Antitrust: Commission renders legally binding commitments from Star alliance members Air Canada, United and Lufthansa on transatlantic air transport passenger market

The European Commission has accepted commitments offered by Air Canada, United and Lufthansa to address the Commission's concerns that the parties' cooperation under a revenue-sharing joint venture may be in breach of EU antitrust rules and harm premium passengers on the Frankfurt-New York route. Premium passengers are passengers travelling in the first, business and flexible economy classes. In order to address these concerns, the parties offered to make slots available at Frankfurt and New York airports and to enter into agreements with competitors, allowing them to offer more attractive services. As a result, competition on the Frankfurt-New York route will improve. After having consulted interested parties through a market test, the Commission has now made these commitments legally binding on the three airlines for a period of ten years.

Commission Vice-President in charge of competition policy, Joaquín Almunia said: "The Commission is committed to ensuring that consumers are not harmed by cooperation between airlines. Thanks to the commitments offered by the three airlines, passengers on the Frankfurt-New York route will benefit from stronger competition. This decision is a further milestone in our effort to create a level playing field on transatlantic aviation markets, following our decision on oneworld in 2010."

The revenue sharing joint venture eliminated competition between the parties on price and capacity. The Commission had concerns that this may have resulted in higher prices for premium passengers on the Frankfurt-New York route. In addition, due to considerable barriers to entry and expansion, new and existing competitors would have been unable to challenge the market power of the parties.

The parties argued that their cooperation created efficiencies on both the Frankfurt-New York route and on other related routes (such as Prague-Frankfurt-New York or Frankfurt-New-York Seattle), leading to benefits for connecting passengers. However, the Commission found that the efficiencies produced would not outweigh the negative effects of the cooperation on the Frankfurt-New York route.

The parties therefore offered commitments aimed at facilitating the entry of new competitors on the Frankfurt-New York route. Since the main entry barrier remains the slot shortage at airports, the parties offered to make landing and take-off slots available at Frankfurt and/or New York. The parties also offered to enter into agreements allowing competitors to offer tickets on the parties' flights (reducing competitors' frequency disadvantage) and to get better access to the parties' connecting traffic. Finally, the parties committed to submit data concerning their cooperation, which will facilitate an evaluation of the alliance's impact on the markets over time.

An independent trustee will monitor the parties' compliance with these commitments.

In July 2010, the Commission accepted commitments by several members of the oneworld alliance and made them legally binding to ensure competition on transatlantic passenger air transport markets (IP/10/936). The Commission is also currently investigating the transatlantic joint venture between certain members of SkyTeam (IP/12/79).

Background on the assessment of efficiencies

In light of the specific characteristics of the aviation industry and of the particular circumstances of this case, the Commission considered it appropriate to broaden the existing test for assessing efficiencies, contained in its Guidelines for application of Article 101(3) of the Treaty on the Functioning of the European Union (TFEU).

This broadened test includes efficiencies produced on routes related to the route of concern – the so-called "behind and beyond routes" (e.g. Prague-Frankfurt-New York or Frankfurt-New York-Seattle) – provided there is a considerable commonality between passenger groups travelling on the route of concern and these related routes. However, under this broadened test the Commission accepted only those efficiencies that accrued to the passengers also travelling on the Frankfurt-New York route. In other words, the broadened test does not weigh up the harm suffered by one customer group against benefits perceived by another customer group.

Background on the investigation
In April 2009, the Commission opened a formal investigation into the cooperation of the parties relating to passenger air transport on routes between Europe and North America (see MEMO/09/168).

The Commission had concerns that the airlines' cooperation might infringe EU antitrust rules (Article 101 of the Treaty on the Functioning of the European Union, which prohibits anticompetitive agreements). In December 2012, the companies offered commitments, with a view to alleviating the Commission's competition concerns. In December 2012, the Commission consulted stakeholders on these commitments (see IP/12/1445). The companies subsequently proposed modifications in order to address issues raised during the market test.

The Commission may adopt a decision under Article 9 of the EU's antitrust Regulation 1/2003, to make commitments offered by parties legally binding. Today's decision makes the commitments offered legally binding and ends the Commission's investigation. If Lufthansa, Air Canada or United were to breach their commitments, the Commission could impose a fine of up to 10% of Air Canada's, United's and Lufthansa's total turnover without having to prove a violation of EU competition rules.

