Deutsche Lufthansa's (DLAKF) CEO Carsten Spohr on Q2 2016 Results - Earnings Call Transcript

| About: Deutsche Lufthansa (DLAKF)

Deutsche Lufthansa AG (OTCQX:DLAKF) Q2 2016 Earnings Conference Call August 2, 2016 3:15 PM ET

Executives

Carsten Spohr - CEO

Simone Menne - CFO

Analysts

Jarrod Castle - UBS

Oliver Sleath - Barclays

Neil Glynn - Credit Suisse

Stephen Furlong - Davy

Andrew Light - Citigroup

Michael Kuhn - Societe Generale

Andrew Lobbenberg - HSBC

Ruxandra Haradau-Doser - Kepler Cheuvreux

Damian Brewer - RBC

Penny Butcher - Morgan Stanley

Jack Diskin - Goodbody

Johannes Braun - Commerzbank

James Hollins - Exane

Alexia Dogani - Goldman Sachs

Carsten Spohr

Yes, good morning, ladies and gentlemen. Thank you very much for your interest in our conference call here today. This is unfortunately the last chance for me to host and enter this conference together with Simone. The two of us decided to host this together and to do the presentation together. But of course, as always, Simone will inform you initially about the Lufthansa Group's financial development of the first half year then I will take the liberty to talk about the progress we have made in implementing our synergy and recent changes in the last month. And with that I hand over to Simone.

Simone Menne

Thank you very much, Carsten, and good morning also from my side. It's been two weeks since we have been pre-released the key figures for the first half year, so I will keep my comments on the figures shown today.

In view of the globally different environment, the first half year was satisfactory. The adjusted EBIT increased by €61 million to €529 million, meaning that the margins improved also by 50 basis points to 3.5%. Standalone the adjusted EBIT deteriorated in the second quarter but there was no change in the main trends compared with the first quarter.

Lufthansa Passenger Airlines was again the only operating company to report a year-on-year earnings improvement. The other airlines and the service companies performed less well. Lufthansa Cargo's performance was again particularly weak, but it was joined in the second quarter by Lufthansa Technik.

Unit revenues fell less in the second quarter than in the first, but this is mainly due to the weaker comparative basis last year. Unit cost, excluding fuel and currency effects, increased slightly in the second quarter, but here we see the opposite effect of the rather challenging comparative basis in the last year, and overall we see good cost discipline at all airlines. Unit cost will therefore go down again from the third quarter. Advanced bookings, especially on long haul routes to Europe, have declined significantly, due to the repeated terrorist attack in Europe and also due to a growing political and economic uncertainty. As indicated recently, we now expect unit revenues to decrease very significantly in the months ahead. For this reason, we have also cut planned capacity growth for the full year to 5.4%.

We have adjusted the forecast for the adjusted EBIT to below previous year. The adjustment is not the result of the actual performance in the first six months, but reflects our current expectation of bookings in the months ahead.

For me personally this is especially disappointing, because apart from the weak outlook for bookings, I'm satisfied with the performance, particularly in the first half year. For the first time in a long while, we are seeing the Group's total costs coming down for two quarters in a row even faster than fuel costs, and unit costs will decline further in the second half. We have worked for a long time to deliver this per.

Our financial stability has also increased and this is something I find particularly important, although the equity ratio is lower, because interest rates have fallen again, our financial stability has improved significantly. At a comparable discount rate as 15 months ago, and at the same volume of pension commitment, our equity ratio is now significantly higher, and this is mainly because we have increased our equity by around €1 billion, thanks to the strong earnings performance last year. And when the agreement with the UFO flight attendants union is recognized in the balance sheet, in the third quarter this will further increase financial stability noticeably. From what we can see today we hence expect to be able to pay a dividend in line with the existing dividend policy for this financial year.

The EBIT, which is relevant for the dividend payment, will come in several hundred million euros higher than the adjusted EBIT, we used for our forecast. The reason for this is that the positive effect from the union agreement will be booked in the balance sheet and in the P&L but eliminated in the bridge to the adjusted EBIT, and I think this is important to explain to you. When we look into the revenues, the revenues in the half year were down, largely due to lower traffic revenues at the passenger airline and at the Lufthansa cargo. Growth at the service companies only partly compensated for these declines. We again benefited from cheaper oil in the second quarter. Fuel costs were down by €360 million in the second quarter and by €597 million in the first half year. Cash flow from operating activities was lower, mainly because pre bookings are becoming more short term. However, since capital expenditure was also lower, the free cash flow increased by 10.1% to a very good €1.1 billion.

The net result for the second quarter was down on the year, largely due to lower exchange rate gains. The significant fall off in the first half year stems from the one off positive effect of some €500 million from the JetBlue transaction in the prior year period. Net debt has come down again. The lower equity ratio I mentioned just before comes from the increase of €2.7 billion in pension provisions since the end of the first quarter. The discount rate is now at 1.6%, which is 80 basis points less than it was three months ago. Despite of all the progress we have already made, I would like to again emphasize that here the progress in reducing the pension liability is of highest importance for the future viability of the Lufthansa Group in the year ahead.

