Deutsche Lufthansa AG
XETRA:LHA
Earnings Call Analysis
Q2-2023 Analysis
Deutsche Lufthansa AG
Lufthansa Group has catapulted out of the turbulent times of the pandemic, delivering what can be described as an 'unheard of' financial turnaround in 2022 and now, in 2023, reporting its best second quarter ever. This not only surpasses its previous second-quarter record set in 2017 but also conveys a message of resilience and strategic accomplishment. With all group airlines profitable in the first half, an adjusted EBIT of €1.1 billion for Q2, and revenues of €9.4 billion, the company welcomed 33 million passengers, seeing a yield increase of 13% from the previous year and 25% from 2019. The commitment to fleet renewal emphasizes customer and environmental benefits, portrayed through substantial capital expenditure of €800 million in the quarter.
The Group's second quarter was marked by a series of strategic maneuvers, including the imminent completion of LSG Group's divestment, the agreement to sell AirPlus, and the advancing partial sale of Lufthansa Technik. Emphasizing the focus on its core airline business, the Group has also made an initial acquisition of a 41% stake in ITA Airways, with the intention of a full takeover, enhancing its strategic positioning in the Italian market. These strategic decisions indicate a refined vision for an efficient and consolidated airline entity, shedding non-core operations to reinforce the focus on core competencies.
Despite facing unprecedented operational challenges, including supply bottlenecks and labor shortages at some supplier and partner levels, Lufthansa Group maintained operational stability. Notably, this stability came with heightened costs owing to the embedded system buffers aimed at ensuring reliability, affecting productivity as a trade-off for operational success. As summer peaks pass, the company is adamant about ramping up efficiency and productivity starting 2024, with plans to introduce 15 additional long-haul aircraft into service.
Lufthansa has observed an unabated desire for travel from passengers, with an 86% recovery rate of 2019 levels in Q2. Business travel has made significant strides, particularly on transatlantic routes, now at over 70%, and is projected to climb with the reopening of markets like China and Japan. Close-in bookings in July remain strong, indicating continued momentum engendering optimism for the remainder of the year.
The Lufthansa Group remains keenly focused on customer satisfaction, earmarking significant investments in product and service quality totaling €2.5 billion by 2025. The introduction of new long-haul aircraft equipped with revamped onboard products and digital enhancements exemplifies this commitment. Further, sustainability efforts are well underway, with investments in fleet modernization, fuel efficiency improvements, and sustainable aviation fuel (SAF) usage that place Lufthansa among the world's top five users.
With record financials in Q2 and an adjusted EBIT of €965 million from its passenger airlines, Lufthansa Group's performance reflects robust enthusiasm from travelers and the consequent strong revenue. MRO business and Lufthansa Cargo also reported impressive results, with cargo yields about 40% above pre-crisis levels. The Group specifies its outlook for an adjusted EBIT of at least €2.6 billion for 2023, aiming for even higher profitability in Q3 and looking ahead with reconfirmed goals for 2024, targeting an adjusted EBIT margin of at least 8% and a ROCE target of at least 10%.
You don't have any saved screeners yet
Good morning, ladies and gentlemen. Welcome to the presentation of our Results for the Second Quarter of 2023. With me on the call today are our CEO, Carsten Spohr; and our CFO, Remco Steenbergen. They will present you our record results, discuss the strategic highlights and update you on our latest expectations for the rest of the year. Afterwards, you'll have the opportunity to ask your questions.
As Kayo just said, and similar to prior quarters, I would like to ask you to limit your questions to two, so that everybody has a chance to participate in the Q&A session. Thank you and over to you, Carsten.
Yes, Dennis, thank you very much. And also welcome, everyone, from my side. Thanks for joining our call today. And most of you I've met before or I talked to you before, hopefully, would agree that not only working in this industry never gets boring, hopefully also analyzing and reporting on it never does. And what we are showing today, I think, confirms that, that after probably the most extremely or the most difficult years in our industry during the pandemic and then an unheard of financial turnaround in 2022, now just arriving in 2023, we can report on the best second quarter ever, even beating the second quarter of our so far best year 2017.
And while Remco will take you through all the details in a few minutes, let me give you some of the highlights upfront. All of our airlines, very important, I think, also for the backup of the strategy of our group, all of our airlines were profitable already in the first half of the year. The Lufthansa Group achieved an adjusted EBIT of €1.1 billion for the second quarter period, as I said before, unheard of, and the group revenue totaled €9.4 billion. We welcomed 33 million passengers on board of all the group airlines, and we had yields up 13% from last year and 25% up from 2019.
The operating cash flow was €1.5 billion, and the net CapEx amounted to €800 million in the quarter, and that is highlighting our commitment to renew our fleet for the benefit of not just the customers, but also the environment. Please allow me a few words about the negotiations with our trade units. In the last 12 months alone, we were able to reach more than 20 agreements with 10 unions in 5 countries. And we see this as a very positive development that all the negotiations with the Vereinigung Cockpit were constructive and have now led to an agreement or results, which our pilot will now vote on to, turn it into an agreement. And that, I think, confirms that Q2 was more than just a quarter of outstanding results. It's also a quarter in which we made progress and maybe we made most progress in the transformation of the Lufthansa Group from an aviation group to an airline group.
In an unheard of series of M&A transactions, we were able to sign three transactions in only three months, another first for us in Lufthansa. And it clearly shows our determination in executing our strategy. Let's start with our divestments. In April, we announced to sell the remaining part of LSG Group, LSG. We expect this transaction to be completed in the third quarter of this year and still do. We – closing the transaction also means that we discontinue our catering business segment and that an interesting number, I think, 160 legal entities are leaving the Lufthansa Group. So it's a significantly contribution to reducing our organizational complexity.
In June, we signed an agreement with SEB Kort Bank for the sale of AirPlus, the group's payment specialist. The purchase price amounts to around €450 million, and the transaction is expected to close in 2024. Also here, we withdrew from an area that is not part of our core business. We are confident that we have found excellent buyers for LSG Group and for AirPlus that will allow the companies to realize their full potential in new ownership. We're also on track for potential partial sale of Lufthansa Technik in the second half of this year. But as you know, this depends on the strategic fit with a potential buyer offering us strategic opportunities we don't have alone and, of course, the financial terms offered.
