Deutsche Lufthansa AG (OTCQX:DLAKF) Q2 2022 Earnings Conference Call August 4, 2022 4:00 AM ET
Company Participants
Dennis Weber – Head of IR
Carsten Spohr – CEO
Remco Steenbergen – CFO
Conference Call Participants
James Hollins – BNP
Jamie Rowbotham – Deutsche Bank
Ruxandra Doser – Kepler Cheuvreux
Stephen Furlong – Davy
Jarrod Castle – UBS
Muneeba Kayani – Bank of America
Clementine Flinois – Bernstein
Andrew Lobbenberg – HSBC
Sathish Sivakumar – Citi
Johannes Braun – Stifel Europe
Dennis Weber
Good morning, ladies and gentlemen. Welcome to the presentation of our results for the first half year and second quarter 2022. With me on the call today are our CEO, Carsten Spohr; and our CFO, Remco Steenbergen. Two, will give you an update on operational and financial performance. And as usual, afterwards, you will have the opportunity to ask your questions.
Carsten, over to you.
Carsten Spohr
Yes. Thank you, Dennis, and ladies and gentlemen, a very warm welcome from my side as well, and you won’t be surprised by me opening up in a frank way saying that when it comes to operations, I definitely would have liked international air traffic to be in a better position compared to what we are currently experiencing at airports. But for our own industry, for the entire industry, overcoming this crisis, which began 2.5 years ago is indeed an ongoing challenge, especially when it comes to operations. In simplified terms, I think my personal view is that this industry is overcoming the crisis in three phases. First phase basically is the grounding phase, and the fight for economic survival, we all have been throughout all over the world. And then second, which I think is the current phase, it’s the restart phase, which is unexpectedly steep ramp-up of global flight operations on the one hand and therefore, including the operational challenges that come with it. And third will be the return to full normalization in terms of personnel, in terms of reliability, punctuality and our products. We expect this phase to come with renewed consolidation in the industry. We believe there will only be moderate capacity growth due to ongoing growth limitations. We’ll be touching later on. We will see that supporting sustainably higher yields compared to the precrisis levels, and we believe we will reach this phase next year.
We, and the Lufthansa Group have already successfully completed the first phase and its financial rescue, including the gradual exit of the German economic stabilization fund, which has just reduced its stake to under 10% a few days ago. And we are currently, obviously, in the second phase, the restart, which is characterized, on the one hand, by unforeseen high demand in all classes, we were touching on this in a few minutes. And on the other hand, by an aviation system around the world that can no longer at least at this point, cannot yet adequately serve this demand in many parts of the production chain. And although the last few weeks have been marked by painful operational irregularities in a way that we have not yet experienced on this scale in our industry, at least for last year in Lufthansa, we are very satisfied with the financial results of the second quarter. We significantly increased our revenues and returned to profits. Adjusted EBIT, as you know, was almost €400 million.
And once again, it was Lufthansa Cargo who made a significant contribution to this good result. Our colleagues there have been achieving record results now for 22 months in a row. And with an adjusted EBIT of €482 million, cargo’s second quarter earnings were another almost 50% higher than the already record results in the exceptional previous year. And the peak of the cargo season is still ahead of us. In the second half of the year, demand normally increases further. Many of our corporate customers are diversifying their supply basis around the world. And this, in turn, is creating both additional flows of goods and not to be forgotten, it also, we believe, will create additional demand for business travel. And this will, in our view, additionally fuel the already strong booking demand from our customers around the world.
And that brings me to the Passenger Airlines, where in the past quarter, our Passenger Airlines brought 29 million passengers to the destinations, more than 70% of the precrisis level. We see a clear trend here more and more guests are traveling in our premium classes. In addition to overall strong demand, this obviously further supported our yield performance. Overall, our aircraft were very well utilized in the second quarter, in the period, the seat load factor reached 80%, which is just 3 percentage points below the precrisis level of the record year 2019. But I already mentioned it, not just today also to our passengers around the world and to our staff, the joy of good demand was and is clouded for operational difficulties. Those of you who have traveled by air in recent weeks, let me say, no matter which airline probably will have experienced the disadvantages of strong demand of yourself.
For the complex air traffic system, the ramp-up curve from just 20% to 80% in just a few weeks, to be honest, was just too steep. The overload of the system was caused by industry-wide staff shortages and on top, partly caused by the shortages, high sickness rates. Unforeseeable events, such as airspace closures due to the terrible war in Ukraine and unprecedented supply problems with spare parts for aircraft and even more for engines added to this. Therefore, our top priority remains the stabilization of our flight operations. We have implemented numerous operational measures that have significantly eased the tensed situation. First, we took a large number of flights out of the schedule early on. Second, we also temporarily brought back and bringing back employees who had just left us recently, and in the second half of this year alone, we are hiring around 5,000 new employees, the vast majority of them in operations, in line with the expansion of capacity planned for this year and next.
Recruiting focuses on the cockpit and cabin of our 10 Passenger Airlines, ground personnel at our airports, mainly hub airports and technicians at Lufthansa Technik. A similar number of new hires is planned for ’23. Thirdly, we have introduced additional shifts on the ground, which we financially incentivized for our stuff. For example, at check-in or at the gate or we’re also deploying employees from other airports to our hub in Frankfurt, where the operational problems remain greatest. Fourthly, we are offering our customers more and more digital solutions to self-service them to reduce waiting lines, be it in the call centers or at the airport. And last but not least, we are working closely with our system partners also leading to the decision to significantly reduce the number of aircraft movements, especially in our hub in Frankfurt.
Thanks to these measures, the situation has already stabilized significantly at all of our 4 — sorry, 5 hubs. The current operational challenges are an additional burden for our employees, no doubt. And coming on top of the financial cuts they had to live with during the crisis and the high inflation we see everywhere. Currently, while we speak our Chief Human Resource Officer, Michael Niggemann, and his team are in talks with all three of Lufthansa’s main unions here in Germany. Negotiations for the ground personnel with Verdi have just entered the third round, and we are confident that we will soon reach an agreement. Already in the first two rounds of negotiations, we made significant progress and offered fairly high increases with a very strong social component for the lower end of the payment scale. And despite the result of the strike pilot Vereinigung cockpit, our cockpit union in Germany, which of course, we respect, we have noticed a strong will to negotiate not just on our side but also on their part.
With our offer, we have laid a good foundation for further constructive talks and eventually a joint solution. We have already offered a compensation increase of 5.5%, we’re also discussing the possibility of reviving the so-called PPV, the agreement, which defines the size of our mainline operations, which we have been living with for the last years. Michael Niggemann and his team also talk to UFO, the cabin crew union here in Germany, and after the cuts made during the crisis in view of inflation adjustments to the collective agreements are also necessary here with a particular need for action in the lower pay grades. Before I talk about the third phase of the recovery, which is the return of premium product quality, Remco, our CFO, will present you our quarterly results and details. Remco, over to you.