In the operating segment the passenger airline group improved its earning in the first half year. Lufthansa Passenger Airlines is the driver of this performance. In the first half year Lufthansa Passenger Airlines improved its earnings by €281 million. That represents an impressive margin improvement of 3.8 percentage points. Lower fuel cost and the absence of last year's negative non-recurring expenses were among the main reasons for the positive development. However, the fact that eventually these savings are reflected in earnings is largely due to the good success on the market. Lufthansa Passenger has also benefited strongly from a disciplined capacity approach in the first half year.

Austrian Airlines increased its adjusted EBIT by €16 million, largely due to the positive one-off effect of restructuring a long-term lease agreement with Vienna airport in the first quarter. Otherwise, its results would have been below last year. SWISS also reported a significantly positive result but this was down €47 million on last year. Since the beginning of the year the biggest burden on this business has been the economic effect on the strong Swiss franc. In spite of this, SWISS still has the best margin of all network carriers in the Group.

At Germanwings, the result for the half year was €67 million down on the previous year. This is mainly due to project costs for developing a new company and start-up costs for long-haul routes. Nonetheless, its yields are suffering from strong growth in short-haul traffic and from greater competition on some of its routes. And also, we need to talk about our equity investments today. The results of Brussels Airlines and SunExpress in the first half year were down by an aggregated €40 million on the same period last year. Both airlines are currently operating in particularly difficult markets.

Lufthansa Cargo reported a very weak performance with a year-on-year decline in earnings of €95 million. As expected, however, the fall was lower in the second quarter than in the first. The entire cargo market is still suffering from massive overcapacity. Yields continued to drop fast and are now at the same level as during the 2009 financial crisis. To safeguard its earnings in the short term, Lufthansa Cargo has heavily cut operating and project costs. Moreover, we already took two MD11 freighters out of operation at year-end 2015. Other capacity reductions are under review.

Lufthansa Technik and LSG were also down on the year in the first half. At Lufthansa Technik this is partly due to lower internal income since the retrofit of the Lufthansa long-haul cabins were successfully completed last year. This effect will no longer be so pronounced in the second half year. Overall, Lufthansa Technik remains on course of growth internationally, with easyJet at London Gatwick, for example. Pricing pressure in the industry is increasing, however. Looking ahead, we nonetheless continue to see a balanced development between growth and profitability at the Company.

We are seeing similar developments at LSG, which also reported higher revenue with external customers, particularly in the U.S. market. Higher expenses, partly for restructuring its business in Europe, meant that earnings were still down slightly on last year, however. The other segment continues to perform well. This is mainly thanks to lower exchange rate losses.

Looking at the performance figures of the passenger airlines the trends of the first quarter continued in all traffic regions with no major changes. In the second quarter, no traffic region performed worse than in the first three months. In fact, we are seeing a particularly good performance in Europe and North America, and in terms of yield development we are actually developing better than our competitors.

However, it is apparent that volumes have already started to decline. At capacity growth of 2.2% in the second quarter, the average feed load factor fell by 2.6 percentage points. At constant-currency, prices are indeed very stable but due to lower load factors unit revenues at constant currency continued to decrease significantly.

Europe remains the most stable region. Constant currency yields and unit revenues even increased in the second quarter. The weakness that we reported recently is mainly a feature of routes from Asia Pacific and America to Europe. In South America, and especially in Brazil, the poor economic performance has led to a significant decrease in yield. Just putting together the numbers, the deterioration on the south Atlantic alone had a negative impact of 1.5 points to the overall reduction of RASK of 4.1%.

Traffic to and from North America has been much more stable. There the security alert from the US government about travel to Europe that remains in place until the end of August continues to adversely affect bookings, especially in economy class. Demand for business travel, however, remains perfect stable.

In Asia, we have seen a significant decline in group bookings. This has also had a clearly adverse effect on volumes in economy class. Looking ahead, these trends are set to continue. The year-on-year declines will increase significantly, however, at least from today's perspective, because we are now reporting against the best quarter for the European airlines industry last year. And that was also the main reason why we have reduced our forecast for the year two weeks ago. Despite the solid result of the first half year we are now expecting the adjusted EBIT to be below the previous year. This projection is based in particular on the following assumptions for the second half year. Lower fuel costs of €350 million, a reduced capacity growth of now 5.4% for the full year. A decline of 8% to 9% in unit revenue at constant currency and a unit cost, excluding foreign currency, development of minus 2%, minus 3% in the second half year.

And to be clear, the forecast unit costs do not include the positive effect on the expected tariff agreement with the flight attendants. So in nominal terms we are expecting an even more significant reduction. In all the other segments outside the passenger airlines we are expecting cumulative earnings to be on a par with last year. Any restructuring costs for the airlines and service companies are included in this forecast.

As we said, for the full year we are currently assuming that we will still be able to pay a dividend. I'm saying, to the one off effect of the tariff agreement, we are expecting a stronger balance sheet and an EBIT which is several hundred million euros higher than the forecast for the adjusted EBIT. And with this I would like to hand back to you, Carsten.

Carsten Spohr

Oh, thank you very much, Simone. As you rightly said, and all of you surely expect, we are, of course, not happy about lowering our forecast just a couple of weeks ago, but to be put in context, the adjustment is obviously due to the uncertainties in the market and despite this extremely difficult market environment, which also was pointed out by some of our competitors, we are still, as Lufthansa Group, expecting one of the best operating results of all times. So, what are we doing in this phase? Well, we are consistently implementing the necessary changes which I think is what we are paid for. We are increasing our efficiency in becoming, which is becoming more and more important and in the priorities this is gaining more and more momentum, and a look at our strategy shows that we are on track to safeguard our future viability of the whole Group. At the annual results call in March, we explained to you the structure of the Lufthansa Group and our three pillar strategy, and our objective and our ambitions remain unchanged. We want to be the number one for customers, shareholders, employees and partners alike. And to do that, to achieve that we keep developing all three of our pillars.