The already signed transactions further reduce our complexity, they reduce our capital intensity and they reduce financial risk for the Lufthansa Group. So obviously, they strengthen the focus on our core airline business. And that brings me to the third transaction. In May, we reached an agreement to initially acquire a 41% stake in ITA Airways for €325 million through a capital increase with the option and clear intention for a full takeover at a later stage. This is a win-win for all parties involved. Obviously, a stronger ITA will enhance competition in the Italian market. Consumers will benefit from more choice and improved connections to and from Italy, and it broadens Lufthansa's access to the important Italian aviation market and obviously supports our further regional diversification of our network.
We are in a constructive dialogue with the European Commission and the other relevant authorities to allow for a timely clearance, hopefully still before year-end. And when it comes to making ITA a part of the Lufthansa Group, we obviously can build on our heritage of successful integrations. And the ITA deal is also proof that our multi-hub, multi-airline and multi-brand strategy allows for the realization of extensive synergies that it is attracting other airlines in the ongoing consolidation process of our industry.
ITA becoming a member of our group will also accelerate our existing path towards an even more international company. This is crucial in global competition, one-sided dependence on one regulatory framework or only one labor market would cause us to fall behind eventually globally. Therefore, it's important that already today, only about 30% of our turnover comes from Germany going further down. This is obviously how we have become number one in Europe and currently the number four worldwide. And for all of our stakeholders, it shows variety and diversity of fee filed, how we call it in German, is our clear strength in USP and not any element of weakness.
The second quarter also brought the first stress test to the operational stability and viability of our flight operations. Thanks to the exceptional commitment of our colleagues as well as optimized processes, we master not only the Easter and Whitsun travel waves successfully, but also the summer peaks of the last two weeks. This, on the one hand, was driven by significant operational investments. In 2022, we hired more than 11,000 new colleagues. For 2022 and 2023 combined, we expect this figure to be around 20,000. We already reached the target at the end of July and we continue to recruit.
However, not all our suppliers and partners are as successful on the labor markets as we are. That's why staff shortages still occur, especially at peak times at the airport operators. On the other hand, the stabilized operations also came at the expense of productivity at our airlines. In other words, better reliability came with a high price due to the numerous buffers we had to build into the system.
Summer holidays are now in full swing in many parts of the world. We adjusted our schedule to the maximum capacity of our airport operators, and we do everything we can to ensure smooth operations, consciously accepting compromises regarding efficiency and productivity. For this year, this surely was and is the right decision. But after the summer, we will prepare for a significant efficiency increase starting in 2024 because next year, we want to put alone 15 additional long-haul aircraft into the service and increase productivity while continuing to improve schedule, stability and punctuality. 70% of our flights departed on time in the first six months of the year and, of course, that's just not a number we are satisfied with long-term.
In addition to operational challenges and staff shortages, supply of spare parts and raw materials remains one of the biggest difficulties. In some areas, we see improvements. But in many parts of our business, we and our suppliers still face long and uncertain lead times. Missing parts for engines are still among the biggest problems. SWISS, for example, currently has to substitute the capacity of six to eight of their 30 Airbus 220s, which are grounded for maintenance due to premature engine wear. From an operational perspective, these bottlenecks are painful, every single one of them, but also they mean that global aviation will not return to the overcapacities of pre-pandemic times any time soon. Supply and aircraft delivery delays are likely to persist with corresponding shortages on the supply side for the whole industry.
Looking on the demand side of things, the desire to travel continues unabated. We already had 86% of 2019 passengers back on board in the second quarter, and current bookings for Q3 and the rest of the year already exceed 90% of pre-crisis levels compared to the same point in 2019. Also, close-in bookings continue to be very strong in July. The trend towards flying more business and first class among private travelers also remains unbroken. Also regarding business travel, which has recovered to just about 60% in terms of pre-crisis passenger numbers so far, the outlook is now increasingly positive. Based on surveys and the feedback we received from our corporate customers, we forecast increases in the remainder of the year, driven by the larger scale opening of China and Japan and the gradual recovery of the world economy.
Already today, business travel has recovered to more than 70% on the transatlantic, outpacing short haul and especially outpacing German domestic corporate travel which will, in our view, remain structurally smaller compared to pre-crisis levels. Looking ahead, demand remains extraordinarily strong. This is true for as far as we have visibility, including also late summer and autumn. Similar to last year, the summer season will extend into October. For us, obviously, means the extension of our peak season. In addition, advanced bookings for winter and 2024 are currently up at double-digit percentage rates compared to the prior year period. We expect yields in the third quarter to be up versus 2019 at a similar rate as in Q2 by around 25%. This would even mean a slight increase compared to the already high prior year level.
Let's talk about customer satisfaction, which obviously remains key for us. Our investments in improved product and service quality adds up to €2.5 billion by 2025, in addition to around €2.5 billion annually for new aircraft. Many of our guests and our crews are eagerly waiting for the arrival of our first long-haul aircraft equipped with the new Allegis onboard product. The introduction will take place with the first delivery of our newly ordered 787-9, unfortunately, now delayed until early 2024.
We continuously enhance our offerings of innovative solutions, be it additional biometric boarding gates, more efficient and faster security checks and, of course, new lounges. With the Lufthansa Digital Hangar, we have accelerated our digitalization and the offer of digital services to our customers. For example, we relaunched our new Lufthansa app across the digital applications of our group. More than 1.5 million active users every week benefit from real-time information on flights, baggage, waiting times or services like rebookings. In the last three months, almost 150,000 customers managed their rebooking independently, and 81% of our customers by now use our digital check-in options. More than 80% of all our refunds are already fully or partially automated. In addition, we see a double-digit growth year-over-year of customers using our Travel ID for an even more personalized experience.
Also, sustainability is top of the agenda, both for our customers and us at Lufthansa Group. Since almost 100 years, we as Lufthansa have always contributed to the progress of aviation and we are leading the way also when it comes to transforming the industry in terms of the environmental challenges. We invest in the most extensive fleet modernization program in our history. We use every drop of fuel even more efficiently with the help of technology. And we continuously grow our cooperations with local rail providers on top of that to avoid short-range flying wherever customers prefer the trains.
And we continue to expand our offers and services for more sustainable flying. With our green fares, we're the first airline group in the world to offer a tariff that includes the offsetting of individual flight-related CO2 emissions. Since the introduction in Feb 2023, almost 300,000 guests have already opted for them. However, tackling global challenges like climate change require level playing fields worldwide. And SAF is one of my favorite examples. Today, only 0.1% of the industry's global fuel requirements can be covered with SAF. In 2022, the Lufthansa Group used around 13,000 tons of SAF, translating into 0.2% of our total fuel lament, so twice of the industry average.
