OTC Markets Group (OTCM): Tell us about Deutsche Lufthansa.
Andreas Hagenbring: Lufthansa Group is one of the largest aviation groups in the world. It is based on three strategic pillars: Network Airlines, Point–to–Point Airlines and Aviation Services. Altogether, Lufthansa Group generates annual revenues of more than 32bn EUR and has close to 130,000 employees.
The flag carriers Lufthansa German Airlines, Swiss International Airlines and Austrian Airlines form the Network Airline segment. They operate from four hubs: Frankfurt, Munich, Zurich and Vienna. Given the attractiveness of their home markets, they are successfully adopting a premium strategy with very strong brands.
The Point–to–Point Airlines focus on profitable growth. With its lead brand Eurowings, the Lufthansa Group has an innovative and competitive offering in the European point-to-point segment.
The Aviation Service companies are market leaders in their respective industries. Lufthansa Cargo is the biggest European cargo airline. Lufthansa Technik is the largest independent MRO provider in the world. And LSG is the number one global airline catering company. The vast majority of these companies’ revenues is external and their high margin and less volatile earnings profile supports the development of the Lufthansa Group.
OTCM: What were your major accomplishments in 2016?
Mr. Hagenbring: Last year, we again delivered one of the best results in the more than 60 year history of the Lufthansa Group. In a year that was marked by some terrorist attacks in Europe and geopolitical uncertainties, we have managed to keep our results at the same record level as in 2015.
The Network Airlines have made further progress in the implementation of our strategy. We have concluded commercial joint ventures with Air China and Singapore Airlines in Asia. We have also progressed with our comprehensive fleet renewal program, which will provide for sustainably 20% lower cash operating costs for each aircraft we are replacing. And most importantly, we have now agreed with all unions at Lufthansa German Airlines to modernize existing tariff agreements and move away from legacy pension systems.
In the Point–to–Point segment, we have concluded a major wet-lease agreement with our largest German competitor Air Berlin that will see us consolidate our home market and at the same time lower our cost of operations for the future. At the end of 2016, we have acquired the remaining shares in Brussels Airlines, thus strengthening the leading position in our home markets and becoming the clear number three in European point-to-point traffic.
The Service companies have all grown on external revenues and implemented important efficiency measures. The group organization is being renewed and a full layer of management has been eliminated.
We are financially healthy and investment grade rated, paying annual dividends according to a fixed dividend policy.
OTCM: How does Lufthansa differentiate itself from its competitors and what is your growth strategy for 2017?
Mr. Hagenbring: Lufthansa Group differentiates itself from many competitors through its well-diversified set-up. The unique portfolio of airlines and aviation services companies constitutes a key strength of the Lufthansa Group. It creates synergies between the individual companies and makes the Group less cyclical than most peers.
In many respects, the segments of the Lufthansa Group are innovation leaders. We are a founding partner of the Star Alliance, the world’s largest airline alliance. We were the first to introduce mobile boarding and internet on board both on long-haul and short-haul flights in Europe. At the moment, our Network Airlines are implementing a next-generation distribution strategy that will allow us to personalize products and services beyond a level currently seen in the industry.
In 2017, our Network and Point–to–Point Airlines will grow their capacity by more than 12%. Most of this comes from the acquisitions made in 2016. The Aviation Services grow organically in existing business areas, but also in adjacent markets. Expanding partnerships is of particular importance in this respect.
OTCM: Lufthansa celebrates 6 years on OTCQX this year. How have you used OTCQX as part of your U.S. IR program?
Mr. Hagenbring: Next to holding or joining conferences, roadshows, webcasts and other activities to communicate with our investors, being on OTCQX is an opportunity for us to present ourselves to a bigger community. Lufthansa uses OTCQX as a platform to inform ADR holders of news releases and financial reports on Lufthansa. Furthermore, Lufthansa regularly updates its Company Profile to present its latest development to ADR holders. OTCQX is also a useful and helpful tool to obtain and analyze news on the trading flows of Lufthansa ADRs.
OTCM: What else do you want U.S. investors to know about Lufthansa?
Mr. Hagenbring: The Lufthansa Group is a company with subsidiaries and bases all over the world. They all strive for our traditional values of safety, quality and innovation. Since the company’s foundation, we have seen several transformations (from state to private-owned, changing from a German to a European airline group, etc.) and challenges (oil crisis in the 70s, strikes, etc.). Yet, all this has made Lufthansa Group stronger. We have the right skills and the right culture to drive change in the aviation industry and will continue to do so in the future.
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