More information, including the full text of the decision and the non-confidential version of the commitments, is available on the Commission's competition website, in the public case register under the case number 39595.

European Commission Press release, Brussels, 23 May 2013

Lufthansa Group reports solid business performance in the first quarter

Despite EUR 64m in restructuring costs from SCORE, the operating result remained stable at EUR -359m / Earnings outlook for the year unchanged

In the traditionally weak first quarter, Deutsche Lufthansa AG recorded an operating result on a par with last year at EUR -359m. The operating result includes restructuring costs of EUR 64m from the SCORE programme. Earnings improvements in the operating segments helped the Group make up for the extra costs. The net result for the period fell by 16.5 per cent to EUR -459m due to impairment losses and other valuations as of the reporting date. At EUR 6.6bn, revenue for the Lufthansa Group in the first quarter remained stable.

“We took another step towards our target of sustainable earnings improvements in the first quarter. Nearly all the Group companies improved their result,” explained Simone Menne, Member of the Executive Board, responsible for Finances and Aviation Services at Deutsche Lufthansa AG. “We are firmly on course with our SCORE programme.”

In operational terms, the Group improved its result by a total of EUR 95m in the Passenger Airline Group, Logistics, MRO, Catering and IT Services segments. Lufthansa German Airlines achieved the greatest improvement in the operating result, with an increase of EUR 77m. Thanks to a notable reduction in the number of flights and its optimised capacity management, the company boosted the load factor of its aircraft in the first quarter to 75.5 per cent and at the same time increased its yields. The strike by Lufthansa ground staff on 21 March depressed the operating result for Lufthansa German Airlines, as did high fuel costs and the long winter, which also weighed on the other airlines in the Lufthansa Group.

At the end of the first quarter 2013, Lufthansa German Airlines reported an operating loss of EUR 292m. At SWISS, the operating result came to EUR -16m, compared with EUR -3m in the same quarter last year. Austrian Airlines improved its operating result by EUR 11m to EUR -56m. Overall, the operating loss for the Passenger Airline Group segment improved to EUR -363m.

The Lufthansa Group also improved its operating result in the Logistics segment. Lufthansa Cargo increased its operating profit, in part thanks to targeted capacity management and lower depreciation and amortisation. At the end of the first quarter, the figure for the segment was EUR 27m, a rise of EUR 7m. The operating profit for the MRO segment was up by EUR 16m to EUR 81m. Lufthansa Technik adopted some 200 individual measures as part of SCORE in the first quarter, which by 2015 are intended to improve the organisation of administrative functions and align them better with customer needs. LSG SkyChefs improved its operating result by EUR 9m, posting an operating profit of EUR 3m for the period January to March. In the IT Services segment, Lufthansa Systems earned an operating profit of EUR 3m, compared with EUR 4m in the same quarter last year.

Given the improvement of the operating results for the Group companies in the first quarter, the positive contributions by SCORE and stable demand in the passenger business, the Group confirmed its earnings outlook for the year 2013. The operating profit for the Lufthansa Group in 2013 is predicted to be higher than the EUR 524m achieved last year. Positive earnings contributions from SCORE should not obscure the need for further change, however, emphasised Simone Menne, adding, “In competition with well-funded competitors, especially from the Middle East and Far East, and with low-cost airlines in Europe, we need new structures that will allow us to generate higher profits again. Putting the agreed measures into practice remains a challenge. We nevertheless intend to pursue our chosen path and shape our future with the required perseverance.”

The first quarter of 2013 in figures

Revenue for the Lufthansa Group in the first quarter of 2013 came to EUR 6.6bn - an increase of 0.1 per cent on the previous year. Traffic revenue declined by 0.2 per cent to EUR 5.3bn. Overall, the Group's operating income went up to EUR 7.2bn in the reporting period, an increase of 0.3 per cent.

Operating expenses rose by 1.7 per cent in the first quarter to EUR 7.7bn. Fuel costs climbed by EUR 36m to EUR 1.7bn. This represents an increase of 2.2 per cent. Included in this amount is a negative contribution of EUR 25m from fuel hedging. Fees and charges fell by 2.2 per cent on the previous year, due to a lower number of flights.