Let me start with the network airlines, which are further expanding their premium position in order to sustainably improve revenue quality. At the same time, and as mentioned, with more and more focus and drive, we are increasing our efficiency and continue to optimize our costs. And of course we are responding to the tense market situation by constantly adjusting capacity growth. Eurowings, our second pillar, is the market leader in point to point traffic, our home markets by now, and we intend to build on this position and we will cut unit costs by another almost 30% in the years ahead. In the third pillar, our aviation services, the focus remains on profitable growth. That requires growth plans as well as continuous efficiency gains, which will, as you have learned over the last weeks, include job cuts.

Today, I would like to give you a brief update of the progress made in the last month and again I would like to start with the network airlines. In our network airlines, we have taken a number of key strategic decisions in order to sustainably improve our revenue quality. We are continuing to expand our premium products. How these investments in the quality of our products pay off can be seen in a simple example of the new business class, which we put into our long haul fleet over the last years. We analyzed the booking patterns of a quarter of a million passengers, and could clearly see that those who used the new seat have booked by average one more flight in the next six months than those than they had in the past. And that is, I think, proof of our conviction that our customers are rewarding our product investments with tangible results. This is why we also have started to equip our short haul fleet with in flight Internet. By mid 2018 300 aircraft will have this broadband technology on board, which will make us the only European network airline to offer our customers broadband Internet, like at home on short-haul flights. And I think it opens up for interesting potential additional income ideas. Our aim is clear. We want to win the competition for quality and premium customers and secure the high revenue quality in the segment.

In addition, we are investing massively in the digitalization of our airlines. The new distribution synergy is a success. We are now selling significantly more tickets via our own channels. We have increased our own share of online sales by 25% year-on-year. This means that we can offer customers even more personalized services, trend of the future, a win-win situation for both sides. Customers have more options and obviously we benefit from higher income.

By the year 2020, we will be investing some €400 million in the digitalization of our network airlines alone. And also our aim here is clear. We want to further extend our leading position as the most digital airline in the world and that's the future of air travel and so it obviously is our future as Lufthansa Group, in the leading position, globally.

We are also enhancing the quality of our network and we are going where there is demand, where we can generate the highest income. This involves pursuing two strategies. Firstly, grow via joint ventures, like the successful North American joint venture with United Airlines and Air Canada, or the new joint venture we established with Singapore Airlines between Europe and Southeast Asia.

Secondly, optimizing our portfolio of destinations from the house, since last winter, we have introduced 15 new routes, like Cancun, Panama and San Jose. And since the overall number of aircraft went down, we have cancelled correspondingly negative routes, part of our efficiency gains we see on the network airlines. Also our aim here is clear to offer our customers a seamless travel experience wherever we can provide that in a profitable way. At the same time, we of course are taking steps to reduce our cost sustainably. First of all, fleet renewal, we've taken 52 aircraft this year, and they will reduce the cash operating costs by an average of 21% compared with the model that they are replacing, for example, the 320neo replacing the 737 at the Lufthansa Passenger Airlines.

Fees and charges, at the moment, they are the airline's biggest cost factor, even ahead of fuel. Fee negotiations with Fraport are making progress. We are insisting that the charges do not go up any further. For this year we are already seeing significant reductions amongst others, at German air traffic control and at Zurich airport, adding up in total to €85 million savings. But that alone is not enough. We continue to negotiate because we're convinced that everyone in the value chain has to contribute to achieve the necessary efficiency gains in our industry, not just the airlines.

Finally, we have also made great progress in collective bargaining. In early July, we and the UFO flight attendants union, agreed to an arbitration proposal, developed among the union members. It's currently running and we are optimistic it will go through. We will know the results next week. The most important change for us is the switch from a defined benefit to a defined contribution retirement benefit scheme. This helps our balance sheet and it helps our earnings. In the third quarter, we will see a meaningful increase in the equity ratio in a positive effect of several hundred million euros in EBIT. And from next year we will also see sustainable annual savings.

The agreement with UFO plays an important role in safeguarding the future of our core business the Lufthansa Passenger Airlines. Also talks with the Vereinigung Cockpit pilots union are still ongoing. We see this well constructive so we have agreed, as you know, since yesterday to continue them for this week. Our aim also is obvious. We need competitive cost structures. Only once we have achieved those we're able to grow against our core business and I am, I think, happy to say right now that not just our staff but also our unions have understood and understood this message.

As you can see, in all of our areas under our control, we are working hard and we are making progress but obviously the market will remain difficult for the foreseeable future. The terrorist attacks in Europe are worrying people around the world and political developments like the Brexit or the attempted coup d'etat in Turkey have economic implications that are very difficult to forecast.

The fact is, in the short term, yields have fallen to a level that we last saw during the financial crisis in 2009. That makes it even more important that we continue to make good progress with our structural measures and are finally cutting our costs successfully. As mentioned, they are coming down this year after fuel effects.

