil, while still offering us protection in case of renewed increases.
Going forward, this will be even more the case as we just decided to no longer hedge the [Jet Crack] [ph] forwards, but indirectly with options on gas oil, which is closely correlated with Kerosene. As a result, we will continue to hedge around 85% of our fuel cost exposure going forward with options on both crude oil and gasoline. Excellent bookings, continued [higher] [ph] yields and low fuel costs provide additional support to our full-year financial outlook.
Based on capacity offered between 85% and 90% of 2019 levels, we expect a significant increase of adjusted EBIT, compared to the prior level of €1.5 billion. With net CapEx between €2.5 million and €3 billion, we forecast a significant positive adjusted free cash flow, at least coming close to the €2 billion mark. The second and even more so the third quarter are expected to strongly contribute to our full-year profit target.
In-line with prior guidance, we expect yields to be even stronger in the second quarter than in the first quarter, reaching a level of close to 25% above 2019. With also Cargo and MRO expected to continue with good profits, we are confident that adjusted EBIT will exceed the pre-crisis 2019 level of €754 million in the second quarter. In addition, for the third quarter, we do not foresee any moderation in amount based on current bookings.
So, our current outlook is for yields to be in-line or even above the prior year level, which represent – we represent an increase of 23% to 2019. That is why we continue to be very confident that 2023 will be a year of significant progress towards the achievement of our 8% adjusted EBIT margin and our 10% ROCE targets set for 2024.
Thank you, and over to your questions.
[Operator Instructions] The first question is coming from Jaime Rowbotham from Deutsche Bank. Please go ahead.
Good morning, gentlemen. Two questions from me. Firstly, it's very encouraging to hear the yields are tracking up to 25% above 2019 in 2Q. As you look at peak summer, and I think there was a comment there from Remco and beyond, are you seeing any signs at all of elasticity of demand to the much higher fares you're charging, any fatigue in terms of consumer demand?
Second question on costs. So, you'll increase presumably crack and FX hedging to be perhaps more aligned with the crude hedging to try and lock in a bit more of the positive move on spot rates, I believe. And in terms of the guide on nonfuel unit costs, I think you said it Remco, but perhaps you could just confirm no change there to the expectation in-spite of some of the investments that were alluded to, to improve productivity in 2024? Thanks very much.
Yes Jamie, I'll do the first one, Remco obviously, will do the second. We have no sign of moderation in sight when it comes to demand at all. And maybe it's important to add that this very strongest part of the demand comes for the premium classes in leisure travel. And I think we have a more and more larger share of society, which are less sensitive to economic development. We don't only see that in aviation. I think you see it first in the luxury industry. We see it in the upper end car industry, watches.
So, I think real estate, prime real estate – so I think I'm fortunate to say that the upper end of our customer segment, I think, is probably now also part of that kind of insensitive to economic – or less sensitive to the economic development part of consumers as other industries have enjoyed for some time. Also in the U.S., where a strong part of the demand is coming from two-thirds, by the way, this summer on the North Atlantic. I think you see that in other parts of the consumer behavior as well.
Yes. Thank you, James, for the question. As you know, we hedge our oil based on options, crack on 85%, where of course, we benefit in case of a falling oil price, but we are protected going towards the – when it would go back to – back up. On the jet crack so far, we have hedged with a forward. And then, of course, you are locked in. We're hedged slightly above 50% for this year.
Going forward, we will also hedge the crack through the auction. We will do that by 50% of our exposure hedging on the cash flow, which combines the oil and the crack and about 35% hedging still on the brand. So, we take a different approach on the overall brand where we hedge 85% versus the jet crack, where we will hedge around 50%. Both will be than all-in options, and we believe that is clearly the right strategy. Yes. I hope that answered the first part of your question.
The second part of the question is on the CASK ex-fuel, no changes to what we guided before. What we guided before was already with assumption, we will invest in our operations, which brings some inefficiency in, but is absolutely needed for the customers. So, we were guided for roughly a flat CASK non-fuel for this year. For 2024, a slight decrease in the CASK nonfuel on the assumption of, say, a mid-single-digit inflation through the year, and we are sticking to that for the moment.
Great. Thanks very much.
The next question is coming from Stephen Furlong from Davy. Please go ahead.