Remco Steenbergen
Thank you very much, Carsten, and a warm welcome to all of you as well. As Carsten mentioned, we are delighted that we returned to positive adjusted EBIT and positive net income in Q2. We’re not only pleased because we generated positive results in the second quarter, we also believe that this quarter is a real turning point for our profitability going forward. In Q2, adjusted EBIT amounted to €393 million and net income to €259 million. Performance was not only driven by the continued strength of cargo and the solid performance of our MRO business. We also increased yields in our line business to an extent that seemed quite impossible just a few months ago. Even more remarkable was the generation of more than €2.1 billion of free cash flow in the second quarter, driven by both robust bookings and strict working capital management. We are confident that we can hold on to a significant portion of the €2.9 billion of adjusted free cash flow generated in the first half year. But before discussing our cash flow performance and outlook in more detail, let me explain you the drivers of performance in the Passenger Airlines segment, where results improved significantly.
Compared to the first quarter, we expanded capacity from less than 60% to almost 75% in the second quarter. Seat load factors also improved significantly and were only 3 percentage points below the 2019 level with June being almost on par and yield performance was outstanding. Early on, we had signaled that there was upside to a yield indication for the remainder of the year of a high single-digit percentage increase. However, the momentum we built over the course of the quarter and the strength of short-term bookings still exceeded our expectations. In the quarter as a whole, yields were 24% above 2021 levels. Yields increased across all traffic regions. Still, the Transatlantic stood out based on strong US-based demand for travels to Europe compared to 2019, yields were 10% higher. Unit costs trended closer to 2019 levels as we realized more cost savings and higher capacity helped leveraging our fixed cost.
CASK, excluding fuel, was 8.5% above 2019 levels in the quarter, which around 2 percentage points can be attributed to the translational effect from the appreciation of the Swiss franc. The remaining gap is due to the fact that we’re still missing a 1/4 of the precrisis capacity and, to a lesser extent, high irregularity cost. The latter amounted to €158 million in the second quarter, around half of which were booked as operating expenses. Unfortunately, we expect customer compensation payments and duty of care expenses to remain high also in July, but then to moderate in the months thereafter. For the full year, we expect irregularity expenses to amount to around €450 million to €500 million. Our aviation services again made a significant contribution to the group’s earnings in the second quarter. The profits in the logistics and MRO segments were almost on par with a strong first quarter.
Lufthansa Cargo continued exceptional momentum. Market-wide capacity in air cargo remains below precrisis level despite a return of value capacity on the Transatlantic. In contrast, demand continues to be higher than in 2019, driven by ongoing supply chain disruptions and congestion in sea freight, which even worsened most recently in Northern Europe and the US East Coast. As a result, yields remain elevated, driving the generation of €482 million of adjusted EBIT in the second quarter. At Lufthansa Technik demand was particularly strong across the key components and engine divisions as airlines ramped up for the market recovery. With material shortages remaining manageable and cost inflation largely being passed on to customers, adjusted EBIT amounted to €100 million in the second quarter. The recovery of LSG’s North America business progressed further, whereas the Asian business continued to suffer from corona-related restrictions. Despite this and some inflation-related cost pressures in the U.S. LSG adjusted EBIT was just positive in the second quarter. Finally, the results in other business and group functions improved slightly.
Now let me turn to the drivers behind our exceptionally strong cash flow performance in the second quarter. As we highlighted at several occasions, booking activity was strong over the entire quarter. Taking also the yield strength of new bookings into account, the liability related to unflown tickets increased by €1.3 billion in the second quarter. Additionally, working capital management made an almost equally large contribution. Trade payables increased by €1.1 billion because of the ramp-up of the business and the extension of payment terms. Vice versa, we successfully limited increase of receivables associated with the ramp-up, even including ticket-related receivables, which increased by €470 million in the second quarter. Net capital expenditures was €738 million, in line with our guidance. In sum, also including the IFRS 16 operating lease expenses, this resulted in a positive adjusted free cash flow of €2.1 billion in the second quarter. Based on the seasonality of the airline business, customer prepayments of new bookings will be lower at year-end compared to the end of June.
Although the exact change is difficult to forecast, given the fact that we have only limited visibility on 2023 bookings at this stage, we’re confident that the rest of the working capital will remain largely stable. As a result, adjusted free cash flow, we expect will also be significantly positive for the full year 2022, albeit lower than the €2.9 billion we generated in the first half. Due to the strong free cash flow performance, net debt declined to €6.4 billion, €2.6 billion below the level at year-end 2021. In addition, I would like to highlight that our net debt is in principal fixed rate finance. The average interest rate on gross borrowings is around 2.5% with an average maturity of almost five years. This, combined with the fact that we only need to refinance around €1.6 billion over the next 18 months, provides us with good protection against rising financing costs resulting from the change in monetary policy currently underway.
In addition, available liquidity of €11.4 billion at period end, above our long-term target corridor of €6 billion to €8 billion serves as additional crisis protection. Our equity also strengthened and amounted to €7.9 billion at the end of June. This is €3.4 billion above the level at the end of 2021 and unfortunately, if I may say so, even higher than our current market capitalization. The increase of shareholder equity was mainly driven by the sharp reduction in the pension benefit, which amounted to just €2.8 billion at the end of June. Compared with the end of 2021, deficits averaged more than halved and has fallen by as much as €6.7 billion compared with year-end 2020. The positive valuation effect resulted from a 190 basis point increase in the IFRS discount rate since year-end 2021, which was only partly offset by the negative performance of plan assets, reflecting the losses in the global bond and equity markets. The development in the first half year only further strengthens our belief that asset returns and the normalization of global monetary policy, we eventually close the deficit. In fact, our pension plans outside of Germany are already overfunded today.
In Germany, the plans are around 80% funded on an IFRS calculation basis. A further increase of the discount rate to 4.5% would close the remaining gap. That’s why we will continue our strategy of paying all pensions out of plan assets and not out of the operating cash flow as has been the case before the crisis. This limits the pension funding to around €400 million per year, reflecting the employer contribution to active contribution plans and the legal required payments for plants outside of Germany. Now when it comes to our program to structural reduce costs, a good €3 billion of measures have now been implemented, equaling more than 85% of the target volume of €3.5 billion. Further progress on the personnel cost side will depend on the outcome of the current negotiations with Verdi and Vereinigung Cockpit. The agreements we are targeting will be key for achieving the remaining personnel cost savings of close to €400 million.
