Letter of the Executive Board

Ladies and Gentlemen (handwriting)

My colleagues Stephan Gemkow, Stefan Lauer, Carsten Spohr and I can now look back on our first year in our new formation. We started with ambitious goals. We closed the 2011 financial year much better than many of our competitors, but also less well than we hoped at the beginning of the year. The events in Japan and the Arab region, the European debt crisis, high fuel prices, the air traffic tax, the night-flight ban in Frankfurt and a slowing global economy – we had to face many challenges over the course of 2011. They affected the airborne companies much more severely than our service segments. Our Group structure, especially our presence in different areas of the aviation value chain, thus proved to be a stabilising factor once more.

The Executive Board of Deutsche Lufthansa AG (from left): Christoph Franz, Stefan Lauer, Carsten Spohr, Stephan Gemkow (photo)

The Executive Board of Deutsche Lufthansa AG
(from left): Christoph Franz, Stefan Lauer,
Carsten Spohr, Stephan Gemkow

Our operating figures still turned out decently given the difficult environment. We increased revenue by more than 8 per cent and generated an operating profit of EUR 820m. The bottom line is that the Group reported a loss of EUR 13m, however, which was partly influenced by the negative effect of the current result and the disposal valuation for bmi. As an exception from our dividend policy we will nevertheless table a proposal to distribute a dividend of 25 cents per share at the Annual General Meeting on 8 May. With this we wish to enable you, our shareholders, to participate in our succcessful operating performance in 2011 in a manner that is justifiable to our financial profile. At the same time, we would like to give a sign of thanks for your trust and your loyalty in a difficult stock market year, in which our emblem, the crane, also lost many feathers.

Looking back at the year 2011 there are still plenty of positive developments to report, however. Our customers stayed true to us. Passenger numbers rose to more than 100 million. 2011 was also a year of record investment, with capital expenditure of nearly EUR 2.6bn, above all on modern and fuel-efficient aircraft, but also on many other very promising projects in all business segments. At the same time, we generated a free cash flow again in 2011.

All the business segments held their ground against global competition and all were able to close the challenging financial year 2011 in the black. Our airlines in the Passenger Airline Group won market shares in Germany and Europe. They are well prepared for global competition as well, with wide-ranging partnerships such as the Atlantic++ and Japan+ joint ventures. Altogether the segment increased its revenue substantially and earned an operating profit, albeit a smaller one than in the previous year.

One focus of our attention in 2011 was bmi. The management and staff there fought hard. Despite the comprehensive restructuring it was not enough to turn the company around. The intended sale to International Airlines Group now offers the best prospects – both for bmi and for earnings development at Lufthansa.

Lufthansa Cargo generated the second-best result in its history, despite the deteriorating economy. The night-flight ban in force since October 2011 is nevertheless a considerable burden. Lufthansa Technik also contributed a substantial profit to our result, nearly matching the previous year’s figure despite non-recurring effects. At Lufthansa Systems, restructuring activities are having an effect. Revenue has stabilised and the result is much better – but the IT market remains difficult. LSG Sky Chefs continued its successful performance, increasing revenue and result yet again in 2011.

All in all, the foundations on which our Company stands have proved to be sound and stable. To ensure they remain so, we defined the Group’s strategic direction in more detail in 2011 and drew up a road map for the next ten years. We have a clear destination in mind. We want to stay the number one in Europe and to build on our position as Europe’s airline powerhouse. In global competition we intend to hold on to and advance our position on the leader board. In order to reach this goal we have to secure a financial profile for our Company that enables us to invest in a modern fleet and innovative products for our customers, in developing our market position and in our business segments and their employees. With these criteria in mind, we have defined and initiated a wide range of activities. These include withdrawing from persistently loss-making businesses, as we have already done with Lufthansa Italia and bmi. In addition, we intend to increase our organisational efficiency, to improve the airline group management and also to examine the disposal of non-strategic equity investments.

Our new Group programme to improve earnings – SCORE – will make a major contribution to shaping Lufthansa’s future role. All business segments and airlines will deliver individual and overarching contributions with which we intend to increase the Group's operating profit sustainably by at least EUR 1.5bn over the next three years. This will require a considerable effort, because we anticipate that the financial year 2012 will again be plagued by uncertainty. The economic conditions remain difficult and volatility is still high, but we are prepared for all weathers. Our continued strategic development, our operating flexibility and our competitiveness, which SCORE is intended to sharpen further, are vital building blocks for safeguarding the future of our Company and its staff.

We are ready for a safe journey and we invite you, our shareholders, to accompany us on our course of sustainable profitable growth. Thank you for your trust.

Frankfurt, March 2012

Christoph Franz
Chairman of the Executive Board of Deutsche Lufthansa AG

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