Good morning, gentlemen. Well done on the first guide for the summer. I was intrigued, much to Remco, maybe a question, talk about the liability unused tickets. I mean the inflows are quite significant there. I guess it's indicative of forward bookings as you go through to the summer. I assume that was, kind of around in-line with what you expected, the 2 billion, 3 billion, 4 billion I'm talking about. The second thing maybe for Carsten. In terms of the multi-hub approach, could you just talk in more detail where you see Rome being important in that and how it follows on from Zurich, Brussels, et cetera, that will be great. Thank you.
Okay. Let me start with your first question. Yes, indeed, correct. The inflowing tickets balance is our customers making our bookings. So strong bookings with very strong yield. That resulted in a more than 2 billion increase. When we are in the beginning of this year, of course, we were looking forward to this. But clearly, we see now the confirmation that both the bookings and the yields are coming in.
On the yield side, even a little bit better than we originally assumed because it comes so close to 25%, as we said, for Q2. And also, for Q3, we see a very promising yield. So yes, it's clearly a very strong data point for the fact what we see going around, and that is why we are so, say, confident for the summer and for the financial outlook for this year.
Carsten, for the second question to you?
Yes, sure. Stephen, I think there's really three dimensions regarding Rome. One is geography. It's obviously we – a disadvantage of the current Lufthansa Group hub set up that all our hubs are fairly northern located, Zurich being the most silent one, and you obviously know where Zurich is. So, I think we are missing a southern hub compared to our European competitors, especially for the growing – the O&D traffic in and out of Africa and Latin America.
The second one is capacity. Basically, Zurich has reached its capacities limits to a certain degree, Frankfurt has reached at capacity levels, which we can manage. We have some growth in Munich. We have some growth in Vienna ahead, and we believe there is growth in Rome, both land side and air side in terms of the runway system.
And last, but not least, it's a local market, Rome very much an in-bound market, strong from the U.S., leaving Europe aside, but also very strong from Asia. And of course, the outbound market, the stronger one is Milano, where we have some other plans. So, maybe that answers your question what the role of Rome will be after an agreement with the Italian government?
Yes, that’s great Carsten. Thanks Remco.
The next question is coming from Harry Gowers from JPMorgan. Please go ahead.
Good morning, gentlemen. Thanks for taking the time. If I could ask maybe one for Remco to start with on the free cash flow for 2023. I mean maybe expecting it to be below the result from last year, but can we think of 2 billion as a good anchor for 2023? And then just second one on cargo yields, how is that level relative to 2019 looking like through the first month of Q2? Thanks a lot.
Thank you, Harry. Yes, I think already in the second quarter of 2021 when we came out with our midterm guidance, correct? We were clearly anchored around the free cash flow for the coming years, which on average around 2 billion a year. Also with the CapEx outlook, which we currently have and the business outlook, we are still confident about that level. Yet last year was a little bit higher, also some of the working capital elements which come in, but you see also the working capital is well under control as we stand at as it stands now.
So, with that, we – as I said in my speech, we're sticking to it. I will be surprised if we will not come close to a 2 billion free cash flow for this year, but also for next year, we will still target around the 2 billion for the free cash flow. With regard to the cargo yields, in the first quarter, the yields were 60% above 2019 on average. In Q2, we expect those yields to be slightly lower, but still significantly above 2019 with a plus 45% in the second quarter and also you have to see that in Q2, the volume is picking up.
So, in that sense, we still expect Cargo relatively also to – not to be – doing extremely well. And also my comment for the year – for the full-year on Cargo with what we see now, correct that we still see at least a 500 million EBIT mark for Cargo for the full-year. But we could have to say that, of course, in the second half year, we don't have many proof points yet that Cargo business has developed quite a bit in the specialization in which they do their businesses as well, they handle the yield versus the volume trade-offs along the way.
So, the fleet has been much more efficient. They're also benefiting from the restructuring, which has been under the crisis. So, we think they're very well-positioned. When we also look at Q1 Cargo on the market share, actually, we have gained a little bit of market share as well. So, all-in-all, Cargo is in a very good position, and our customers love to take hold of Cargo business.
All clear. Thanks a lot.
The next question is coming from Neil Glynn from Air Control Tower. Please go ahead.