In the first quarter, the Lufthansa Group reported an operating result on a par with the previous year of EUR -359m. To facilitate comparison, the operating result for the same quarter last year was adjusted by EUR 22m following the amendments to accounting standard IAS 19. Following this adjustment, the result for the first quarter of 2012 also came to EUR -359m.

The net result for the period was down by 16.5 per cent to EUR -459m. Expenses for severance pay and compensation as part of the SCORE job cuts depressed the Group's result for the first quarter, as did impairment losses and valuation effects. Earnings per share sank to EUR -1.00.

Lufthansa invested EUR 718m in the reporting period. Of this sum, EUR 657m went on modernising and maintaining the fleet. Cash flow from operating activities came to EUR 976m and free cash flow (cash flow from operating activities less net capital expenditure) to EUR 463m. For the first quarter, the Group had net debt of EUR 1.7bn. Following the application of new accounting standards (IAS 19), the equity ratio is now 15.4 per cent.

The interim report for the first quarter is available online at www.lufthansagroup.com/investor-relations.

Deutsche Lufthansa AG Media Relations Lufthansa Group 02.05.13

Airlines in the Lufthansa Group further improve utilisation of their aircraft

Airlines profit from improved capacity steering / Utilisation rises to 76.1 per cent in passenger traffic and 70.5 per cent in cargo traffic

All the airlines in the Lufthansa Group profited in the first quarter of the year from improved capacity steering and, as expected lifted the utilisation of their aircraft in comparison with the year-earlier level. The Lufthansa Group raised the seat load factor in passenger traffic by 1.9 percentage points year-on-year to 76.1 per cent. The cargo load factor rose by 0.6 percentage points to 70.5 per cent.

Owing to the Group-wide 2.7 per-cent reduction in capacity (in terms of available seat-kilometres), the number of passengers carried by Lufthansa German Airlines, SWISS and Austrian Airlines in the period from January through March fell by 2.3 per cent on the prior-year level to 21.6 million. Sales (revenue seat kilometres) in the same term were down by 0.1 per cent but remained virtually stable. The reduction in capacity led to an improved utilization accordingly.

Lufthansa German Airlines raised its seat load factor in the first quarter by 1.7 percentage points to 75.5 per cent. In the period January through March, the airline reduced capacity by three per cent. The decline in sales was limited, simultaneously, to 0.8 per cent. The Lufthansa passenger count fell by 1.9 per cent to 15.5 million. SWISS improved the passenger load factor in the first quarter by 2.4 percentage points to 79.8 per cent. The Swiss carrier raised capacity in the first three months by 1.9 per cent, sales rose over-proportionately by 4.9 per cent. The number of passengers carried by SWISS in the first quarter totalled 3.8 million. The passenger count fell by 3.4 per cent owing largely to fewer flights. Austrian Airlines scaled back capacity by 9.4 per cent. The fall in sales was contained at a disproportionate 5.2 per cent. Thanks to capacity steering, Austrian Airlines improved the seat load factor in the first quarter by 3.3 percentage points to 74.0 per cent. Passenger numbers at Austrian Airlines in the first three months were down on the year-earlier level by 2.7 per cent to 2.3 million.

Successful capacity steering also improved the load factor at Lufthansa Cargo by 1.7 percentage points to 71.4 per cent. The cargo carrier trimmed capacity in the first quarter by 7.4 per cent, sales fell at a lesser 5.9 per cent. All in all, Lufthansa Cargo transported 399,000 tonnes of freight and mail in the first three months, a decline of 7.2 per cent.

The Lufthansa Group’s financial results for the first quarter 2013 will be published on 2 May 2013 and will be available, simultaneously, for download from 7.30 am at www.lufthansagroup.com/investor-relations.

Lufthansa 10.04.13

Lufthansa Supervisory Board gives go-ahead for major Airbus order
• 100 A320 Family aircraft and two additional A380s
• Third A380 order from the German flag carrier

The Lufthansa’s Supervisory Board has approved the acquisition of 100 A320 Family aircraft (35 A320neo, 35 A321neo and 30 A320ceo with Sharklets) and two A380s worth approximately US$ 11.2 billion at list prices. The engine choices will be announced by the airline at a later date.