We will not walk away from our multi-hub, multi-brand and multi-AOC strategy. Given that we need differentiated platforms, for example, to profitably grow our leisure and touristic business and to remain competitive in shortfall. With tight productivity management to continue and assuming a further normalization of capacity to between 85% and 90% of precrisis levels next year, we’re hence optimistic that unit cost ex fuel will be back to around 2019 levels by the end of 2023. When it comes to fuel cost, price volatility has been enormous since we last reported in May. Nonetheless, the price of crude oil has declined somewhat in the past weeks as has the jet crack since reaching all-time heights only at the end of June. At this stage, we have hedged 67% of our exposure to crude oil for the remaining of 2022 at an average rate of $76 per barrel. For 30% of exposure, we have also hedged the jet crack for the rest of 2022 at around $37. Also for the year 2023, we have already hedged 46% of our crude oil exposure at an average breakeven price of $87 per barrel. In sum, our hedging will limit the increase of fuel costs in the remainder of 2022 and in 2023. This will provide us with additional time to pass on additional costs through higher yields, building on the progress made year-to-date and still expected in the coming months.
Please note that the sensitivity metrics for the year 2022 included in our slide deck includes the impact from the stronger U.S. dollar, but does not factor in the effects of currency hedging. This currency hedge result is booked in other operating income, not in the fuel cost line as it relates to our overall net exposure. It’s our strategy to hedge 60% of our net share position in the U.S. dollar with a 24-month layer strategy. Based on that, we have covered 54% of our net exposure of more than $3.5 billion for the remainder of 2022 at an average rate of around €1.10. This brings me to our financial outlook. Due to the recently decided reduced capacity levels for the months of July and August, we expect capacity in the third quarter to be around 80% instead of the 85% originally planned. However, full year 2022 capacity is still expected to be around 75% as we plan for similar capacity in the fourth quarter as in the third quarter in both compared to 2019.
Considering the yields strength implied by current bookings on which Carsten will elaborate in a minute, and seat load factors reaching almost 2019 levels, we expect the performance of our airline business to further improve in the third quarter. That is why we forecast adjusted EBIT in the third quarter to be substantially higher than the second quarter. For the full year of 2022, adjusted EBIT should hence be above €500 million, very much in line with current market expectations. Finally, and as explained earlier, we forecast adjusted free cash flow to be significantly positive in 2022, assuming net CapEx of around €2.5 billion. This means that we are well on track to achieve our 2024 targets an adjusted EBIT margin of at least 8% and an adjusted ROCE margin of at least 10%. Lastly, let me briefly touch upon the status of the asset divestitures. The planned divestments of AirPlus and the remaining non-European catering business around LSG remain a key management focus also in the second half year. There is robust investor interest in both assets. So we are now entering the next phase of the process. At Lufthansa Technik, we are continuing as planned with the preparations for a minority sale or partial IPO in 2023.
And with that, over to you, Carsten.
Carsten Spohr
Yes. Thank you, Remco. And ladies and gentlemen, we all know more maybe than in normal times this year, nothing is as constant as change. And I think this is indeed once more especially the case for aviation, a little bit more averaging for many or most other industries. And therefore, in our tough competitive environment, the ability to adapt is and remains vital. In our case, with our well-diversified portfolio, our very international footprint and the three strong business segments, we believe the Lufthansa Group is ideally positioned to take advantage of the further recovery in our industry, even if the macro environment becomes more difficult in our home market. When almost all passenger aircraft were grounded at the beginning of the pandemic, Lufthansa Cargo was able to capitalize on the disruption of supply chains and became a backbone of global trade. Around 70% of the cargo carriers comes from countries other than Germany.
And as mentioned before, the business will continue to benefit from the ongoing capacity bottlenecks. Our Passenger Airlines are also well established and respected worldwide. Today, we are more international than ever before. The majority of our 11 AOCs are not based in Germany anymore. And we only sell about 30% of our tickets in Germany. More than 70% of bookings are made in other countries, and that is even though Japan and China are yet not opened, and obviously, it will be markets once they reopen. Lufthansa Technik serves one in all — one in five of all passenger airlines worldwide. With more than 35 international basis, MRO recently benefited, in particular, from the recovery of global air traffic and the resulting increase in demand. Be it for airline maintenance and repair services and the ramp-up, we believe, will continue.
With our Passenger Airlines, Logistics and MRO businesses we are convinced to be ideally positioned for the future. The trend towards an increasingly international and synergetic Lufthansa Group which also takes advantage of growth opportunities outside Germany will continue. Now we’re doing everything in our power to sustain the premium positioning of our airlines and to live up to our own product and quality standards again. We have already upgraded our in-flight catering and expanded our launch offering. And beyond those short-term improvements, we will start a new product and quality initiative in the fall, leading them to the upgrade of our product in the coming year with new seats and services in all four travel classes, first class, business class, premium economy and, of course, economy.
Our product and service innovations will further support premium demand, which is already very strong today. Yields have increased significantly in both premium and non-premium classes over the course of the second quarter, and this trend to our joy, also continued in July and the outlook beyond. Also in the rest of the quarter, we, therefore, expect yields across our airlines to remain high as demand remains very strong. Business travel continues to come back and the operational challenges put a limit to what the market wide capacity can at all be offered around the world. And therefore, the trend towards higher priced booking classes continues unchanged, with premium leisure demand, especially originating in the U.S., playing in more and more important role in this regard. Seats in our premium and non-premium classes were almost equally well booked in the past quarter. In the coming quarter, advanced bookings for premium classes are already above the comparable figures for 2019.
An important part of our premium preposition is the sustainability of our offers and services. And this topic becomes more and more important for all customer groups. For example, it is now even easier for our passengers to offset the carbon emissions of their flights. Since the beginning of the month, we have been testing our so-called Green Fares in Norway Sweden and Denmark. If the customer chooses the corresponding fare, the compensation of their carbon emissions for these flights are already automatically included in the ticket price. Green flying is also becoming even easier outside Scandinavia. As of this year, guests of Lufthansa and Swiss can also book the carbon offset of their flight directly onboard. In order to reduce carbon emissions, we have always relied on the intelligent linking of different modes of transport. And we are, therefore, all the more pleased that Deutsche Bahn, the German railway system, has been the world’s first intermodal partner of the Star Alliance since August 1 for us. That is the logical further development of our successful Lufthansa Express Rail Corporation.
We are also resolutely pushing ahead with our goal of increasing the use of sustainable aviation fuel, SAF. Just this week, we signed a memorandum of understanding with a fuel manufacturer Shelf. This allows for the supply of sustainable aviation fuel in the volume of up to 1.8 million metric tons for the years 24 to 30, which means we are on the verge of green on one of the world’s most significant commercial SAF collaboration in the aviation sector. We want to be a leader in our industry when it comes to climate protection. That is why we have set our ourselves ambitious goals. By 2030, the Lufthansa Group wants to have its net carbon emissions compared with 2019. And by 2050, we want to operate completely carbon-neutral. In this context, the most important levers for us to improve our carbon footprint are an accelerated fleet modernization, sustainable aviation fuels and the optimization of flight operations. Our clearly defined reduction path has also been validated by the science-based target initiative. We are the first aviation group in Europe to receive this validation.