That meant that we needed access to 5% of all SAF worldwide, which makes us one of the five largest SAF customers in the world. And if you look at the U.S., they now incentivize production and usage of SAF. The EU, however, so far has only set mandatory and steadily increasing blending quotas without ensuring that sufficient sustainable fuel will be available in the foreseeable future. Such a strategy is of little use to the climate and harms the European air industry in international competition because customers just use hubs outside of Europe without any benefit to the environment. Can we call this equal opportunity? Probably not. That's why we strongly advocate for a course correction and, for example, a dedicated SAF funding program like the U.S.
Ladies and gentlemen, in summary, this has been another excellent quarter. With the sharpening of our portfolio, we have accelerated our transition into an airline group in which all 11 airlines will be profitable for the first time. Lufthansa Technik is benefiting greatly from high maintenance needs across the global airline industry. And for Lufthansa Cargo, the market environment somewhat normalized further in the second quarter, but average yields are still slightly above the pre-crisis levels. And therefore, in the long-term, 2023 will be a year with good results also for Lufthansa Cargo.
And the fascination to work for aviation, to work in aviation is back. Never in the history of Lufthansa have we hired that many colleagues per month, per week, per day. And we continue to lead by example also when it comes to sustainability. But the basis of all stable operations only allows us to put an unwavering focus on the core of our business, which is our customers, and all that combined results in an outlook, which is very strong. We expect the favorable supply-demand relationship to last far beyond this summer and this year. And therefore, I'm proud to say that Lufthansa Group is not only back, as I said a few months ago, but it's now looking to the future much more optimistically than hardly ever before.
And thank you again for joining us today. And now let me hand over to Remco to talk you through our results in more detail. Thank you.
Thank you, Carsten, and welcome to everyone on the call. Let me start by giving you my take on our second quarter results. As Carsten said, we recorded an operating profit of €1.1 billion, the highest-ever second quarter results in the history of the Lufthansa Group. Our strong revenues over the quarter clearly reflect our guests' great enthusiasm and wish to travel the world. We also achieved a new record in net income, which reached €881 million in Q2, supported by lower financial expenses due to our deleveraging and effective tax management.
Adjusted free cash flow was €589 million, including investing in our future with CapEx of more than €800 million, in line with the original planning.
Our passenger airlines also had a record second quarter. Adjusted EBIT amounted to €965 million. All passenger airlines made a profit, with particular strong performance at SWISS, which recorded an operating margin of almost 18%, Lufthansa Airlines and Austrian Airlines generated double-digit margin, too.
Yields were 13% above the previous year and even 25% higher than in 2019. As Carsten just explained, the strong yield environment continues to be driven by high premium demand, especially from our leisure customers. While yields in our long-haul business continue to rise, too, the year-on-year increase was even higher in short-haul as demand, especially for holiday destinations around the Mediterranean Sea sort.
Seat load factors increased to over 83% and thereby were on pre-crisis level, resulting in unit revenues 25% above 2019. Productivity and cost efficiency, however, were below pre-crisis levels due to the operational decisions we made in response to the instability across the entire airline industry. These decisions support the stability of flight operations and are meant to ensure that customers receive the best possible service. The more resilient European aviation system becomes, again the greater the chance to scale them back. We are doing everything to make this happen as soon as possible.
In addition, we are incurring significant one-off ramp-up costs, including extensive training of pilots and cabin crews, as well as the reactivation of aircraft which had been parked during the crisis.
And finally, we are facing high industry-wide cost inflation, especially in the areas of fees and charges, MRO and personnel costs. The latter are due to the collective labor agreements concluded in the second half of 2022 and new hires, especially in operational areas. And with capacity at the lower end of original expectations, we can leverage the cost to the full extent yet.
In sum, unit costs in the passenger airline business increased around 7% compared to the prior year quarter. For the remainder of the year, we expect the unit cost performance to improve, driven by further increasing capacity, lower ramp-up costs and improve productivity. As a consequence, we expect CASK for the full year to be up at a low single-digit percentage rate versus 2022 compared to our expectation of a stable development before. For 2024, we still expect, as stated before, a decline in year-on-year unit cost due to improved productivity, lower one-off costs and increased capacity.
Turning to other businesses, our MRO business generated a record second quarter adjusted EBIT of €156 million. Lufthansa Technik continues to benefit from the fact that airlines worldwide are expanding their capacities. The delays in delivery of new aircraft forces many airlines to fly older aircraft for longer than initially planned. This adds to the shortage of MRO capacities and helped Lufthansa Technik to pass through higher material and personnel costs to customers.
Lufthansa Cargo’s market environment continued to normalize in the second quarter as industry capacity increased due to the return of belly capacities and demand decreased, resulting in a yield decline of 47% compared to the prior year quarter.
Adjusted EBIT as a consequence declined to €37 million.
Having said that, Lufthansa Cargo yields remained at around 40% above the pre-crisis level, a significant premium over the broader market, demonstrating Lufthansa Cargo’s favorable position, which is also helping the business to gain share. While we do not see any significant trend changes in the short term, it will be a question of time and the companies will have to replenish inventories and growth of the global economy picks up again.
For the remainder of the year, we expect yields to remain at around current levels relatively to 2019. We have confidence that Lufthansa Cargo will be able to achieve an adjusted EBIT of around €300 million for the full year of 2023, a very good result by historical standards.
Adjusted free cash flow in the first half of 2023 amounted to €1.1 billion.
The operating cash flow of €3.1 billion was mainly driven by the strong operating results, good working capital management and decreasing customer prepayments.
The business recovery at AirPlus, our credit card company, resulted in a receivable increase of around €370 million.
Net CapEx amounted to around €1.9 billion related to prepayments on aircraft orders and 13 aircraft, which we took delivery of in the first half year. Our guidance for net CapEx of €2.5 billion to €3 billion in the full year factors in sale and leaseback transactions, which we expect to conclude in the fourth quarter. As a result, we confirm our full year CapEx outlook also today.
Based on the good generation of free cash flow, we continued to strengthen our balance sheet also in the second quarter. As a result, we can and do repay maturing liabilities primarily with cash. At the end of June, the available liquidity amounted to €10.8 billion.