Good morning everybody. If I could ask two questions, please. The first one on Lufthansa mainline. The adjusted EBIT loss of 366 million in the quarter stands out relative to history as being quite large. And I appreciate the investment in resilience and corporate is remaining something of a drag. But I'm interested, can you actually give us your own perspective in terms of how big those components were in terms of closing the drag? Is it more the overhead? Is it more waiting for corporate to recover? Or is the business just more seasonal post-pandemic?
And then second question with respect to APAC recovery. Japan Airlines talked yesterday about a slow recovery in demand for international travel for their catchment area. And I wonder how do you think about the risk of imbalances in demand from Asia to Europe, potentially weighing on profitability as your APAC network recovers? Or are early signs more encouraging than that? Thank you.
Neil, on the first one, I think it's fair to say that the Lufthansa main airline is the airline with the largest share of corporate traffic. So that imbalance, we still have, even though it's somewhat compensated by higher yield premium leisure travel hits Lufthansa Airlines the most and obviously, other airlines less. But I think more explicit, we also have the highest shares of additional investments, which I mentioned in my speech in the Lufthansa Airlines, which result in cost development, crew buffers, aircraft productivity, spending money on spare parts and stocking of spare parts.
So, there isn't a cost element here. Also think about cockpit training, which we are doing, cabin training. 20% of the staff on the ground is somewhat less in the cabin will be new by the end of the year. So, I think there's a special focus, indeed, and you've discovered that on the main airline.
To the second question, to be honest, when I look at the limited capacity, everybody is offering into Asia, and we are actually the largest one to China already again. But think about the circumnavigating of Russia, think about spare parts and aircraft still missing. Once Asia opens and we are seeing it right now, I don't see any of that let's say, concerns you're mentioning from one of our competitors. And if we have to shift planes between Japan and China, we do that.
As a matter of fact, we just added additional airplanes to our Chinese routes. So, I think there's a lot of demand now popping up of Asia, which will probably overstretch existing capacity rather than having an issue there. The fact that we are positively surprised by 65% of demand in the summer from Asia Pacific versus 2019, I think, shows that as well. So – as always, also in the U.S., domestic recovery comes first. International comes second. So, I think that will also be true in Asia. But again, I come back to my capacity issues. I'm not worried about this year of 2023 at all.
Neil, if I may add on the first question, alright. Clearly, overhead costs in the main airline are down through the restructuring. We have also restructured on the main airlines. So, nothing changed here, also no hiring in this area. The hiring we do is really on the operational side. As I said before, the impact on the operational efficiency of crude productivity, aircraft productivity is at least 15% below what we had in 2019. And we also keep in mind what Carsten said that the lower business recovery comes also within airline, which is actually at the lowest ASK with around 70%.
So, relatively, they have the bigger impact. But if you consider a 30% lower ASK than 2019. And then you still look at the results. You see that there are underlying – clearly underlying improvement, which when this ASK comes back in the remaining part of the year, clearly, Lufthansa Airline will come in a good profitable situation once the year is closed as we see it now.
Thank you both for the color.
The next question is coming from Andrew Lobbenberg from Barclays. Please go ahead.
Thank you and good morning. Can I ask, firstly, on labor. To what extent do you see the disruptions coming on the ground from the repeated [indiscernible] strikes for security and ground handling staff? And to what extent are you confident that you can secure a new pilot agreement at Lufthansa as that runs out in June? And then my second question would be probably for Remco around the pension. What moves are you taking to try and lock in the advantages of the lower pension liabilities and to secure that gain in the event that interest rates start going in the other direction? Thanks.
Andrew, good morning to you. I think the specific situation on the German airports is driven by the overall campaign of the largest German union to bring up salaries in the public domain. And with an agreement there, I think we have seen the worst of that. And therefore, I think we have also seen the worst of disruptions. On the pilot agreement, I'm as positive as my Head of Labor Relations and HR Director who just, I think, yesterday in an interview answered quite a few of the key questions.
First of all, as long as we are in negotiations, there will be no strikes and there will be no second CityLine. So, I think that's one fact which takes away some, I think, attention on both sides. Secondly, it's true that the union representatives have currently left the scope discussions, but many, many pilots in the main airline want some kind of career perspective and therefore, have a high interest on potential scope agreement like the famous [PP File] [ph] we had until last year.