Our carbon reduction target has just been significantly — sorry, scientifically validated as being in line with the targets of the Paris Climate Agreement of 2015. The unit of measurement for this Science Based Target initiative, SBTi, is carbon intensity, which means carbon emissions per payload carried. This quite technical term includes freight but also passengers. According to SBTi criteria, the Lufthansa Group will reduce its carbon intensity by more than 30% by 2030 compared to 2019. Converted into absolute carbon emission and reductions, this value corresponds to 18% less carbon emissions by 2030. We will achieve the remaining 32 percentage points toward our self-imposed target of 50% less carbon emissions through compensation measures.
Ladies and gentlemen, even if the operational difficulties have pushed this somewhat into the background in recent weeks, the outlook for global aviation is strong and demand for our services and products remains very high. The times of overcapacity, as we have seen them, for example, right before the pandemic, we believe, are over for quite some time. Aviation is facing a global supply bottleneck. The delays in aircraft deliveries from both Boeing and Airbus are surely painful for us operationally. But at the same time, they will stabilize prices for the entire industry by less capacity. The same is true for the significant shortage of pilots in the U.S. market, for example, or infrastructure restrictions in Europe. With our 11 airlines and their individual strengths and our strong market positions in cargo and MRO, the Lufthansa Group is excellently positioned for this future. In the past 2.5 years, we have become even more resilient and ready for the future.
Due to our unique portfolio, we were able to return to profits in the second quarter and generate high cash flows. We have significantly improved our balance sheet, as Remco pointed out, reduced debt and increased our equity ratio. In the process, we are determined to continue our transformation towards a more sustainable future. For me, personally, the priority now is three things: upgrading our product for the benefit of our customers; creating attractive and inspiring prospects for our employees again; and obviously, ensuring the return to profitability in ’22, which we are reporting here today. Thanks for your attention. Remco and I, Dennis as well, we now look forward to your questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question is from James Hollins from BNP.
James Hollins
A few for me, please. Just on the pilots in the ground, I mean clearly, your confident something’s going to get done there. I think the pilots were voting 98% in favor of action. Obviously, ground you’ve had an action that grounded your flight for a day, I think for Munich. I was just wondering if you could embellish on your confidence in the deal getting done there, the data might suggest otherwise? Second one is on corporate business bookings. Not much detail in here. I may have missed it or have been distracted, but I think you talked about having 50% recovered in March. Maybe you can update on the data into maybe June, July, obviously, not seasonally strong? And whether you still think it will be — I think you’ve previously talked about 80% recovered by year-end. And then thirdly is on the sort of premium demand. I was just wondering if you could sort of remind me as an ignorant fool as to why you and many other airlines think premium leisure, in particular, stays super strong into a macro downturn?
Carsten Spohr
Let me answer the third one first because probably it’s a lease aviation question. I think it’s a question of how the global societies are developing. I think we are seeing more and more people who due to their income, out to their wealth are less sensitive to economic up and downturns, but are willing to spend money on vacations on hotels, on rental cars, on expensive restaurants and also are willing to spend more money for personal space and traveling. We have seen that for many years in Switzerland. We now see in more and more other markets, especially in the U.S. but also Germany, I think these people are less sensitive, as I said, to economic up and downturns. Coming to the more difficult question, your first one. Pilot and ground staff, I think there’s a big difference here in terms of time frame with the ground staff. We indeed as also the negotiating leader of the Verdi union set just last night, we are believing to be fairly close to each other, and therefore, short term, could see an agreement being reached.
On the pilot side, it’s important that our Head of HR just two days ago, made an offer to renew the agreement, which has been valid for the last years, which not only offered our pilot competitive salaries, but also offer them perspectives for career and growth. And when I talk to our pilots in the cockpit every day, that’s what most of them are looking for. So I think that offers us to renew that agreement, which will allow that perspective and additional careers to be created in the mainline is an attractive one, and it’s a very good base for constructive dialogue. We already have set dates over the next weeks to negotiate with the pilot union and therefore, my optimism that there’s also solutions to be founded in. Remco, you will talk a little bit about the profit booking.
Remco Steenbergen
James, on the corporate customers, we were in the first quarter around 20%, correct, of our travel that returned to around 40% or doubled in the — by the end of June sort of second quarter. We saw in the bookings, the end of June, July, clearly, a further increase up to 50% to 60%. So we expect 50% to 60% of corporate to come back in Q3. We are targeting for an increase and further in Q4 to go above the 60%, hopefully to 70%. So we have to keep in mind that in the 2024 targets, we always said that more normal would be 80%. We have to see if that can go further up. But we believe we are well on track on that forecast we have set before an issue.
James Hollins
So Carsten, can I just come back on the pilots? I know historically, part of the career progression with younger pilots was that there was tons of older, very well-paid, they didn’t want to leave. Has COVID restructurings have seen that problem disappear, lots of the older ones blocking their career sort of leaving the business?
Carsten Spohr
Yes, indeed, as you might recall, I think reported on this last time, we have created a so-called volunteer program, which allowed senior pilots for the main line to leave at very attractive terms. 388 of them accepted that proposal and are especially leaving while we speak this week and quite a few we asked to hand on a little bit longer because we need them. But overall, over the next weeks or months, almost 400 will leave us. They will create, of course, career opportunities, but probably more important for the younger pilots is that the renewal of this agreement, which we were forced to cancel in December to allow them guaranteed career to a certain number. And the other alternatives, of course, if there is no agreement on such a deal would be that we will enter pure CLA negotiations only based on costs and salary increases, which I think is the least interesting version for our pilots.
While we speak, we are offering 300 new jobs for captains in the main airline, and we’re actually at the limits of our training capacities in the main airlines. So I think there are — it’s especially the main airline interesting opportunities. But of course, also there’s opportunities in other airlines as they are all growing next year, we are adding obviously, new jobs into the main airline, but also the other ones, as you know, we are stepping up the airline probably for another 10% to 15% next year. I’m sure we’ll come to that later on. We are currently, as Remco was pointing out, operating at 75% this year, and we’re looking at something between 85% and 90% for next year, which is probably more on the conservative side, by the way, which because we love our yield stabilization. We love the high yield factors. So we will be on the more conservative side of growth in ’23. But still, this growth be a little bit less and some competitors will create these career opportunities I just mentioned.
Operator
The next question is from Jamie Rowbotham from Deutsche Bank.
Jamie Rowbotham
I have three. On the first, I will — just come back on the pilots one more time. I’ve read they’re looking for uniform pay across all units, inflation protection. And perhaps erroneously, I thought that the annulment of the perspective agreement was one of the building blocks towards you achieving the targets in your cost savings plan. Apologies if that’s misunderstood. But if you give in to some of these demands from the pilot union, do you think you might need to revise your aspirations on CASK, or are you going to rely on RASK to provide an offset? Secondly, and linked, I guess, very impressive second quarter yield from the Passenger Airlines, as you mentioned, 10% above precrisis driven by long haul and in particular, the Transatlantic. How sustainable do you think that’s going to be in Q3 and perhaps more importantly, into the winter quarters? And then finally, I think you said €450 million to €500 million for full year irregularity costs after €158 million in 2Q. I don’t think there was much in Q1. That feels like a big number for the rest of the year. Why is that so high? And is there an assumption in there around cost of industrial action?