Financial net debt decreased further to €5.9 billion, even around €700 million below the end of 2019. The net pension liability increased slightly to €2.3 billion, mainly because of a 30 basis point decline in the discount rate, which reflects the tenor of 23 years.
As a result of our success in deleveraging trailing financial leverage, that means the ratio of adjusted net debt, including pensions over EBITDA over the past 12 months amounted to €1.7 billion. This is quite a bit below the €2.8 billion at the end of 2019 when we were rated investment grade. Therefore, we consider the recent upgrades by the various rating agencies during the second quarter as only an intermediate step on the way back to investment grade, which is now only one notch away.
Before concluding with our financial guidance, let me give you some more details on our fuel cost outlook. Since the last update in May, our fuel cost expectations for 2023 have increased just slightly to €7.6 billion. For the second half of 2023, we have hedged around 85% of our crude oil exposure at a breakeven range of around US$91 per barrel. Keep in mind that our option-based hedging strategy allows us to also benefit from a lower oil price.
With the jet crack, we have hedged around 56% of our exposure in the second half year at an average strike price of US$28 per barrel, slightly below the current spot price. We recently decided to increase our hedging ratio back to 85%. We will hedge up to 50% of our total exposure with options on gas oil as a proxy for kerosene. This will allow us to continue hedging the jet crack but with options instead of swaps as before, so that we can profit from falling prices. The remaining 35% will continue to be hedged with options on crude oil.
The Group’s performance in the second quarter, the continued industry-wide supply constraints and the positive booking and yield outlook for our airlines give us confidence to specify our full year financial outlook. We expect adjusted EBIT to amount to at least €2.6 billion in 2023. This would put our results among the highest three reals ever.
Adjusted free cash flow is guided to be significantly positive with a clear ambition to at least come close to our target of €2 billion per annum. Our financial outlook is based on a capacity of around 85% of 2019 levels for the full year. This represents the lower end of our original range of 85% to 90%.
Carsten already explained the different industry-wide operational constraints that prevent us from expanding our schedules even more this year. We forecast the third quarter to make the largest contribution to our full year profit target. At a capacity level of around 88%, we expect to exceed the adjusted EBIT of €1.3 billion achieved in the third quarter of 2019, primarily due to ongoing high yields and strong performance in MRO.
Ladies and gentlemen, we are determined to deliver our promises as we have done for many, many quarters now in the third quarter and in the year as a whole. And we also reconfirm our targets for 2024. We will continue to work on getting as close as possible to our 2024 targets of an adjusted EBIT margin of at least 8% and a ROCE target of at least 10% already in the current year.
Based on our half year results, we’re in excellent position in this regard. Thank you very much for your attention and listening to me. Dennis, over to you.
Thank you very much, Remco. Considering that we got several questions on the offer that we have made to the pilots or to the union filing on cockpit, I’d like to ask Carsten to give us an overview on that subject before we’ll then enter into the Q&A Session. Carsten, please?
Yes, absolutely. Well, as probably most of you know, we were in more or less 12 months of intensive dialogue with our pilots of the main airline. Constructive, as I may say, dialogue, difficult negotiations. But nevertheless, we now have a result, which by the current voting of the pilots will then be turned into an agreement.
The agreement or current results consist of various elements; three of them are salary increases. The first one kicking in, in December 2023 was 7%, followed by one in January 2025 of 5% and another one in January 2026 of another 5%. So the duration of the whole agreement is 42 months, which is long in our world and probably for us, an asset in itself. There’s a special element in there, which will allow us to reintegrate the pilots from the close-down operation of German wings into the mainline – main airline, which will also allow us to grow capacity in the summer of 2024, which we are looking forward to due to the strong demand. And it has no scope clauses involved this time, different than other agreements in the past where, for example, we had to give commitments or minimum fleet or other topics.
Upside for us for sure is that this is a fairly long period of stability and also peace if I may say so. And I think it’s important for you to know is our shareholders that this will not require any change of our financial targets, which Remco has pointed out. First of all, due to the fact that these increases are more or less in line with inflation. And secondly, this by now is only focusing on the minority of the pilots in the Lufthansa Group, less than half because obviously, the group by now has more than 11,000 pilots to the 11 airlines we have. Yes. So overall, I think it’s a result we can live with. We, therefore, have handed over as an offer, and we now have a one-week voting period to us, which I think, is starting tomorrow.
Yes. Any further questions, we’d be happy to answer. But maybe that gives you a little bit of a framework and is which you intended, I guess, with your question.
Yes. Thank you, Carsten. And moderator, over to you for the Q&A Session.
Thank you. Ladies and gentlemen, at this time, we’ll begin our question-and-answer session. [Operator Instructions] Our first question comes from Stephen Furlong with Davy. Please go ahead.
Yes. Good morning gentlemen. I have two questions. First, I appreciate H1 was very busy in M&A and disposals. I am just wondering, is there anything on the in-freight or out-freight in H2? I’m particularly thinking about where are we at with Lufthansa Technik. So that’s the first question.
And then just a general question. I just wanted to ask about, because I asked the other airlines about this, about EU ETS. I mean there – is there any concern, Carsten, that, that is expanded to long haul? And would that worry you if that’s the case, particularly if CORSIA, that scheme has not strengthened or the number of countries commented are not added because the EU suggest that if that doesn’t happen, then long haul could come into scope for ETS. Thank you.
Yes, Stephen. Good afternoon to you. On one, there is nothing new, and I would hope you’ll find three transactions in one quarter sufficient, that there is no need to provide anything beyond the known status of Technik, which is a different league by its own by just being a minority issue.
On emission trading, while I think, the financial impact of potentially extending ETS to long haul would be devastating. And therefore, I think same with blending. As much as there is and the huge impact this would have, there is the other side of the medal that this damage to the European industry is so obvious that, I think, it will not happen because the regulators in Brussel understand that this is the end of the competitiveness of the European industry as we know it today.
It’s a little more difficult with ETS on feeding; blending on feeding where, of course, there’s also effects, which is why we work against it. But you have to dig a little deeper to understand those. So therefore, I do believe that this is a political environment where communication and lobbying play a big role. It’s probably easier to get across the arguments why ETS on long range or even blending on long range would have negative impacts on the industry than it was in the last months as an uphill battle to also make people understand that having ETS and blending on a flight from Stockholm to Paris is hurting my competitor in Paris because you could also go to Cape Town eventually via Istanbul. That takes a little bit more knowledge of the industry.
So coming to your question concerns, yes, but also hope to have an easier work on the explaining why this cannot happen.