We are also responding with active capacity management. In the upcoming winter flights then we're taking additionally one wide body and six narrow bodies out of operations. We're cutting routes to South America, for example from Munich to Sao Paulo, and we're optimizing frequencies to other destinations. For the years to come we'll be of course looking to optimize our current investment plans.

The second pillar of our Group, Eurowings, is moving along quite well. Eurowings is successfully and sustainably provisioning itself as number one in point-to-point traffic in our home market, which reflects our strategy.

We have reached many milestones in recent months. In late June, operations for Eurowings Europe started in Vienna. In the beginning of 2017, the last eight of our 23 regional aircraft in the Eurowings fleet will have been replaced. The continuous transition to a 320 gives us a unit cost advantage of more than 40% for each aircraft per seat. We have significantly improved our operating capability on long-haul routes and we've added new destinations.

Eurowings currently offers 12 long haul routes, with four more to be added by the end of the year, for example, Miami in September and Havana, in Cuba, in December. On comparable routes, Eurowings already has unit costs that can match the competition and we will be cutting these costs by another 28% by the end of this decade. And also here our aim, to extend our number one position in our home market with establishing a strong and profitable second branch.

Now to the third pillar, the service companies. We have, in all of them, launched growth projects and efficiency programs that complement each other, and they are jointly intended to sustainably improve our profitability.

Let's start with Lufthansa Technik, where we will be growing strongly in the years ahead by means of the partnerships we have agreed with all three major engine manufacturers, for example, Rolls-Royce, GE and Pratt & Whitney. Being the global market leader gives us very important competitive advantage over smaller competitors, who will, in our view suffer significantly from the increasing consolidation in the MRO market. At the same time, the management of Lufthansa Technik have efficiency programs to cut specific segments of rollout costs. In the years ahead €70 million per year, are to be saved in the administrative functions. Engine maintenance will generate efficiency gains of 40% due to the recent agreement with our collective bargaining partners. Overall, we expect a reduction of 700 jobs over the next few years in Germany.

The LSG Group, catering, has successfully won new customer contracts, for example in the U.S. The Company also performs well in adjacent markets. The focus now lies on innovative buy on board solutions and individual catering concepts. At the same time the management of LSG is driving forward the necessary reorganization in Europe. This also includes a comprehensive review of the existing production sites in order to get back to competitive cost structures. The first production site to be closed and just the first at Dresden by the end of this year Bremen by year end 2017. Lufthansa Cargo is also obviously, due to the difficult market, working hard to achieve a more competitive cost structure. Its efficiency program C40, should step wise deliver savings of €80 million by 2018 and higher income from innovative products, expanding partnerships, and last but not least, from also continued digitalization should also help us to improve earnings. And the aim here, to expand the leading position of our service companies, who are number one globally, by means of profitable growth.

And finally, processes will, and have to be streamlined in the Group's administrative function in order to make us faster and more efficient. In the commercial and operational functions of the network airlines, where we have started to reorganize, we have already cut the number of management positions by 22%. We have also identified a total of 15 administrative processes that will be streamlined across the Group and we're convinced that they will all contribute to realizing synergies of at least €500 million by the end of 2019. Our aim here is a lean, powerful and efficient administration.

Let me come to the end and sum up. I think, as Simone pointed out, in the first half year we have achieved a solid result, improving on last year's result. For the second half year we expect a result of a high level, but due to the difficult market environment, down on last year. The EBIT, which is relevant for the size of our dividend payment, will be several hundred million higher and will hence definitely be above previous year's level. Even if it's visible, our more strategic measures are getting traction, it's now all the more important for us to keep working consistently on implementing our strategy. All the network airlines that means sustainably strengthening product and revenue quality and improving our cost position. At Eurowings, it means focusing consequently on cost and continuing our growth. At the service companies, we reinforce the individual growth projects and the strong efficiency programs, including the job cuts, we have announced -- job cuts that we have announced over the last weeks. And in the administrative areas, we concentrate on what really matters, speed and efficiency. And, in short, I think we are well on track and we are aware of the challenges ahead.

And now, before coming to your questions, let me also close with the comment I made in the beginning. This is, unfortunately for Simone and me, our very last conference call to you and with all of you, which is an opportunity to only thank Simone for her working relationship and I think for thanking Simone for riding with me in the most difficult challenge of all in Lufthansa, and trying to find the balance between how much change does Lufthansa need and how much change can Lufthansa bear. That I think was very good teamwork which is not finished which will be continued with her successor, and that's why I'm glad that we both had the chance to sit here today.

And now I'll happily answer any of your questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time, we will begin the question-and-answer session [Operator Instructions]. The first question comes from the line of Jarrod Castle of UBS. Please go ahead.

Jarrod Castle

Good morning and three, if I may. Firstly, can you give a bit of color in terms of the capacity outlook in terms of the 5.4%, how it's going to be split for the second half of the year? And what capacity you're seeing on those routes from competitors? Secondly just on yield you're guiding for down 8% to 9%. But can you give a bit of color in terms of how that splits amongst the airline companies in terms of the weakness? And then lastly, just on the pension, you said you're going to provide some updates during Q3 in terms of the cabin crew settlement effect. You've spoken about several hundred million. Is it possible to maybe refine that at this stage or will we have to wait for the Q3 results? Thanks.