Remco Steenbergen
Let me take the first one because it’s very, very clear that we will not walk away from multi-AOC strategy, right? We need that, as I said also in my speech, we need for certain differentiated customer groups and certain routes. We need to be at a different competitive level than for the main airline. So to come to one overall pay scale system for all the airlines in Germany is, for us, a strategic no go. We cannot do that because that will really put our company at such a strategic disadvantage position against the other airlines. So that will remain. But of course, within that structure, we can do a lot of the things as Carsten has said. So we believe it still provides a very good outlook to come to a good resolution. So I don’t think it is conflicting in itself. Of course, we have seen the request of the pilots, but that is a strategic topic we want to keep.
Second question on the yield. Yes, we saw a 10% yield in the second quarter versus 2019 overall. We expect also for the second half of the year, about 10% yield increase versus 2019. And even in Q3, it might be even slightly higher than the 10%. So in that sense, we are positive. And I think also that it’s positive because of the whole capacity price management, which I reiterated before, very carefully management with complements to our commercial teams. And I think that’s also an industry-wide situation we are currently in. But that is the outlook we have. For the last point on the irregularity cost, right, we were slightly below €200 million for the first half of the year. Of course, you can imagine July was a very difficult month for us. So that was a more expensive month than June has been, probably have also a little bit of that in August and then tempering down. And that’s why we are around the €450 million. It doesn’t include anything with regard to industrial actions or further strikes or anything. That is not something we can assume when we make any planning. I hope that answers your question, Jamie.
Jamie Rowbotham
It does.
Operator
The next question is from Ruxandra Doser from Kepler Cheuvreux.
Ruxandra Doser
First, what cargo performance do you consider in your guidance for H2? Second, could you please give some details on the catering disruptions in Germany this year? What exactly has caused the problems? And has the situation improved now from Q1, beginning of Q2? Are you bound to the contract with Gategroup? Or could you consider alternative providers? And since you are currently in discussions for selling the remaining part of LSG, how can you make sure that what happens this year on long-haul outbound flight from Europe will not happen on long-haul inbound flights as well in the future? And third, Eurowings the only airline in the group where the operating result has not significantly improved year-over-year in H1 despite a significant improvement in revenues. Is this because of particular high irregularity costs or other one-offs?
Remco Steenbergen
Ruxandra, Remco here. So let me go through your question. First on cargo, what we have said on cargo for the full year that we expect to reach at least the results of last year, which is around €1.5 billion. Overall, of course, the volume is all going up. We see in Q3 that the yields are going slightly down with significantly above the levels we had precrisis. So that is still the outlook we have. So it will be less than we have seen in the first half of this year as we currently see it. But in cargo, we have always the opportunity depending on how the whole supply chain goes. But we look very positively to the second half but you have to look slightly above what we had last year as the current guidance.
With regards to catering in Europe and Gategroup, with this important supplier, we had quite some discussions over the last month. They have made an enormous progress over the month of June into July. And I think we’re in a much better position with Gate than we were in Q2. They were impacted in the same way as the whole industry was, by shortage of people delays, which made it also difficult for them to cater at all the planes at the right time. This is not always Gate problem also on the catering, which we had in the U.S. coming back, correct, which is not done by Gate, we had similar issues, which are also getting in the resolution. I would say there’s not much to do with the sale of LSG Rest of the World because that is a majority, a North American business, which also has a lot of third-party customers as part of their business. So it’s different in the LSG Europe, which we are ourselves the largest customer.
Lastly, with regards to Eurowings in Q2. Yes, so still a significant negative EBIT. They were impacted quite a bit by the irregularity cost. That was about half of the loss. Also to keep in mind with Eurowings, there is some travel agencies bookings involved, which it takes a little bit longer to get the yields and the price agreements through the system. So with Q3, we expect still smaller impact from the travel agents with much less. So for the second half of the year, we expect the turnaround from Eurowings to continue as it did in the last part of half year. So they’re still on track to become profitable in ’23 as it currently stands, it will probably be more difficult now in this year. But all on track from the strategic direction we have set for Eurowings. Hope that answers your question, Ruxandra.
Operator
The next question is from Stephen Furlong from Davy.
Stephen Furlong
Just the interest of the two things in the internal debate. I’m sure the commercial teams are very excited about the demand environment and how you manage that in terms of the capacity plans for next year. Is it a function of needing to pay for input costs or things like disruption in the operation or the way the slot rules are now going back to 80/20? Just interested in that. And the second thing, maybe just might just talk a bit about the Lufthansa Technik sale process in 2023. Just what is the internal kind of work or building blocks that need to be done to get to that stage, that would be great.
Carsten Spohr
Let me start with ’23. As the number, I think I mentioned just a few minutes ago, just to be repeated. We are looking at something between 85% and 90% in ’23, which is probably less than what people had expected. But we see that the business model really works so well right now with that premium demand, with that very stable yield and high load factors across the whole network that we think a more conservative approach is the right one. But that’s why your question points at. Of course, there is a lower end of this, which needs to be that we have to protect our slot assets and we’ll do that. One way of doing it is making sure you have enough short-haul aircraft because that’s basically obviously much more, how you call it, efficient to protect slots and to protect slot with a long-range aircraft. But also, we have decided to bring some wet leases in — where there’s interesting capacity offers on the market right now, both short-haul and long-haul through Eurowings, for example.
So we’ll balance the system on stop protection on the lower end, somewhat conservative on the overall dimensioning, looking at the training capacities in the airlines not being overstretched also to make sure we have enough reserves for high production quality, as I mentioned before, and we have a nice mix with some wet leases where our own trading capacities either are not enough or there’s very interesting offers in the market. So that’s a little bit the mix of how we define our network for ’23. And again, slot protection in my view, is an ultimate goal, but we also believe that the EU would do well to look at this again to make sure there is no empty flights, unnecessary flights in terms of the environment topic which could be avoided. So you know we had some issues on this, this year, and I’m sure everybody learned on this slot protection mechanism in these talks I have in Basel show that we all have learned our business here.
Remco Steenbergen
Stephen, with regard to LHT, correct, and the building blocks you were asking, correct. Of course, when such an important segment has another shareholder, partly IPO involved. There are a couple of things which you need to organize. So the whole legal structure where certain operational activities are falling under LHT. But the legal structure is not aligned. We need to make that in place. When we have internal services between MRO and our internal airlines, right, those contracts need to be water tight, correct, when you go in these discussions. When you think about financials and you think about the treasury setup with cash flows and the loans and the balance sheet, et cetera, those things have to be set up. When you have to report on financials, it needs to be structured with proper subconsolidation, et cetera. People of departments need to be strengthened in certain ways because certain other stakeholders are getting involved and being handled. So a couple of these things, which we carefully wanted to walk through. Of course, the strategic plan needs to be gone through, there need to be third parties who check that our numbers and our forecast and our markets are correct when valuations are taking place.