So, I'm positive that, that interest of the majority of the pilots will trigger continuous interest of both sides to talk. And again, as long as we negotiate, there will be no strikes and there will be no launching of a second CityLine in terms of operations. That feeds my positive on this and optimism.
Andrew, on the question of the pensions, yes, that's clearly something we have been working on and also already done something that liability of close to 10 billion, now coming to a net liability of around 2 billion and as well, considering that the market is a bit different in a sense that all bonds are now having positive interest rates allows us to actually restructure the way we deal with the assets in the pension fund. And we will match that in a different way going forward.
So, we would be much less dependent when interest rates could come down again, if that would happen and when that would happen. We have, in the meanwhile, restructured 25% of our assets in our portfolio going in that direction. And at some point, we will do more, but I won't say much about that because you can imagine that from a confidentiality point of view on and how to do the timing is not something we can do. But clearly, we're working in that direction, partly done and the rest still to come at a certain point in the future.
Perfect. Thanks.
The next question is coming from [indiscernible] from Bernstein. Please go ahead.
Good morning everyone. Two questions from my side, please. On the sale of LSG, could you please provide some details on the trends of the deal, specifically, I'm referring to the purchase price, but also anything else relevant. And then secondly, on the premium leisure, you clearly highlighted that it is staying higher throughout the year. But how are you thinking about the evolution of this in the next coming years? What evidence is there that this is either a temporary boost or is it a permanent behavioral change? Thank you very much.
Good morning, [Tobias] [ph] Yes, on LSG, correct? You know that we have been busy for about a year to find the right owner and also a purchase price, where we say, overall, we feel comfortable with, of course, versus a year ago. The market circumstances have changed, so it's a little bit higher interest rates. The purchase price is a little bit lower than we originally had expected. We made agreements with AURELIUS now to communicate around the purchase price.
So, I will do not know to also do that, correct. But it is something which is slightly below our expectations, but still something we believe is truly beneficial for LSG because they have the right owner. And I think in that sense, also a bright future ahead for us. And for us, I think we were not the right owner anymore so net-net, this is absolutely the right thing to be done. As I said before, we expect to close the deal at the end of Q3 and with that, put a point behind our LSG. But we're here with also many thanks to the whole LSG teams who have worked for the last year through making this deal happen. It's not an easy journey where you have to be on as a business. But I'm convinced that in the right hands, we have a very good future ahead of them.
Yes. I think when it comes to behavior for premium passengers or your question, if this is a permanent shift of behavior, I'm very much convinced though, as I mentioned before, because we don't only see it in aviation. You see it in high-end cars. You see it in high-end watches. You see it in high-end luxury products, look at LVMH in France, look at the German car manufacturers but also Italian or U.S. upper end car manufacturers. Think about watches.
There's a general trend towards luxury, towards premium of those people who can afford it, think about also hotels, by the way, I probably could add quite a few to the list. But [indiscernible] part of that. I think it has clearly moved up in the famous muscle of pyramid. We all learned in school in terms of priorities of consumers, what to spend their money on and what's important for them. And obviously, the money is there around the world, and that segment is much less sensitive to economic developments around the globe than, of course, other segments of our customer group, but also other industries are.
I think in the Lufthansa case, specifically, we had seen a preview of that in Switzerland in the last years already of both, more leisure travelers in the premium classes and less sensitivity to economic developments by these people, financially very sound. So, I think we see that now in other parts of the world, not just Germany being added to it, but also our destinations.
First, I'm in the job now nine years. Every year, I've been confronted with the fact that our first class is over dimensioned, and we should reduce the size. This year is the first year, all my team tell me as for, we need to grow first class. It's under dimensioned. I never thought I would ever hear that. So, I think that's a little anecdote maybe from the Lufthansa insight, which shows us that what I do believe is the answer to your question, there is a permanent change.
Thank you very much.
The next question is coming from Jarrod Castle. Please go ahead.
Right. Thank you. Good morning everyone. I want to kind of just talk a bit more about numbers actually. Last year, you did 1.5 billion. It sounds like in the first half of the year, at least another 600 million, 700 million, given Q1 and kind of comments around Q2. So – and then obviously, you've got fuel falling around 150 million, compared to a year ago. So, it does look like the 2.2 billion of consensus numbers are very well underpinned unless you're thinking that something is going to go wrong in the second half of the year, which again doesn't sound the case given the comments around summer.