Carsten Spohr

Jarrod, let me start with capacity, and Simone will continue. Capacity, as you rightly quoted, is 5.4% estimate for the whole year. In terms of the network airline that corresponds to specifically 3.5%, taking the strike effect into account, it's basically flat, because you have obviously the effect of producing less last year due to all the interruptions. And almost all the growth comes from Eurowings, where we talked about more than 25% of growth.

And that of course also has an effect on your second question, on RASK. With such a big growth in Eurowings, where RASK tends to be lower than on the premium airlines, of course that swings over into the RASK effect. Compared to our competitors, I think it's fair to say that we are seeing quite strong development in Europe. That's where most of the growth is. And we're seeing pretty good development on the long range in Eurowings, where of course a big part of the Eurowings growth comes from. So we believe we have allocated it in an optimized way in terms of profitability.

Simone Menne

Yes, and let me add to the pension, Jarrod here. For the details, you should work until the Q3. We are still working on the validation. What is important is that we have really a structural change here, into the defined contribution, so therefore we have an impact on the balance sheet as well as on the P&L as that only the EBIT, but that is to quite an amount, so we see that we also have an impact here on the equity ratio. And I think all this is good news. So the equity ratio we gave already a guidance. That has an impact of 1.5% on the equity ratio. But for the rest, please wait for the details in Q3.

Jarrod Castle

Okay, thanks. And any color on cash effects or thinking around cash, around the pension?

Simone Menne

No. No further.

Operator

Next question comes from the line of Oliver Sleath of Barclays. Please go ahead.

Oliver Sleath

Yes, good morning, everybody. Thanks. I've got three questions as well, please. Just firstly, I'm interested in the impact that you've seen from the coup in Turkey. Obviously historically Turkey's been an important market, especially for the traffic flows between Germany and Turkey. I guess your exposure is mainly via SunExpress. Are there any changes that you're looking at implementing there to the network? I guess especially with SunExpress?

Second question, obviously there've been some recent reports about potential cooperation between Eurowings and Air Berlin. I just wondered if you could elaborate at all on anything that you might be looking at there, especially given, I understand, that you obviously don't want Eurowings to be a platform for acquiring less than competitive airlines I think that you said in the past. And thirdly, a question maybe for Carsten, you've been very clear that in the longer term you need to improve the competitiveness of Lufthansa and I guess deliver higher margins than the 5% to 6% range that you're currently tracking at. I understand this may be very difficult, especially the geopolitical outlook, but especially, as you think about 2017, where your fuel tailwinds will be easing off, and I guess you'll still be building out capacity in areas like Eurowings, would your aim be to keep the margin roughly stable, do you think, if you believe you've got enough of the cost initiatives to get to that kind of level? Thank you.

Carsten Spohr

Well, thanks. Turkey is definitely an important market but even more, Turkish Airlines is an important competitor. So as unhappy as I am about any instability in the world anywhere, as a global citizen, I think the impact we'll be seeing from the weakening of our competitor will probably outweigh the impact we see on the weakening of the market, especially since you need to understand we are now in this winter only operating, for example, to Istanbul from one single hub alone, Frankfurt. We have cancelled Munich last year. We are cancelling Zurich this year. Austrian cancelled some time ago. So with the huge capacity on the market created by the national carrier there, I think the impact is somewhat limited. Different story SunExpress, as you rightly said, we're impacted more heavily here, of course, because SunExpress has a big share of production into Turkey. That's why we have started to reallocate SunExpress capacity into Eurowings. We have leased aircraft from SunExpress at very interesting cost levels into Eurowings. They are now operating to other markets, especially Spain.

Talking about potential partners, I can only confirm that what we have said before, yes, Eurowings is created as a platform for organic and inorganic growth, but we are not going to be cooperating with anybody and entering commercial deals with anybody who doesn't increase our profitability in the Eurowings system. So that is something which is out of the question, and as you probably expect, I can't provide any more details on any other rumors, but only what helps us to increase profitability at Eurowings will be signed by the Executive Board. The statement you made can only be confirmed by me. Yes, we are not happy with the overall profit of Lufthansa Group. That's why we are not only continuing to work on efficiency gains but even increasing the speed of our efficiency improvements, collective bargaining agreements. I think just for example, discussions with airports and air traffic control, which I quickly referred to are another big elements, but also internal processes, where we have implemented changes by taking out one management level, I think which were unheard of in Lufthansa for many years. Your question toward 2017, I think we need to see how the trading develops. From what we can see today, we would not expect further deterioration in our adjusted EBIT, but as you all know, it's early stages. Also, what makes me quite positive and optimistic is that our implementation of changes are paying across more year by year, so we'll see additional effects in 2017.

Operator

Next question comes from the line of Neil Glynn of Credit Suisse. Please go ahead, sir.

Neil Glynn

Good morning, everybody. If I could ask three also, please, the first, just interested what are the biggest drivers of the 2% to 3% ex fuel unit cost declines in the second half? The second question, relating to the planning process for 2017, Carsten, obviously you're holding the CFO role ad interim from the end of this month I think, so just interested specifically on cost cutting with respect to efficiency measures. How does the process in terms of planning for 2017 change this time given the exceptional circumstances? And also, if I look towards the volume declines that you've obviously framed for the second quarter, and I guess that means you probably won't be able to grow capacity much next year. And finally, just with respect to the credit rating, I realize that clearly there is an amount to be finalized with respect to help to the P&L but also the equity ratio. But have you given any consideration in terms of potentially tapping low cost debt to fund the pension, as some of your German peers have done? And any thoughts on how you think about liquidity sorry, CapEx, excuse me for 2017 will be helpful. Thank you.