This latest acquisition reconfirms the Lufthansa Group as Airbus’ largest airline customer, with a total of 532 aircraft ordered. Today the Lufthansa Group is also Airbus’ biggest operator worldwide with 385 Airbus aircraft currently in service. These include: 271 A320 Family, 41 A330s, 63 A340s, and 10 A380s.

‘’The A380 fulfills all our expectations, it’s a very reliable aircraft and our passengers’ feedback is excellent,” said Nico Buchholz, Executive Vice President, Lufthansa Group Fleet Management. “We are delighted to add again two more A380s to our fleet and together with the 100 new A320 Family aircraft these new jets will contribute to cutting our operational costs significantly while reducing our environmental footprint and offering our passengers a benchmark travel comfort thanks to the widest cabins in their respective fleet category.”

“We thank Lufthansa for their continuing strong confidence in our market leading aircraft,“ said John Leahy, Airbus Chief Operating Officer, Customers. “This third A380 order is a clear sign that the aircraft is working well for our prestigious customer Lufthansa. I am equally pleased, that with this order we are getting close to 2,000 NEO orders in just over two years, proving this jet is clearly the single aisle aircraft of choice.”

The A320neo and A320ceo Family aircraft will be used for Lufthansa Groups’ network development and fleet modernisation. While the CEO with Sharklets will deliver a four per cent fuel burn reduction, the NEO will contribute to cutting Lufthansa’s fuel burn by another 15 per cent. On top the A380 demonstrates a 12 per cent fuel burn reduction compared to its nearest competitor.

Over 36 million passengers have already enjoyed the unique experience of flying on board one of the 1oo A380 delivered so far. With 140 flights per day to date, the entire fleet has accumulated by now 100,000 revenue flights and 850,000 flight hours.

The A320 Family is the world’s best-selling and most modern single aisle aircraft Family. Today more than 9,150 aircraft have been ordered and over 5,450 delivered to more than 385 customers and operators worldwide.


14 MARCH 2013 PRESS RELEASE

• The Lufthansa Group increases revenue by 4.9 per cent to EUR 30.1bn in 2012
• SCORE delivers earnings contribution of EUR 618m in its first year
• Operating profit falls to EUR 524m (-36.1 per cent) due to higher fuel prices
• The Lufthansa Group expects to make further progress with SCORE and to improve its operating result in 2013

The Lufthansa Group increased its revenue by 4.9 per cent to EUR 30.1bn in the past financial year. At EUR 524m, the Group’s operating result was down 36.1 per cent on the figure for the previous year. The net result for the period went up from EUR -13m in the previous year to EUR 990m, primarily as a result of non-recurring effects from the disposal of shares in Amadeus IT Holding, S.A. and the sale of the loss-making British Midland Ltd.

“With our SCORE programme, we have launched a comprehensive, if not one of the largest, process of change ever seen in the history of Lufthansa. In addition to measures concerning costs and income, we have set up a number of major strategic projects, such as the new Germanwings, the turnaround of Austrian Airlines and the pooling of administrative activities in the areas of HR, purchasing and finance,” said Christoph Franz, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG during the presentation of the earnings figures for the 2012 financial year in Frankfurt. “With SCORE, we are creating the financial basis for our extensive investment plans. Our aim: we will make Lufthansa strong. We want to expand our position as Europe’s leading aviation group and considerably boost our profitability in every business segment.”

As part of SCORE, the Group implemented around 800 measures in 2012 to improve earnings and cut costs. As a result, the Company was able to achieve a structural earnings improvement of EUR 618m in the first year of the programme, around EUR 300m more than originally planned. Making better use of synergies in purchasing, coordinating flight plans being between airlines, adjusting capacities and lowering staff costs through more efficient processes in administrative areas have all played a role here, as have numerous measures which had been initiated before the official launch of SCORE, but whose positive effects on earnings were only felt in 2012. One example of this is the closure of Lufthansa Italia.

Simone Menne, Chief Financial Officer and responsible for Aviation Services at Deutsche Lufthansa AG, emphasised: “The Lufthansa Group has achieved a solid result in a difficult market environment. The SCORE programme delivered an earnings contribution of EUR 618m in its first year. However, the operating result fell sharply compared with the previous year. For this reason, we will continue to press ahead with SCORE in 2013 and boost our operating profit.”