So, just trying to get some color in terms of maybe some form of range or kind of how you see the underpinning of consensus numbers relative to, kind of the performance that you can see going into the summer. Secondly, just again around numbers, but 2024 now, you're still talking about an 8% margin, consensus is on 6%. I guess some of the concern is around rising unemployment, potential breakdown, and capacity discipline given fleet deliveries going into next year? And potentially more of a stretched consumer.
So what actually gives you the confidence? You obviously got a good visibility on your extra unit cost; fuel, less so. But how do you get the confidence that your pricing is not going to work, it’s not going to start going backwards as we go into 2024, so you can hit your 8% margin? Thanks.
Yes, thank you for this question. It's a pity we're not in video. Otherwise, you could see this big smile on my face when you asked this question, correct? Now, I leave it to the liberty of those who put forecasts in or which base the consensus come across, right? When we were a few months ago, the consensus was between 1 billion and 1.5 billion, something in that range which I honestly – and I told many of you, I did not really understand. The consensus has now come up to 2.2 billion. I think many of you can do the math correct, based on yields and on volume and year-over-year compare and the fuel price comes all the other costs.
So, I leave it to the wisdom of many of you to say whether 2.2 billion is a correct number or not, but I would be very, very surprised if we would not hit that number, right? So, I think that is very, very clear. If you then think about 2024, I think you have to really think about the capacity constraints, which are still throughout the system, correct? Airports are struggling to handle the capacity. We see that all over Europe. Planes are all delayed around the way.
So there is not much of this capacity coming in. We are still running at capacity levels when we say 85% to 90% significantly below what was in next year, yes, we want to come close to the 100% but it's still 100% then of 2019? So, there are constraints everywhere along in the system. Inflation is in the system, prices have to get along. I think airlines with regard to their balance sheet, in general, need the money because they also need to invest, and the balance sheet in general, are in a bad shape.
So, there's not much room as well to do stupidity on the pricing. Certainly, we will not do that. Our commercial teams have done an excellent job, and I'm really proud of what they've been doing. And what we clearly see and what you see now as well, which came out in the bookings is absolutely fantastic as well what's happening this year. So in that sense, we are very confident that we have to go to that margin level and with further capacity coming up it will be very, very strange not to hit such a number, even when the economy would become a little bit more difficult situation, there's no reason from our end to this. So, that's why I said to you, it's pity we are not on video. You can see the smile on my face. But I'm a happy camper here.
Right. Well, hopefully, we'll see you in London.
Look forward. Next week, Jarrod, see you there.
The next question is coming from Conor Dwyer from Morgan Stanley. Please go ahead.
Thanks very much guys. Two questions from me as well. Just on the corporate volumes, you indicated about 60% for the first quarter. Could you just remind us what that was in Q4? I think it was similar enough to the 60%-ish? And do you expect the return of Asia to be, kind of a slow as it has been for Europe? And if not, why not, and on that, where does that number need to be for you to hit that 8% EBIT margin next year? And then second question, just within the presentation, it looks like North Atlantic unit revenues have normalized relatively quickly in the last quarter, and it looks a bit weak versus the rest of the long-haul regions.
Obviously, this is a long haul market that has come back in terms of capacity a bit quicker than other markets, but do you expect that unit revenue to reaccelerate upwards like the rest of the business? Or do you see kind of the extra capacity coming in there? Obviously, United are growing relatively quickly to put further downward pressure on that number. Thanks very much.
On your first question, Conor, I, indeed, the answer is yes. We see very similar corporate volumes in Q1 compared to Q4 in last year. As I mentioned, a little slightly above 60% in number of passengers, slightly above 70% in turnover. The two positive pushes we expect for that number is for one, Asia opening because Asia has an over proportional share, by the way, not just on corporate share, but also on yield within the corporate world.
So, I think there's two effects here. And the second one is the German corporate companies, which, of course, are still very important for Lufthansa with one-third of our turnover and a little less actually in yield and revenue achieved in Germany are becoming more and more confident to leave the crisis in general, which was an energy crisis to a certain degree in Germany behind them.