So just a lot of the practical questions you need to be very well organized to go in the process and that we have gone through. We have started at the beginning of this year after we had all agreement actually — and we all made the conclusion that it makes sense to continue. And with that, then we would go in the process probably at the beginning of next year. And with that, we expect come to conclusion in the course of next year. That’s the logic. I think it’s going well. It’s well on track. Everyone is excited around the topic we believe that creates an enormous amount of opportunities for everyone involved. So we’re full on track here.
Operator
The next question is from Jarrod Castle from UBS.
Jarrod Castle
Also three from me. Staffing levels obviously going higher as you ramp up. And I’m interested just to get your views on where you were pre-COVID over 130,000 staff. On a like-for-like basis, if you got back to 2019’s capacity, where would the staff levels be? So i.e., have you made structural changes from a productivity perspective? Secondly, how should we think about, at some point, dividend restoration given you’re continuing to degear pension funds falling German government shareholdings coming down? How would you kind of frame that? And I guess, slightly related to the previous question related to kind of dividend restoration the proceeds from any disposal? And then just lastly, any update on ITA? Or is it ongoing?
Carsten Spohr
Yes, let me start on ITA. I think the latest is in terms of news, unless you have already read it yourself that last night, the ITA unions are now willing to become active to support a fast decision by the current government because they believe that ITA needs a partner and they believe that MSC and Lufthansa are the right partner. So that’s also for me and no one that unions go on the street on behalf of Lufthansa. But more important maybe is that this confirms what we have been saying for months and this is regardless of political developments, ITA needs a partner and we believe we are the right partner. And that is, I think, in depending from which party is running or which group of parties running the country, which I think we have to leave to the Italy for me to comment that.
And we have, as you probably know, written a letter to Mr. [Indiscernible] that we believe we need to be fast here that our patience is not endless enough to consider it a positive signal that now even the staff of ITA is pushing for as fast decision because that shows that what we have been saying about ITA is right, they need a partner, and we are the right one. When it comes to Italy, in general, we have seen an even more successful summer in Italy than we have seen in all the years before. So my, I think, information has been given to you before that Italy is our most important market beyond our home markets and of course, the U.S. is even more true than it has been before. We also have decided to grow Air Dolomiti by a few aircraft in depending of the decision of ITA because we need a stronger position in Italy, one way or another, hopefully, together with ITA or otherwise with our own means of the 10 Passenger Airlines we have.
Remco Steenbergen
Of course, the whole productivity around the staffing is one. We have been very much looking at as part of our cost savings, and that is not going away. The comments, which Carsten made more around staffing is just the natural changes which take place. And let me give you the examples. If we take the first half year, we went up with about 1,000 FTEs, which is about 3,000 increase in LSG, because LSG North America had a big reduction, correct in North America during the crisis and it went up with 3,000 just in the last period. On the rest, we actually went down by 2,000 because of all those voluntary programs coming to an end and people left the organization. But equally, we have also people are leaving the organization and we need to replace.
Now where we do increase is in Lufthansa Technik. That business is going very well. We need engineers. So we’re actually moving up, and we expect also that in the second half to continue. And that is very good news. On Eurowings Discover, we have grown to 750 people and that is exactly in line also with the question, which was asked for the platform strategy in the first half of the year. And of course, with Eurowings that is similar. So there’s also a platform strategy which comes through in the period. Dividend. Yes, with the first — the WSF needs to have sold their full participation before we are actually allowed to pay dividends again, as I understand the latest situation to be. But of course, then when we come in a sustainable, profitable situation and also legally with the German Lufthansa, it’s all allowed. We, of course, come back to a dividend policy, but that is a bit too early to say. But of course, I can confirm that once we’re in a position, that’s our intention to restart. With proceeds of disposals, first idea is just to lower our debt levels is to come back to investment-grade rating, nothing more to say other than that boring answer.
Operator
The next question comes from Muneeba Kayani from Bank of America.
Muneeba Kayani
First question is just a follow-up on the strikes impact than if it’s not included in that €450 million to €500 million disruption number. Can you help quantify what’s the financial impact from the strikes that you had recently from Verdi? And then secondly, you had mentioned that bookings are at 83% of precrisis levels. Is kind of — can you help us and how to think about that? Is that — should we be comparing that with kind of the 80% of capacity? And given what you’ve said on yield, shouldn’t we be expecting it to be higher? So if you could help us frame that 83% of bookings. And then on asset sales, are you comfortable with your balance sheet if there are no asset sales because of market conditions?
Carsten Spohr
Maybe on the bookings, why it is not that easy to compare. Of course, booking patterns have also changed compared to initially precrisis booking patterns have been very short term, which is why your inventory usually is lower than it would be in pre-COVID times. Now recently, booking patterns have become more normal again. Corporate travel is coming back, so we see longer booking pre-runs. But basically, your logic is right. If you have 83% of bookings compared to 80% capacity, which obviously is part of the reasons you see those nice yields and load factors you see. But we cannot just purely do the math because, of course, there is booking patterns, logics here as well, but I don’t want to make it too complicated, but generally, I would say yes to your question.
Remco Steenbergen
Muneeba, let me take the question on the strikes just to avoid any confusion before answer, right? So the irreg cost, as we mentioned, are the compensation costs we pay to employees, right? And — but it does not include any loss of revenue, right? That would come on top of in case of a strike. Now for the strike, we had with Verdi, the irregularity costs are included in the €450 million to €500 million, also the loss of revenue and everything we had in July, correct is also included in the guidance. If there are more strike days coming, of course, we will have some more irregularity costs and we have lost revenue. A 1-day strike cost us somewhere between €30 million to €35 million.
We cannot count. We hope that, that is not something which will happen again, but if it happens and comes on top of. But again, we want to do strategically the right thing for the company, we try to manage the situation to do best, to do the best for the employees and the company and try to find a good solution, as Carsten laid out before. With regard to the asset sales, as I said before, the asset sales are actually to faster payback on the debt. So it gets us faster back to investment-grade rating. But if it does not happen, there’s no problem whatsoever the balance sheet. I think you can see that as well as with the current debt level and the track record we have, the benches coming down, the level where the current equity is that will have no material impact on our current position.
Operator
The next question is from Clementine Flinois from Bernstein.
Clementine Flinois
Two from me, please, on booking patterns. How do you see them involved? And are you still much closer in versus pre-pandemic? And what about business travel in particular? Second question on leisure passenger and premium cabin. Is that something that you expect to stick around beyond the next 12 to 18 months, or do you see that as more related to spending excess savings accumulated during the pandemic? And third, on capital allocation, are you still looking at a two to three on to lease aircraft target? And if so, is the current situation accelerating the latter, given your current visibility or uncertainty, basically, how comfortable are you with your current fleet, fleet mix and order book?