The primary cause of the fall in Group profits was the price of fuel, which was EUR 1.1bn higher than in the previous year. The airlines suffered as a result: the Passenger Airline Group segment generated an operating profit of EUR 258m, which was 26.1 per cent lower compared with the previous year. The largest single company, Lufthansa German Airlines, reported an operating loss of EUR 45m, which represents a decline of EUR 161m on the previous year. SWISS posted an operating result of EUR 191m. Profit fell by EUR 68m year on year. Austrian Airlines’ operating result of EUR 65m was an improvement of EUR 127m, mainly thanks to the transfer of operations to the cheaper Tyrolean Airways platform.

In the Logistics segment, the Group reported a profit of EUR 104m, down EUR 145m.

Christoph Franz said: “SCORE strengthens our core business segment and makes us less susceptible to external factors. Initial measures were implemented in 2012, with more being prepared and vigorously promoted. This includes modernising our fleet with 236 new, modern aircraft which are currently on our order list. In this year alone, we will bring 34 new, fuel-efficient and low-noise aircraft into service, which will replace older models. The major part of the operating result for the year will be generated by the passenger and cargo airlines of the Lufthansa Group in 2013.”

The broad strategic formation of the Lufthansa Group had a positive effect on the result. All the service segments increased their operating result compared with the previous year. Lufthansa Technik, LSG SkyChefs and Lufthansa Systems generated higher year-on-year profit contributions of EUR 318m (+23.7 per cent), EUR 97m (+14.1 per cent) and EUR 21m (+10.5 per cent), respectively.

“In the current year, our main focus will be on ensuring the successful implementation of individual projects and measures. 2013 will be a particularly challenging year for the companies and their employees,” emphasised Christoph Franz. According to him, restructuring and project costs will have a negative impact on earnings in the current year. At the same time, the oil price is expected to remain high and the underlying economic conditions for air traffic challenging. Global economic performance is fraught with great uncertainty and the crisis in Europe has not yet been overcome, he continued. Nevertheless, the Lufthansa Group expects to achieve an operating profit in 2013 which is higher than that of the previous year. “SCORE gained considerable momentum during the past year. Early successes are already visible and can be measured. Our goal remains the same: with an operating profit of at least EUR 2.3bn which we intend to achieve with SCORE, we will actively promote and shape the process of change in the European airline industry,” underlined Franz.

2012 in figures

Revenue for the Lufthansa Group in the financial year 2012 came to EUR 30.1bn – an increase of 4.9 per cent on the previous year. Traffic revenue improved by 4.3 per cent to EUR 24.8bn. Overall, the Group’s operating income went up to EUR 33.0bn in the reporting period, an increase of 5.9 per cent.

Operating expenses rose by 4.3 per cent in the previous year to EUR 31.7bn. One of the main reasons was the EUR 1.1bn rise in fuel costs, which came to EUR 7.4bn in total. This represents an increase of 17.8 per cent. Included in this amount is a positive contribution of EUR 128m from fuel hedging. Government-imposed fees and charges rose by 3.3 per cent on the previous year, despite a lower number of flights operated.

The Lufthansa Group generated an operating result of EUR 524m in 2012, down by EUR 296m compared with the previous year. The net profit for the period was EUR 990m, an increase of more than EUR 1bn. Earnings per share improved to EUR 2.16. The disposal of shares in Amadeus IT Holding, S.A. made a very positive contribution to the net profit for the period, with book gains of EUR 623m. In addition to this, the previous year’s result was affected by a EUR 285m loss from British Midland Ltd., which has since been sold.

Lufthansa invested EUR 2.4bn in the reporting period. Of this sum, EUR 2bn went on modernising the fleet. Cash flow from operating activities came to EUR 2.8bn and free cash flow (cash flow from operating activities less net capital expenditure) to EUR 1.4bn. For the year 2012, the Group has net debt of EUR 2.0bn. Its equity ratio is 29.2 per cent.

The 2012 annual report is available for download on the internet at www.lufthansagroup.com/investor-relations. Photo material can be downloaded from www.lufthansagroup.com/presse. The press conference to present our financial statements will be broadcast live on the internet from 10.00 a.m. at www.lufthansagroup.com.

Deutsche Lufthansa AG, Media Relations Lufthansa Group, 14.03.13