So, I think we see those two positive elements on corporate. And this – we never said it will go up to 100% across the network. I think domestic Germany, we sure will not see 100% of corporate ever coming back. But domestic Germany for Lufthansa is now 2% of our turnover. So, it's really negligible with the high cost of German infrastructure and German airports, like other competitors, we all have moved airplanes away from domestic Germany.
On the yield on the North Atlantic, they will be significantly stronger again in Q2 than Q1 and let's be honest, some of our competitors made large announcements on capacity growth on the North Atlantic, but we are not able to produce that due to a shortage of labor in airplanes and spare parts, you name it, they are now canceling one after the other.
So, I think we're not going to see that huge capacity growth. And now Asia asking for more capacity, both on the Pacific for our U.S. competitors and towards Asia from Europe, our European competitors will also allow less capacity to be placed in the North Atlantic because it's needed on the Pacific or Europe-Asia routes.
So, if I got your question right, I'm not completely sure if we understand you correctly also due to some acoustic challenges. If that was not your question, really, please come back.
No, that’s great. Thanks very much.
The next question is coming from [indiscernible] from Bank of America. Please go ahead.
[Indiscernible] here in place of Muneeba Kayani from Bank of America. Just a quick question on Q2 yield outlook of plus 25% versus 2019. Can you give some color on short haul versus long haul and which regions are driving the strength? Maybe more generally, is this mainly driven by better yields or Cargo performance? Thank you.
So overall, on the yield outlook, Intercontinental is a little bit higher, in Continental, it's a little bit lower. That has not changed versus what we saw before. And also, probably no surprise, particularly the travel towards the U.S. is still the biggest driver behind this clearly and also no change here that we've seen before. Asia Pacific is picking up. The yields there are also very strong. So, we see that overall.
Thank you.
The next question is coming from Achal Kumar from HSBC. Please go ahead.
Hi, good morning, everyone. Two for me, please. First of all, on ITA. So basically, you're very close to ITA acquisition. I'm not sure if you can offer a bit more color in terms of how are you planning to turn ITA profitable and what kind of synergies are you expecting? What would be your strategy around ITA's short haul, which is very competitive. So that is my first question.
Secondly, on Asia, so you paint a very positive picture about potential benefits from further recovery in Asia. However, today, if you see Air France has requested French government to offer level playing field to Chinese carriers. So that points to the risk for European carriers of the potential business loss to Chinese carriers on Europe-Asia route. So how do you see that? I mean what makes you more positive on Asia route which, of course, you understand that, given that Russian air space closure, this is really challenging. So, what makes you more positive on that please? Can you help? Thanks.
Thank you, Achal. On ITA, I ask for your understanding that we prefer to discuss our plans in detail with the market once we have reached an agreement. And I promise you already that Dennis, Remco, and myself will make sure that there is sufficient information to you once we are in a position to provide that information to you. I think we have given indications how we deal with airlines to integrate in the group with other airlines.
We use synergies wherever we can, leveraging the size of Lufthansa and obviously, we use a specific upsides of the airlines we integrate in their specific markets, be it home markets or destination markets. On short haul, we never said that we want to go up against the low-cost carriers and we conquer the Italian domestic market. I think that would not be – and believe there's only one country where the national carrier was successful to defend short haul besides its hubs, that's Germany.
And I think Germany will be – also in the future, the only country where the former national carrier is able to defend its [on-home hub] [ph] markets, and we don't think Italy would be the second one there. So [indiscernible] is an issue for us. You need short haul to feed your long haul hub in Rome, but we go into more detail once we have reached an agreement. On Asia, there is so far good discipline between the Chinese carriers and the European carriers.
Also, when you look at the traffic between Germany and China, I think the two governments have a constructive dialogue on how much capacity their market needs. We obviously all agree that flying through Russian air space is an advantage in terms of time to up to 2 hours at the second – on the other hand, many European, Western European customers don't want to be in an airplane in Russian air space right now. So, we have both.
I can't give you numbers on this. So, I'm sure there are some passengers who prefer the shorter flight times, and there are some passengers who tell us, please don't put me on a cold chair dragging me through Chinese air space. So, I'm not that worried about that.
Thank you.
The next question is coming from Sathish Sivakumar. Please go ahead.
Sathish, we can hear you. Sathish?
It seems like Sathish have problems with the microphone.
Sathish, you ran off to buy shares, I was told.