Simone Menne

Hello, Neil. Maybe I start with the 2.3% and the credit rating. Actually, we see cost decline in nearly all lines of the profit and loss. That is because we have so many projects. Remember that we were all thinking oh God, all these score projects, these are too many, shall they focus. Now we see that it was worthwhile and working also in all small areas. And therefore, we have not one major impact but nearly everywhere a cost decline. The one area, which we are still missing and Carsten mentioned, our focus on that is feed. No major ones, but lots of sustainable in all areas and I think that is even more encouraging than just one big one, which would be surprising because we work for efficiency already for a long time. Regarding the credit rating, we constantly look into the KPIs regarding the credit ratings. You recall that we had already an equity ratio of 7.5%, and that was no there came no reaction of the rating agencies, because they just do not move only because of volatility in interest rate. So, optically also the planning process for next year will go into the same methods as it has been before. Carsten may comment further, but we are already partly going into the top-down figures. And they are oriented very much in the KPIs of rating agencies, looking into the ratio of cash and net debt. And therefore, we will constantly and also for next year's and 2008 planning of this ratio and about the investments we are doing.

Carsten Spohr

Yes, I can just confirm that for the few months where I have to fill the interim's role and there won't be any change on our focus on costs. We talked about three things at the top management, quality, efficiency and innovation. And clearly, with recent market developments, the importance of efficiency gains, which corresponds to cost down, is even more prioritized, as I tried to point out in my opening statements. To your second part of your question, definitely in ’17, the focus will be on cost efficiency and not on growth. The number of aircraft will go down again in the network airlines next year, so all the growth received will come from efficiency and bigger aircraft and more efficient aircraft.

Once again, we'll see a focus on growth in Eurowings, whereas I pointed out, the last regional aircraft will be taken and replaced by 320s. That's I think the kind of guidance we can give at this point. And of course taking aircraft out for the winter, bringing down the number of routes also restricts us in what we can do for next time, but that's very much in line with our market expectations, where again, it's more about efficiency next year than it is about growth

Operator

Next question comes from the line of Stephen Furlong with Davy. Please go ahead.

Stephen Furlong

Maybe just in terms of where you see the opportunities or concerns by segment, so I'm just wondering, going forward, between premium economy, economy and maybe also connecting and point to point, if you could just talk about where, in terms of bookings, you'd be concerned in particular? Then I know, Carsten, you said at the time of the AGM and the annual report, one of your objectives for 2016 was amendments to the collective agreements in terms of the flight attendants' union and also the cockpit pilots' union. And in terms of the pilots, can I just ask again, where do you think this is going to go in terms of 2016? Are you more confident that something that they can see reality, as they're obviously the only group that has not really agreed anything in the entire Lufthansa Group? Thank you.

Carsten Spohr

Yes, if I understood your first question right, I think long term the most growth we'll be seeing in the industry will continue to be seen in the leisure sector. It's the business travel which is more or less flat globally, of course parts of the world but globally. And we see a lot more dynamic in the leisure segment, which is why we are introducing a premium economy, reducing the number of business class seats by average and Eurowings of course is also born on the idea of bigger success in the leisure segment.

Short term, we see a lot more leisure bookings being missing than business. So the high exposure of Lufthansa to the business market I think is helping us compared to our competitors for the current uncertainties in the market. So basically our passengers would rather cancel their private trips than they cancel their business trips, which helps us, as you can see from the numbers as well, compared to our competitors. Collective labor agreements, yes, we wanted to close all three open agreements in 2013, ground staff, cabin staff, cockpit staffs. We have two-thirds done. We have closed with ground staff, and as Simone explained just in the ballot to close with our cabin staff. And now with the cockpit being open, I remain in my optimism that due to the constructive talks we have, we'll come to a similar result here. But even without results in these talks, we'll be seeing a decrease in cockpit costs, because if we don't come to results with the German union, we'll just continue our transfer of cockpit jobs from the expensive CLA to the Eurowings CLA, which is much lower. So with or without agreement, the cost will go down. My preference would be to find an agreement over the next days or weeks, and I'm quite optimistic we will.

Operator

The next question comes from the line of Andrew Light of Citigroup. Please go ahead.

Andrew Light

Hi. Yes, just two questions. First of all, can you give us an update on your DCC initiative? I think you're now nine months into it and just wondering if that's performing to expectation. Then secondly, on Lufthansa Technik, is the decline in result just solely due to the internal reduction in the cabin refits or is there something structural going on in that business that would suggest lower margins going forward? Thank you.

Carsten Spohr

I think to answer your second question, of course there was an extraordinary year, 2015, for Technik. And you are right, a big part of that came from the big project we did for the airline in refitting the holds on our fleet. So I think the overall trend is not to be mistaken by what we see between 2016 and 2015. My optimism for Lufthansa Technik, as pointed out, due to the developments in the MRO market, growing and consolidating at the same time, that's a good market environment to be in as the market leader. On the distribution strategy, I think we are in line with our forecast and expectations. We continue to see a neutral impact from introducing the DCC on the bottom line, because obviously we lost some bookings. But this has been overcompensated by higher GDS charges and from the DCC income itself.