Got it. Thank you, Carsten.
Our next question is from James Hollins with BNP Paribas. Please go ahead.
James we can’t hear you. James is that you?
Hello? Sorry, can you hear me?
Yes, we can.
Apologies for that. Yes, two questions. The pilots deal. Perhaps you could – are well done or potentially well done. Perhaps you could quantify on a percentage basis what pilots will be being paid in 2024 versus 2019? And better still, maybe quantify numerically what the wage bill would be for those pilots 2024 versus 2019, given I assume you have slightly higher crewing ratios, but also less senior pilots than you had pre-COVID. That was one question.
The second question, perhaps you can just run us through some of the engine issues that you’re having. I believe you do run some Pratt & Whitney GTFs and perhaps just sort of quantify or run us through where we are in terms of your fleet, et cetera. Thank you.
James good afternoon or good morning. Yes, the first one, it’s a tough one. So let me give you some data points, €1.1 billion is our current amount of salaries we paid to the main airline pilots, again, being a little bit less than half of what we all will have. We already gave €800 or €980 last year that was more or less 10%. And now what we are doing here today, seven, plus five, plus five results by math, more or less 18%, as I just explained. So that probably gives you an idea of what you have to add to the €1.1 billion, where the first 10% are already in. That’s important. So you add 18% to the €1.1 billion gives you an outlook, but we are now talking three years down the road at the end of the contract starting in 2026. In 2024, only the first 7% kick in. So that’s 7% out of €1.1 billion, so that’s, yes, €77 million. That answers your question.
Now the other elements. Yes, we let many, many senior people go, and we’re hiring now very young people, and they have to take that effect into that, which might even compensate a big part of the €77 million. But I don't have that at hand.
So yes, the demographics work towards lower running costs. The salary increase obviously increases cost. If that now balances out, I need to ask my team to give you some numbers. I'm sure Dennis will provide that to you, but I don't think we have that now already here.
Let's be honest. By letting so many people go, we surely significantly improve our unit cost in the cockpit. But of course, the training we now need to requalify people, move them from one aircraft to the other eats up a certain element of that, but it's onetime cost. And the long term unit cost improvement by letting senior people go in rehiring or hiring young people, of course, stays in the system.
So depending on how deep you want to go into this, I'm sure Dennis can do more, but that's all I can give you now here out of my head. On engines. The first batch, the one which has to be taken off the wing by end of September is 50 engines, out of which 13 are operated in the Lufthansa Group, 12 in Lufthansa, one in SWISS. And we have to pull those off the wing by the end of September. And Lufthansa Technik probably will do that and check them out, which will require us to put some airplanes on the ground, but we have enough backup to manage.
Then there's another 1,000 airplanes in the second batch, out of which 50 are Lufthansa Group aircraft, sorry, air engines, not aircraft. And for these 50 engines, currently, experts are analyzing what the options are, when they need to be taken off the wings, in which order we'll do that, can we reduce the impact, which is too early to tell.
So definitely a few single engine grounded aircraft this year, again, with enough backups available and next year, some bigger operation. But let's be honest, as you all know, we own Lufthansa Technik. So of course, 50 engines on the downside of Lufthansa because they are operated by my airlines, 950 are operated by potential customers. So I cannot even give you a number now if this whole thing will work in our favor or against us. It's a good thing of only...
Thanks. Sorry, just on the maybe in a net benefit in Lufthansa Group then?
Could be, which surely makes less impact than those airlines who don't own Lufthansa Technik. I understand there is a low-cost area in Europe being affected. I cannot give you – we don't have a contract yet with Pratt. Pratt will need partners around the world to get these engines fixed. So it's too early.
But of course, there is two elements of this. Again, we are affected with our airlines, and we're obviously owning the largest MRO provider in the world who try to get our share of helping Pratt & Whitney out of their struggles. One small fee.
Okay, thanks.
Our next question comes from Jarrod Castle with UBS. Please go ahead.
Good morning, everyone. Firstly, obviously, you've kind of appealed the EU ruling on financial aid. If it's upheld, what do you think it could mean for the group, given all the aids being paid back and then the governments exited their stake as well? Secondly, just looking at kind of airport fees. Any color on increases at Frankfurt in terms of magnitude of increase? Thanks.
Jarrod, good morning. Remco here. Yes, the EU ruling on State Aid, correct. And you know that we are appealing against the outcome, logical consequence because we do not agree and we want to have some legal clarity. It's a bit of an academic discussion, correct, because we repaid everything. The German state, of course, got interest paid and had an enormous amount of benefit on the sale of the shares as well, correct, which is all related in the total consequence but we don't think it is correct the outcome that we are handling it to make sure that from a legal perspective, we know where we stand. Nothing more to be said. I don't sleep one hour less because of this issue.
With regard to the airport fees in Frankfurt, we work in very; very close cooperation with Frankfurt to make sure, first and foremost, that the quality levels which you receive at the airport are increasing day by day. So that's really, really important.
Airport fees, as around the world, correct, are increasing also in Frankfurt. So they're increasing high single digits. We have also some agreements because we work closely at the airport as well. So we have some benefits as well. But net-net, no specific issues which we have here. Most of for us is for sure, the quality level at the airport goes up, and that is most of our attention.
All right, thank you.
Our next question comes from Muneeba Kayani with BofA. Please go ahead.
Good morning. So firstly, I just wanted to understand on unit costs for 2024 and the guidance of it declining. How confident are you about that given the cost creep this year? And then secondly, just Remco, you mentioned the sale and leasebacks in the fourth quarter. So they won't impact the net CapEx, but they would impact net debt, I understand under IFRS 16. So what's the impact on net debt and lease payments from those transactions? Thank you.
Good morning, Muneeba. First of all, on the unit cost, correct? Also the unit cost because everyone compares that against the prior year when you think about 2023. But if you compare the unit cost versus 2019, I think we see a much more consistent picture, right. So in Q1, unit costs were up around 18% versus 2019. They're about 16% up in the second quarter. And in the second half of this year, we expect it to be slightly down, but end of around 15%, 16% for the full year.
Now if we compare that with a capacity level of 85% versus 2019 and then we consider inflation in the system, we consider all the ramp-up costs we have to handle, which we didn't have in 2019. You can see underlying the cost savings we have done over the last couple of years really coming in now.