Carsten Spohr
To be honest, we had a little bit of a technical problem to fully understand what you were saying. So I try to answer as good as I understood the question, please get back to us if you feel misunderstood. Booking patterns or corporate travel. You know that long term, we said, by the middle of the decade, we expect it to be around somewhat like 90% because some corporate travel might not return, China might not completely open. There are so many question marks. That’s how we looked at it. I think we can see ourselves going into the 80% next year. We’re probably at 50% right now, but the summer, of course, has lower corporate travel anyways. So we see a nice ramp-up coming for the third and the fourth quarter, and I can see us being at 80% somewhere in ’23, again, with all question marks attached to this. On premium leisure, I said again, I’m not academic on the social developments around the world. But I think, again, we have seen this in other crisis. We have seen especially in this one, those people who are traveling business class or even first class on an airline like Lufthansa, be it from the U.S., be it from China, from Europe, they tend to be less sensitive to economic up and downturns, be it again based on their income, be based on their wealth.
So I think this is a very much less sensitive business in that regard. And fair enough, we have to say there was a lot of room in business in first class because the yields are still lower than corporate yields. So when our corporate travel comes back, we might even see some competing for these seats in premium and first with usually drives up the yield even further. So a positive year also for the 3 and beyond. With the fleet order book, we are happy with the order book. We’re not happy with the delivery times, as you know, because we have seen significant delays both in Boeing and also Airbus. Again, as much as that causes some operational issues. You know that we are bringing back the 380 because of the delays of the 777-9X. I also shared in my little speech that when you look at the industry, that slowdown in deliveries will help the industry to reduce overcapacity and will help every major player like us to stabilize yields further. The overall goal remains the same. We want to streamline our fleet, we want to harmonize our fleet, and we want to bring down not only cost but also CO2 emissions. There we strongly believe we’ll be on track again with the delays you were informed about.
Clementine Flinois
Just one follow-up on the fleet. Is it to — are you still targeting a 2 to 3 on to lease aircraft or not anymore?
Carsten Spohr
You mean the mix of owned and leased aircraft. Well, Remco will answer your other question. Remco, would you please take.
Remco Steenbergen
Let me take that, correct. So you know that we have an operating lease as part of our portfolio is more closer to 15% to 20% currently. That’s over the coming 5 years, we will want to take up. So proportionally of the new aircrafts we will take in the coming years, we will take more operating leases in. Of course, that depends also on the deals we can get correct, the development of interest rates, et cetera. So it’s, of course, not a fixed one, which is unlimited. But as part of the overall portfolio will indeed increase the operating leases, and that I think is the right thing to do, and there’s no change versus what we communicated earlier.
Operator
The next question is from Andrew Lobbenberg from HSBC.
Andrew Lobbenberg
Congratulations on your results and the presentation. And then Lufthansa was so not a German airline. Can I ask about the pilot just coming back and the willingness to discuss the perspective agreement? I mean, I guess it was a smart move to remove the perspectives agreement, so you can put it back in play. But does this mean you’re going to give up on the CityLine 2 concept and you’re willing to put in place limitations on the size of the lags of Eurowings and Eurowings Discover? Second question would be around the impact of foreign exchange on RASK and CASK. If you could just give us a bit of color because, obviously, in normal times, people disclose the RASK ex currency, but suddenly now RASK is up a lot with FX. You’re all disclosing it with currency. What’s the impact of the dollar and indeed the stuff on that for RASK but equally for CASK? And then on the short-haul yield there dramatically less strong than the long haul. And given that you’ve got less speed flyer, less connecting flows, I thought more point to point on short haul would be supportive to yields or maybe it’s a business mix. But can you just explain why the short-haul yields are that much weaker and maybe what the trend is through the quarter?
Remco Steenbergen
Andrew, Remco here, the Dutchman here in the German organization. Yes, I loved your first comment. On the prospective agreement, correct? And I repeat again also on the prior. Our strategy to have multi-AOCs, multi hubs is really essential because for some of the touristic routes we need to have a competitive offer as well on some of the short-haul traffic. So that will remain unchanged, and we talked really about Eurowings Discover and Eurowings, right? With regard to CityLine, that depends on how the negotiations will go along the way. But clearly, our strategy to make sure that we remain competitive on the different routes will remain in place, and we will not give that away.
On the CASK, what we give you on the number for Q2, the 8.5% versus 2019. As I said, it includes 2% with regard to the translation impact of Swiss, which actually brought those costs up. There is indeed also a US dollar impact, which will probably brought that up. We haven’t quantified that. We will do that as next quarter. We had this discussion internally. But we didn’t have the real right numbers here to come out. The same we also do from the RASK as of next quarter. Yes, there is a little bit of benefit in the RASK coming from the U.S. dollar but we can’t properly quantify it at this moment. And again, next quarter comes in. But we see overall in the benefit, if we exclude the fuel, it should net off excluding fuel about and actually help us a little bit. So we think it’s limited. But again, sorry, we have to wait for Q3.
On the yields, correct, indeed, you’re right, the short-haul 0% versus 2019, long-haul 15%, net plus 10% versus 2019. We have to remember that on the short haul, the corporate booking impact is quite significant, correct, to come through. So to hit zero versus 2019, with still a significant lower corporate booking I think, is showing the strength. When corporate bookings comes back further next year, we expect that really helping on the short haul. For the moment, we expect a similar trend in the second half year as in Q2. So around zero versus 2019 in Continental with probably a bit better in Q3 as the same, we would see in Continental for Q3 and Q4, as I said before. But I’m not worried on the shortfall that level. I think — on the contrary, I think, considering the lower business carrying, I think it’s a very good performance.
Operator
The next question is from Sathish Sivakumar from Citi.
Sathish Sivakumar
I got three questions. Firstly, on the yield progression. Could you give us some color on how it has actually progressed into the quarter? And how does it actually look into July in terms of yield trends? And then on the second one is actually on the load factor. On Slide 25, where you’ve given the load factors by different regions. If I see the short haul, i.e., the Europe is actually below 2019 by 1.5% compared to Americas, which is like 5% below. What is actually driving this lag? Because you have seen a strong premium performance. So I thought actually what your American load factors should be close to 2019 level. And third one is more related to the premium segment. Where are you actually on the conversion program in terms of premium cabins? And what is your current premium mix today that you’re offering? And how does that actually compare versus 2019?