I’m around. Just on mute actually. Sorry for that. Okay. I've got two questions basically. So, if I look at on the first side, right, any color around booking curve versus short and long haul, that will be helpful. And actually, how does it compare versus 2019, where you're actually seeing booking coming in stronger than expected?
And the second question is around actually on the corporate traffic. If you look at – obviously, you did mention Q4 to Q1, it has been slightly plateaued off. And what has been the drag here? Any color on, say, by verticals – which verticals are actually underperforming [indiscernible] that will be super helpful? Where are you seeing those [track] [ph] in terms of corporate travel, more specifically by customer mix?
Yes. Sathish, Remco here. Let me take your questions, Correct? So when we look at the booking curve for short and long haul, right and taking into account that the ASK in Q2 and Q3 is lower, but proportionally, we see actually bookings in line with 2019 for both those periods. So, where we before so more short-term bookings. Actually, this is now catching up. So, relative to today, we're on par to what it was in 2019, which is different than the prior quarters, what we have seen.
So that, of course, is a very positive situation. And that's the same for short and long haul. With regard to the corporate recovery, right, particularly in Germany, the travel of the large corporates is slower to recover, but still moving up. We see there less than 50%, of around 50% recovery versus 2019, with the small and medium size is clearly above that level. It's not correct that it is flattening off.
The increase is less than we expected. We're still targeting by the end of the year to come back to close to 70%, but we have, of course, to see how that goes in the second half of the year. And then in 2024, also with Asia then picking up, which we're clearly then counting on we would move more in the direction of 80%, right? And that's also something we originally also estimated. Whereas, of course, on the leisure side, the recovery is much faster and much higher than we originally had estimated.
So overall, we are in a higher position than we had forecasted in Q2 2021. All-in-all, we are okay with this. This is what we have seen, but again, the leisure travel is much more in premium. So, on balance, we're still sold out on the premium seats. And this is something where also Carsten said that we see in general in the economy. So, that's a positive thing for us, and we believe that to continue.
So, just to follow up here, right, for 2.2 billion of consensus, so where do you assume that corporate traffic would be back?
No. We don't expect corporate traffic to fully recover to pre-pandemic levels in our assumptions. As I said, we don't have room.
Like what is your expectation on corporate traffic and that assumption of 2.2 billion?
Again, we don't have an assumption of 2.2 billion. That is the consensus of all you guys, that is your wisdom, which we alluded to before with me, the smile having on my face. With regards to the corporate travel, in 2024, we expect 80% of 2019. By the end of this year, we expect 70% of 2019. We're currently around 60%. So, we end up somewhere in between on average for the full-year and that is also in-line with our expectations. Of course, this is passengers on revenue, right? You have to add the higher yields to this, right? So, it's a much higher number.
But if I might add, I know it's a Q&A session, and there's no real Q to this A, but we are spending a lot of time on demand, which we're happy to answer. I think maybe even in my opening remarks, we didn't put enough attention on the supply side of the industry. This – I've been around 30 years in this industry, I've never seen anything like it spare parts, basic spare parts are missing. If you talk to the Airbus and Boeing management, they can explain it much better to you way down in their supply chains.
There's elements missing and companies need to rebuild their production facilities. We have three brand-new airplanes on the ground alone with Pratt & Whitney engine issues, NEOs, not even talking about the 220, where a third of the fleet is down in Zurich. So, there's labor issues, not that much in Lufthansa, but also in our suppliers in terms of airport services, ground services. We all know about the shortages in pilots in the U.S., which are not at all easily to be taken care of.
So, I think this industry has not a demand problem. It has a supply problem, which, of course, turns into nice yields. So, I think this is a very unique situation I have not seen. And what – all I hear talking to OEMs, engine manufacturers talking to the CEO of Rolls-Royce tomorrow, I don't expect good news there. I think overall, this supply issue will last some time. And it's not just the European view, my counterpart in United basically has the same words on this. That, I think, is a major driver of our industry for the next years to come.
Yes, thank you.
So, thank you very much for your interest today. I think we've answered all your questions. Should that not be the case, please don't hesitate to reach out to us, to the Investor Relations department to Svenja and myself. Otherwise, we look forward to seeing and meeting many of you over the next few weeks. Until then, have a good day. Thank you.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.