If you now think about 2024 and we increase our capacity from 85% to 95%, so a 10% increase in capacity. And with that also all the productivity, which we expect to come back in the system, which we didn't have this year, that we can more than offset the inflation, which is also part of the system. So those two elements will really help us. And therefore, we are confident. We have to see where that will end up. At the moment, we're looking at low single-digits; perhaps it's a bit higher. It's too early. We have to go for the budget process. But if you then think in 2024 versus 2019 on a 95% capacity level with inflation over five years, I think we are competitively in a very good position that we're really looking for.
With regard to your second question on the sale and leaseback, you know that we normally have lease payments in our adjusted free cash flow of close to €0.5 billion, which also relates to normal, say, operating leases, we conclude to that level. For this year, we expect that to go in the range of €700 million to €1 billion, so a little bit higher. So of course, that impacts net debt.
The impact on the cash outflow and the adjusted free cash flow will only go slowly up over time. So the €400 million, €500 million we have now will go slowly over time, and we think that is also the right view. We clearly stick, for everyone having any doubt, between the €2.5 billion to €3 billion. That's clearly what is the current plan in terms of the net CapEx of this year and where we stand for. I hope that answers your questions, Muneeba.
Thank you.
Our next question comes from Tobias with Bernstein. Please go ahead.
Good morning. Tobias here from Bernstein. My question is the first on tariffs and passenger yield. Could you perhaps shed a bit more color around where you've seen the most increase in terms of tariffs and then ultimately, yield and maybe also how sustainable this is going into the next couple of quarters in 2024?
And then secondly, and I appreciate that Steve has asked the question in a similar manner, but maybe on your strategic positioning regarding the growth ambitions in the Middle East and Turkish and how worrying this is to you going forward?
Tobias, good morning. Remco here. Correct, as you know, yields intercontinental around 30%, correct, in the total. On the short haul, they are more around 20%, right. Particularly, we see the transatlantic very strong. When we look at Asia-Pacific, there's certain countries where it's a bit higher intercontinental. For others, a bit lower. But overall, that 30% is something we see. We see that also continuing in Q4. What the bookings we have. And when you look just in the whole supply chain and the constraints which are in the system, also, we expect high yields to continue in 2024.
We don't have yet that to underpin because of the bookings schedules are still low for 2024, but all logic and also the direction points in that direction. It's also needed for the industry with all the inflation is that. So we believe it must be sustainable by the simple mark of how the supply chain currently looks like and the inflation in the system and many airlines having debt to pay and invest in the future. The positioning versus the Middle East and Turkish, we know the Turkish energy benefiting a lot because of the situation, which is there in Russia. We have to see how that further develops. We don't see a significant threat from this because particularly a lot of the travel goes from Europe to the U.S. and flying with us makes much more sense and is also logical.
So at the moment, we are not worried. But of course, the positioning from the Middle East and particularly where Carsten mentioned before, the positioning of the EU and the positioning to take there, it's essential that you also pay attention to make sure the European airlines industry can compete well with the Middle East in general.
Thank you.
Our next question comes from Andrew Lobbenberg with Barclays. Please go ahead.
Hi, Carsten explained that there's no scope clause in the pilot agreement. But what does that tell us about your plans or aspirations for the new CityLine 2 or City Airlines, whatever it's called? And also, I think there's stuff in the press about you rebranding Eurowings Discover to just Discover. What are the plans to evolve that? I am not sure if that's one or two. I pretend it's one. I thought Remco was working on finding a magical clever financial way to stop the pension going back up, but it's just gone back up. Are you going to find financial ways to lock the pension position in?
Andrew, good afternoon. Yes, on the pilot agreement, as you know, there is no scope clause element in these discussions. And CityLine 2, as the name implies, is about the future of CityLine. This is also where it will be discussed also with the union, which happens to be the same union, but it's a different negotiation because it's at the negotiation about the future of CityLine.
We had three reasons for CityLine 2, our strategic targets. One was to have a future and a perspective for the pilots in former Germanwings. One is to have a future in a perspective for the staff of CityLine. And one is the need for competitive feed into Frankfurt and Munich, which currently CityLine is providing. Under those three, one is taken care of by the current negotiation result, which is the – sorry, the Germanwings pilot issue. It's part of the package I just explained. The other two are not and will be part of a negotiation with the CityLine topic.
On Eurowings Discover, we used Eurowings when we launched the airline, which by the way, is profitable for the first time this year, already in the first half, which not many people believed, I think, because we couldn't afford to launch a new brand in those days in the pandemic, and we need to be close to Eurowings.
Does it make sense long term to be so close to Eurowings in a different business model, one being non-hub, one being hub? They're probably not. Therefore, we are now looking at, let's say, adjusting the branding of Eurowings Discover, but not rebranding probably is going too far, and it will not happen over the next weeks. Let's make some money first.
Then Andrew on my fund with the pensions. As you know, the sensitivity on the calculation is very, very high, right? So when you think about Q2, the long-term interest rate went down, which you have to use as the discount rate with some risk premium went down from 4.2% to 3.9%, particularly in the way technical risk premiums in the market have developed. This is very, very volatile because of the current market circumstances. So I wouldn't pay a little bit – not so much attention for the pension provision going up a couple of hundred million either way because it could go next quarter the other way as well.
What we do and what I said before that, of course, we want to limit the exposure of the company for movements in the interest rate going forward. We started that process. We have partially already mitigated that effect. And over the coming period, we will further mitigate that effect. But considering the fact that significant amount of moneys are involved, which you then investing and reinvesting and you can imagine that we have to do that with all caution and of course, of confidentiality, I can't comment on it. But I can assure you that over the coming times, we will further minimize that in line with what I've said before, and I will continue to have fun with that.
And we have to make sure also that we spread that risk over a little bit of time. You can do that all in one go. That would also not be very smart. So continue to be fun, but exactly in line with what we promised before.
Thank you.
Our next question comes from Neil Glynn with Air Control Tower. Please go ahead.
hi, good morning. I'll also ask two. So following on from the Eurowings color, so about a 9% adjusted EBIT margin in the second quarter, which is very impressive relative to history. So congratulations on that, actually broadly in line with easyJet in the quarter. Just interested in your take, now having achieved that. The key drivers in terms of that depot and a nod to the sustainability of those would be helpful. I think the unit costs adjusted for sector lines actually look pretty similar to Transavia, which gives me some confidence in that.