Carsten Spohr
Yes. Sathish, let me start with the premium cabin. As I mentioned in my opening, we are now looking at a quality and product initiatives starting this fall, which will then lead into new seats in all classes being rolled out as ’23. We have premium aircraft coming in while we speak, which we were able to have opportunities on the market, which have not our own new business class but have an improved business class, both 50s and 77 probably to be received somewhere this month, latest September, summer this summer. And then in ’23, our first so-called sizepro future intercon experience will be rolled out the way it looks now with the 787 and 350 in ’23. These seats will also be put into the 747-8 in the years thereafter. This will be the standard premium business class product. Premium economy is currently being rolled out in Swiss will be started to be rolled out in Lufthansa also in ’23, new first class starting in Lufthansa at the end of ’23 and economy class as well. So ’23 we’ll see in all classes, the new product being brought into the long-range fleet. Numbers, we ask for this premium share now compared to ’19 that, of course, is changing almost every month. See this 380 without, let me see if I find a number on that. I don’t have that at my hand right now, I see what I can do.
Remco Steenbergen
Your question on the load, there is a different commercial backgrounds between EU and North America. In North America, we have more business related to travel and also ramp-up of the fights in the quarter. Yields in North America are significantly higher with a little bit lower seat load factor, you’re right, but you have to see that in that combination. And it’s to do with the ramp-up and the business travel, not yet on the level. So it actually is a little bit opportunity when we think about Q3 and Q4 forward. On the EU side, that’s the other. You know that in terms of the percentage return of ASK versus 2019 were a bit higher. Yields are very, very good and seat load factors are all, but the yields are lower than the increase we have in North America. So it’s just a dynamic situation, a commercial situation of the two regions. With the first question, I’m not sure I really understood it. But if it’s related to the yields of the third quarter, it’s the same what I said before. We expect for the second half of the year an increase versus 2019 roughly in line what we had in Q2 of around 10% with Q3, probably a little bit higher than that.
Sathish Sivakumar
Actually, it’s more about how June yields versus July yields are tracking?
Remco Steenbergen
I think I would like to stay on the quarter yields and not compare month by month in this discussion. So I’d say overall, it doesn’t make much difference. I would say I would be roughly in line, but I would not like to go in really specific numbers on a month-by-month basis if you allow me.
Operator
The next question is from Johannes Braun from Stifel Europe.
Johannes Braun
Also three questions. First one would be on your saving targets, €3.5 billion. You said you’ve implemented €3 billion by now. This €3.5 billion obviously is a gross number, not a net number. So the question would be based on what you have offered to the pilots and to the ground personnel and to the cabin, to what extent would that be diluted those €3.5 billion? I’m just trying to get a feeling about the magnitude of the cost headwinds coming from labor. Second question, I’m not sure whether I understood this correctly, but I think Remco, you said that the €158 million disruption costs were 50% in operating costs. So question would be what’s about the other 50%? I assume this relates to lost revenues. And if yes, does the same 50-50 split apply to the €450 million for the full year? And then thirdly, just on CityLine 2. I think it’s just that the CityLine 2 depends on the pilot talks. So does that mean that the CityLine 2 project is not a done deal yet, I remember from the Q1 call, I think — or at least I understood that CityLine 2 would be implemented anyway. Just a clarification on that would be good.
Carsten Spohr
Maybe I’ll start on that one. So I think as Remco pointed out answering to Andrew Lobbenberg, the PPV fell on — PPV agreement we had with Vereinigung Cockpit over the last years indeed limits the number of airplanes in CityLine. So could there be also limitations on the number of airplanes in the line if we come to a new PPV agreement? Could there be limitations on CityLine 2 flying only ex aircraft or maybe even 0, that’s up for negotiation. Last quarter, we were looking at a situation that there was no open health to come to a new PPV because we were so far apart with our fleet planning from the expectations of Vereinigung Cockpit, which is why we canceled it in the first place in December. We are much more optimistic now with the current fleet planning that there could be a compromise on the PPV.
And therefore, we said that there’s no option visible for an integrated larger solution, we need to go in terms of our cost savings for a different mix, including CityLine 2. And don’t forget, CityLine 2 also serves for two other reasons, not just cost savings, we need a room for the German wings pilots who unfortunately are denied to fly as captains in the main airline by the Workers’ Council, and we need to have a perspective for the CityLine pilots flying aircraft with more than 95 seats, which without an agreement on a new PPV they wouldn’t be able to do after ’26. So there are three drivers for CityLine 2. I know it’s complicated, but that’s how it is. And if you have a new PPV agreement or renewed one, these three issues could be solved. But that’s up for negotiation. If we don’t have a new PPV, obviously, we will have only negotiations with Vereinigung Cockpit about their expectations for higher salaries that, of course, would require us to compensate those higher costs with a different mix, as Remco pointed out. That’s where we are today. But again, I’m optimistic. We already have dates set to talk to for Vereinigung Cockpit, I think we are too early in the process to really give you guidance beyond that the constructive dialogue on.
Remco Steenbergen
I will start with question two. It’s a more technical answer. It is disruption cost of €158 million, that number, which I mentioned, accounting-wise, there’s a different treatment, which causes 50% to end up in expenses and 50% on revenue. The compensations we have to give for €300 or €600, they end up as a reduction in revenue, whereas, for example, hotel cost reimbursement, et cetera, ends up in operating expenses. That’s why we give you that split in case of those of you who do the modeling. I hope that answers your question. On the first one, the €3.5 billion savings there, indeed, growth. We have also, in our ’24 target assumed a certain amount for inflation, for fees and charges, salaries along the way. That was an amount between €0.5 billion and €1 billion we have assumed over that period. So some of inflation we can handle.
If there is in general inflation, which affects all industries and our industry in general, correct, I would expect things to come through higher yields, correct? And in that sense, less worried. If it impacts productivity, it’s another ballgame. Hence, the discussion before that strategically in the mix of the hubs and the AOC, we need to remain competitive. On the cost overall, €3.5 billion, you have seen that on the non-personnel side, we’re almost there. We have also additional product — more productivity. So there will not be a productivity-related savings identified, which we’re also targeting to compensate if on the personnel side, we will not reach that number. That’s our target still internal. And in that sense, I think we have the right balance overall to still come to our ’24 targets and also to the justification on our overall cost savings and productivity targets when we particularly look at the CASK and hence also the CASK outlook we have given because still to remember that the CASK outlook we have given for the end of next year still assumes a significant lower ASK than we had in 2019. So productivity wise, we’re in a different state. I hope that answers your question, Johannes.
Johannes Braun
Maybe just coming back on that, if you maybe just look in isolation on the, let’s say, the Verdi demand of having 9.5% increase in wages. What would that be based on the 2,000 — sorry, 20,000 employees that you have represented by the Verdi union, what would that mean in euro terms?
Remco Steenbergen
I think it is — because of the stage also of the discussions we have with the unions, I don’t think it is opportune to be that specific on numbers. I don’t think it’s helpful for all the parties. So I would like to refrain from answering that question for that reason.
Dennis Weber
Ladies and gentlemen, unfortunately, we’ve come to the end of the call. Thank you very much for your interest and the many questions you asked, but simply for timing considerations, we’ll have to stop here in case of any questions left unanswered, please do not hesitate to reach out to us or to the IR department, we assume that you have our contact details. Thank you for your understanding, and thank you very much for your participation today. Bye-bye.
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