More importantly, and as I mentioned this before, we are creating more freedom and more innovation on the distribution channels. And we have seen I think a 25% increase in our direct sales and even 30% something increase in online sales in general. So that shows that what we have achieved is what we have intended to achieve, more freedom, more innovation on the distribution side and more direct content between us and our customer.

Andrew Light

Thanks. Can I just ask a clarification question on capacity growth? I think before you had a capacity growth of 4.5% in ASKs for the third quarter. Is that still the case and would that imply roughly 9% in the fourth quarter based on your 5.4% overall guidance?

Carsten Spohr

I think it's 3.9% for the third quarter and 9.6% for the fourth, which sounds of course very high. But don't forget, we only introduced long haul at Eurowings last two quarters, with I think one or two aircraft operating. There is also a big strike effect in Q4 last year, so that's not natural growth we see here. That's why the numbers are artificially high.

Operator

Next question comes from the line of Michael Kuhn of Societe Generale. Please go ahead.

Michael Kuhn

Yes. Good morning, also a few from my side. Firstly, on Eurowings, where the result was down year on year, you mentioned three effects, one of project costs and the long haul startup difficulties and the yield decline. I wonder whether you could quantify those three effects and also maybe give us an idea how long we will see those startup project costs and when we will see something like a clean Eurowings result? And also in that context, your load factor in Eurowings on short haul routes remains relatively low, mid to low 70s percentage. When will that number go up and what number do you envisage for the next let's say two years? Then one on the forward bookings. It's now early August. If you compare this time of the year with early August 2015, what do you see in terms of forward bookings? What amount of capacity have you filled already and at which prices? Thank you.

Simone Menne

Yes. Hi, Michael. Let's look into the Eurowings project cost or costs impact, three you mentioned. There is several projects which we tackled. And that was the rollover, the building up of Austria and the brand. That comes to a small two digit number. We had long haul irregularities, which you have already seen in the first quarter. The task force worked very well, so we do not have that impact at the moment. The yield decline is obviously just coming out of the segment in a low cost area. Therefore, we expect not to stay, because we all know that also the competitors are entering into our home markets. But that is something the Eurowings crew is planning for and they know that already. So, for the forward bookings, we have sold 67% of the seats of quarter three, and that is 3% less than last year at this time. And prices are lower. So where we feel confident with the RASK guidance we have given and given the situation globally, as we mentioned with terror and unrest, I think that is not a surprise. Does that answer your questions, Michael?

Michael Kuhn

Mostly. In that case, I won't insist and just want to wish you all the best for the future. Thank you.

Simone Menne

Thank you very much, Michael.

Operator

Next question comes from the line of Andrew Lobbenberg of HSBC. Please go ahead.

Andrew Lobbenberg

Hi there. Could I ask a little bit about what you're thinking on CapEx? I think, Carsten, you mentioned that CapEx plans were under review, but where were you going with that thinking? Also, in your chat, you spoke about the cash operating costs of this shiny new neos being so much below the old aircraft when they fly. But how is the total operating cost of the new aircraft that you're bringing in at current fuel prices, and how is that shaping your thinking on CapEx? Could you give us an update on what your thinking is around Brussels and whether the developments are there and whether it can go into Eurowings or whether it needs to go into the network group? They seem very proud of their branding. And then just on cargo, do we want to ground some more MD 11s? Are we feeling more sympathy with the French approach to aggressively shrinking their pure freighters, or do you continue to that German's export nation status, that means you need a lot of freighters? And otherwise before I go, Simone, thank you so much for your cooperation through the years, your collaboration. It was a great pleasure working with you, and we'll miss you.

Simone Menne

Thank you very much, Andrew.

Carsten Spohr

Yes, Andrew. When I mentioned that we are reviewing our investment plans, I think there is two major inputs into optimizing our investments. One of course is fuel prices. When we made those decisions on our aircraft, the price was at a different level than what we see today. And the second of course is how many investments can we afford, and bringing down our forecast for next year of course might force us to limit investments, which were planned before.

On the positive side, with the big number of aircraft planned to come in, 52 this year, 40-something next year, we have lots of flexibility with the major suppliers to optimize our income of aircraft without paying any cancellation fees to any of that. So I think we'll be seeing an optimization of our investment, and we'll be providing more details over the next month. 320 provides pretty much 20% to 21% optimized cost per seat, if that was your question. Of course, it offers more seats than the 737 so perhaps that is less, but that's not how we look at things because we look at things per seat. But maybe I misunderstood your question. Please get back if that was not the real part of your question.

On Brussels, the time schedule has not changed, and I've said before, on an airline which is from a national airline, which plays quite a role in Belgium, we want to introduce them into the Eurowings system, but there needs to be some Belgium flavor element remaining. That's one of the things we're discussing with them right now, because we want to maintain the home carrier advantage and at the same time create the synergies an airline with 50 aircraft cannot provide on their own. That's the whole idea of Eurowings, and that's what we are discussing right now.

We'll probably see more grounding of MD-11 freighters over the next year, as the market looks and as we are expecting today. We have been going two aircraft down this year. We're now looking at the peak season before Christmas. I'm sure we'll see more aircraft on the ground after that. When it comes to the overall situation, don't forget, and I know you don't forget, Andrew, Frankfurt is for cargo what London is for passengers within Europe. Of course, there is a different export orientation of the German economy than for example our French friends, and therefore there is a higher need for high value cargo out of Germany. But not in the same dimension we have seen over the last years.