And then the second question, we've already had some questions looking forward to 2024 and ex-fuel costs, et cetera. But thinking about it a different way, in – with capacity restrained and bottlenecks, EBIT per ASK is up very strongly relative to pre-pandemic levels. And with the maybe simplistic lazy premise that you would add back stronger routes earlier where possible, as you restore capacity, can you give us some color as to how you think about the effect of the incremental capacity and whether it might dilute profitability per ASK simply by adding back the weaker routes as you go. Thank you.
Neil, good afternoon, Remco here. Let me start with the first question. I think we have to see Eurowings a little bit in the history of the last five years, right. Because a lot of the cost programs were actually executed and came to its full fruition during the crisis or slightly before the crisis. So in crisis, of course, everything came down. And now Eurowings is getting back on full feet.
We, of course, see that the cost savings are really having its benefit. So from that aspect, we are looking positive also to the years before because the CASK is significantly lower than it was before. You have to see that in combination also with the strategic choices where to fly in Europe, very conscious choices have been made to do that and where to compete. And in that sense, we look very positively forward to Eurowings also in the years to come to continue on this track. We have to keep working very hard on this. There's no doubt about it but we are very, very proud to Eurowings for what's realized this quarter and also what we expect for the rest of the year.
Daniel, without now lecturing on aviation, which I don't need to do to you, any new route in that theory reduces margins because you always fly the best route first. So every airline should only fly one route in that logic. And of course, there is counterbalancing elements which, first of all is growth, and therefore overheads and fixed costs are better contributor. That's why I think most airlines including us; want to go back to 100% fairly quick because that's where your business usually is dimensioned for. Then there is additional elements of efficiency. We are running, as I mentioned, and Remco also gave you some number and color, not in the optimum efficiency range right now because we created buffers and rooms for the quality elements in this, which we'll take out next year and allow us to fly additional routes.
And more specific, on the post-pandemic situation we're currently at, we'll be adding routes which have a corporate focus. First of all, China, one is doubling our capacity into China with a high share of corporate. Usually, these are very profitable routes, but we couldn't fly them already. So your logic of we fly the property ones first and the other ones later, that doesn't fully apply this time. And also corporate in general, by the way, also in Eurowings comes later than leisure. So some of the routes we are now adding, we can now add because they have sufficient corporate demand, which we wouldn't have had two years ago. So again, overall, your logic, I think, is right for every airline in the world. This time with the four arguments I mentioned, overhead, efficiency, rising corporate share and China being a specific topic; I think the answer to you is, no, there is no negative effect.
Right. Thank you both.
Yes. Thank you.
Our next question comes from Sumit Mehrotra with Societe Generale. Please go ahead.
Thank you. The first one would be okay, on your cost guidance for 2024. Earlier, you had said that you'll see a low- to mid-single-digit decline versus 2022, but now I see 2023 going up. So is it still the guidance linked what you're trying to say 2024 versus 2022 or 2024 versus 2023 the decline? Secondly, about the dividend outlook; any range we should keep in mind for the payout ratios? Thank you.
Yes. Good afternoon. Sumit, Remco here. Just to clarify what I said on the CASK 2024 and the decline, that's a decline versus 2023, right? And very clearly, that's also the logical versus 2019. We will then still be up, but then is, of course, five years further with inflation in the system and considering then around capacity level of 95%. I hope that takes out a confusion, which we apparently created. With regards to the dividend, we have said before that we with an outlook for the year being positive and in line with what we expect, that we would come back with a dividend in 2024, €4.23.
Our dividend policy is a payment of 20% to 40% of net – continuing net income. We haven't decided yet what that is exactly. Of course, the net income will be then multiplied with whatever we present and then divide it by the number of shares. You shouldn't forget that the number of shares have doubled because of the capital raise we did two years ago. But all in all, I think we are in a good position, and I think also one of the few airlines who will actually do this again. So I hope you will all appreciate that, and we see that back in our share price.
Thank you, Sumit.
Okay.
Our next question comes from Johannes Braun with Stifel Europe. Please go ahead.
Yes. Thank you. Two for me as well. First one would be on the free cash flow on the free cash flow side. So I think Q2 looks a little bit light versus consensus. At least my interpretation is that this is largely due to less working capital benefits from forward bookings. I think those were only €100 million in Q2. It looks a little bit odd given your confidence in the demand environment. So maybe you can help us here in that relation, are you confirming your full year free cash flow guidance of close to €2 billion?
And then secondly, on ITA; is there any new insight to what the synergy potential might be in terms of, I don't know, Euros or relative terms like 5%, 10%, 15% of revenues? So – and in this regard, what is the fate of Air Dolomiti? Will it be merged with ITA? Or will it remain a separate entity? Thank you.
Let me start with your question on the free cash flow. When you look in the free cash flow, you have seen a significant amount of prepayments coming in, in the first quarter. In the second quarter, that remained about stable that is roughly also what we expected to happen. If you look at the prepayment level on the balance sheet, it's a couple of billion more than it was in the end of December. There is, of course, a seasonal pattern in this; but clearly, when you look at the bookings and the yields and the outlook, what we see in Q3, we have more than 90% of the bookings we had at the same time in 2019. 70% of what we expect for Q3, 30% for Q4, so all that is fully in line and prepaid so we're not worried on there.
If you see the working capital itself performance, excluding the prepayments, you've seen that despite a massive growth, of course, we have underlying, and we shouldn't forget we've been able to hold the working capital stable or even slightly down with the exception of AirPlus, where, of course, it's a credit card company. So that part increases but net-net overall it's not moving up. We have no secret things in our working capital, as other airlines have, correct? We are current on our receivables. We are current on our payables and therefore, also believe that overall, we can stick to our commitment of close to €2 billion of free cash flow. We said in the beginning of the year, it might be a little bit lower because of the payments of the CapEx. We said around €2.5 billion of net CapEx, now it might be a little bit higher. We still have to see a year-end out the whole prepaid works out into 2024. But all in all, we are confident to stay exactly on track where we'll be before, right, of targeting the €2 billion.
With regard to your second question on ITA. As Carsten also said before, we are currently in the discussions with the EU. We are positive to come to some kind of conclusion. If it happens, we're targeting in two years from now or after the takeover we'll happen to come to a breakeven and bring that in a positive. Of course, there's synergies involved in the different areas. I don't think it's very good to quantify that at this point in time. That also depends a lot on the further agreements and the speed of the work, but we have very clear underpinned plans and team ready once we get the clearance to start acting upon this. With Air Dolomiti, of course, as you know, Air Dolomiti is a feeder into our hubs. At the moment, that stays. It's not changing and in a couple of years we might reevaluate this, but currently no changes in the plans.
I hope that answers your question.
Yes. Thank you.
Our next question comes from Sathish Sivakumar with Citi. Please go ahead.
Thank you for taking my questions. I've got two questions here. Firstly, on Frankfurt Airport is talking about lifting restrictions for slot restrictions for the airlines from Far East, especially from Asia. Whereas you today just updated the outlooks in that you're likely to grow at the lower end of your capacity time. Does it imply that we will continue to focus on transatlantic and given the advantage of Chinese airlines flying over Russia and that you find that not unit economics wise, not profitable to compete on those routes?
And second one is a quick follow-up. So you said Frankfurt Airport talking about high single-digit tariff increase. How does that come back with the other arms, Munich and Zurich?
Yes. Sathish, its Carsten. Well, first of all maybe we misunderstood you, there is no such thing in our airports that slots are allocated to a certain destination. So any slot is just a time window and can be used wherever you want to go to. And when it comes to Asia, we are growing significantly into China, going back to probably 80% ahead of our competition as early as next year. In India, we'll be above 100% very quickly. When it comes to Southeast Asia, where the Gulf carriers, of course are the major competitors we withdrew from those markets a long time ago. The only Southeast Asian destinations we are serving is Bangkok and Singapore, where we are very happy and successful, but the others we have given up years ago to those low-cost carriers with their subsidies, you basically cannot compete with them. Therefore, there is no impact. Frankfurt fee increases, obviously, Frankfurt starts of a higher level, but the increase in itself, I think are more or less similar over the next years in our various hubs. So is there another question, which yes. Well, that hopefully answered your question.
Yes. Thanks Carsten. Yes.
Our next question comes from Achal Kumar with HSBC. Please go ahead.
Yes. Hi. Good morning. I have two, actually. So one, coming back to Asia; so now given that the Cargo is weak and I believe Asian operations would have been subsidized significantly by the strong cargo business previously. Now given the Cargo is weak, how the economics looks like you're increasing operations in Asia? So how does the profitability looks like versus previously when the Cargo is very strong?
And my second question is about the close-in bookings. You said that closing bookings are strong. While on the contrary, Remco mentioned that the closing bookings are a bit soft. So I mean, for you, is that closing bookings strong on the long haul? Is it or the overall network? Could you please help on that? Thank you.
Hello, Achal. Yes, on Asia, let's not forget Cargo is not weak. Cargo is not even back to normal, it's going towards normal maybe. And currently, if I remember correctly, Dennis will correct me if I say something wrong now. The Cargo yields are about 35% to 40% above 2019, which was an okay year. So we are not anywhere having a problem with Cargo. We just didn't have the extraordinary two years, which you're referring to, and in those years, you're right, Cargo subsidized our routes to Asia where we had no passengers at the upper deck. So Cargo carry the whole route.
So we are now going back towards normal relationships, but still with a higher Cargo contribution than most of the years in our history, therefore, I'm not worried about Asia. The closing bookings, try to book a holiday on Lufthansa short haul or long haul for the next days. You'll find that we are very strong and almost sold out both short range and long range. And short range, something I have not seen on the Mediterranean, Spain, Italy, Greece these routes are among our top routes. And therefore, I think what I said and Remco said about closing bookings can be applied to the whole network more or less. There might be some routes and issues where that doesn't apply with 400 destinations, obviously. But in general to your question, the answer is both. I know there was a competitor who came out – I know there was a competitor or somebody who loves to be our competitor who came out a few weeks ago with some guidance on short-haul bookings. We don't share that yet, and hopefully won't.
Right. Sir, could you also please comment on Asian profitability, please?
Our Asia probability is strong with China among the best route in our network. It's India where we are expanding. Maybe that the Airbus 380 is going to Bangkok this winter, we wouldn't put it there if it wasn't a very strong route. So we are not unhappy at all with Asia. And again, there's lots of our positives for 2024 will come from the recovery of Asia where Lufthansa tends to be Number 1 out of Europe, which will help us to keep yields high also in 2024. Of course, a limited offer to all of those markets helped.
Our next question comes from Jaime Rowbotham with Deutsche Bank. Please go ahead.
Hi guys. Just one for me. It looks like you could get pretty close to your 8% mid-term margin target this year, which is impressive. Clearly, you expect to be there or higher next year. Consistent with that and the capacity growth, consensus expects year-on-year profit growth next year from the high base this year. But it feels like the market is thinking differently. The multiples you and some of your peers are trading on, the share price reactions to very strong results seem to suggest a belief that you're, in fact, over-earning this year, that the current performance can't possibly be sustained. What would you say to try to convince people that that's not the case, i.e., that this isn't simply a freak year in terms of the interplay between yields and unit costs? Thanks.
Jaime, this is a wonderful last question, correct, because I don't get it, right? Since I'm here around now almost three years, correct. I think we have consistently delivered on the promise we put along, right? And there were doubts from the beginning, from the savings we put in, the strategic changes were there, the profitability, what we did on the CASK, the yield discussions, which we also had in Q4 last year when people were not believing it. So I think on our end, we will do is consistently continue to deliver on what we say. That is clearly our looking ahead.
We think we have given a lot of data points, particularly with the constraints in the supply chain, which continue for quite a bit longer and certainly through 2024, that there's no logical reason at all that our profitability will deteriorate, right? So it's a combination of those two. When I look at the share price also this morning, you can imagine that there is some disappointment on our end that we confirm on a top three kind of results for the full year. We have a top result in the second quarter. We have delivered on all the changes also in terms of the portfolio to simplify the organization and to move on technique and having also a company in terms of the brand and the performance, et cetera, which is truly outstanding with truly outstanding employees. We have to work every single day and bring this up very, very significantly.
The agreements we make also to stabilize our relationship with our employees, which our colleagues are working on. So I hope with this, correct, I can give you some confidence. But I equally do not understand a 3 times EBITDA multiple, which underpins our current valuation. In many other industries, you would find a company in complete distress without management to have such valuations. But yes, that's just me as the CFO of Lufthansa. And with that, I thank you very much, Jaime, for that question to end the session today.
Yes. Thank you very much to both you, Carsten and Remco. Thank you for your interest to your participation in today's call. We look forward to speaking and meeting many or probably most of you over the next few weeks and months, and have a good rest of the day. Thank you.