As we all know, global trade has now for years been below global economic growth. That is reflecting in the number of aircraft going down. But the relative importance of cargo for Lufthansa compared to our European competitors remains higher.

Operator

Next question comes from Ruxandra Haradau-Doser of Kepler Cheuvreux. Please go ahead.

Ruxandra Haradau-Doser

Yes, good morning. Three questions, please. First, I would like to come back on RASK. You mentioned in your press release that Q3 will be particularly weak. The RASK ex-currency decline of 8% to 9% applies to both Q3 and Q4 or do you expect a higher decrease in Q3, offset somehow by a better unit revenue performance in Q4? And what load factor development do you consider in your forecast for H2? Second, I understand that SWISS has converted half of the CS100 orders to the larger CS300 and that more CS100 orders might be converted in the future. Do you consider the CS300 an optimal feeder aircraft for a hub like Zurich Airport, or shall we understand this decision as a higher focus of SWISS on the point to point network going forward. And finally, Lufthansa Airline had a good result. To understand the dynamics, could you please give us some details on the profitability of the Munich network? Is it profitable? Has it significantly contributed to the profitability improvement of Lufthansa Airline, or is this good performance based mainly on flights from Frankfurt Airport? Thank you.

Carsten Spohr

I'll start. Then Simone takes over the questions on the C series. Well obviously the CS300 is offering better efficiency than the CS100, and due to the strong negotiating position we have as a launching customer, we were able to convert these with very positive terms in terms of getting a bigger aircraft for not much more money. When it comes to the optimized aircraft in terms of feeding the hub, of course, your overall hub site matters, and that's why we were disadvantaged in the past in our smaller hubs, like Zurich, like Vienna and even Munich, that we were only able to fill smaller feeding aircraft, who historically had less favorable unit costs.

With the new aircraft coming to the market, the C series being the frontrunner, we are now able to basically ignore that disadvantage and operate at the same unit cost the smaller hub, than we have, we see on the larger hubs, which is also reflecting on the long range aircraft. The 350, which we're operating in Munich, has similar unit costs than the 380 we operate out of Frankfurt.

The advantage of running a larger scale hub compared to a smaller scale hub is more and more vanishing by the new aircraft coming to the market, which we believe will support the Lufthansa multi-hub strategy. That is already affected in the Munich development, where we at this point see similar profitability as we see in Frankfurt, even though the average gorge size is smaller.

Simone Menne

Yes, Ruxandra, now coming to the last impact on Q3 should be higher, because that was a tremendously wonderful Q3 last year, so the minus 8% to minus 9% I think we will see there.

For Q4, we have the strike impact, so that the impact here should be lower, but in general, not much. So all given that the situation does not deteriorate or becoming very much better than we foresee at the moment.

Ruxandra Haradau

Thank you very much.

Operator

Next question comes from the line of Damian Brewer of RBC. Please go ahead, sir.

Damian Brewer

Good morning. And again, can I start with saying thank you both for your time, presentations and explanations, Simone. Much appreciated. So I have three question areas, and just first of all starting with logistics. I'm just wondering if you could elaborate a little bit more on the way your tactics played out in Q2. It looks like there was more focus on market share preservation rather than profitability. If that is the case, does that then extend into the second half of the year, or are there changes afoot there? Secondly, on the MRO Technik business, I'm just wondering with the reduction in internal revenues, does that also mean that the passenger airline CapEx should fall in terms of from that source at least as we go into the second half of year. More generally, to pick up on Carsten's point about the CapEx, can you give us some idea of the amount of flex you have looking at 2017, maybe just some feeling of the range in absolute numbers about what the max and min might be as you look at that? Then very finally on the passenger airlines, if you see the market take a further step down or capacity fail to come out, how much below the 3% if you like natural growth rate can you flex things down to in 2017? I guess that relates to the CapEx as well, but just some feeling of the degree of flexibility you have built in there would be extremely useful. Thank you.

Carsten Spohr

I'll also start with the last question. One of the upsides of the labor situation we had in the last 18 months is that we kept capacity very tight on the crew side, because we were not hiring, as you know. In the old CLA, we told units we will not hire due to conditions. So that now plays out in the right direction for us, because we will be short on crew. We're quite flexible to bring down the capacity increases even further without having redundancy cost for too much crew. So, quite optimistic about the flexibility we have on the downside. To be honest, we don't have much flexibility on the upside, but it doesn't look likely that we would need that. On Technik, you are right that we're going to have less expenses on the passenger airline side for MRO activities. But don't forget that most of the money which goes from the airline to MRO is not CapEx but is cost, with some exceptions last year about seats, which had to go on the balance sheet and all that. Basically, this will not have that much an effect on the CapEx side.

Potential CapEx reductions will come from moving aircraft to later years. Of course, for example, the problems Pratt & Whitney had on the neo Adam Lobbenberg referred to in a nice way, is automatically helping us to defer orders and deliveries because the aircraft are just not ready. You might have heard that similar things are happening on the 350. There, it's not the engine but interiors and toilet doors, so there is even some how should I say it? MRO, OEM provided input to bring back our deliveries, which will help us to bring down that. Cargo, clearly profitability feeds market share in cargo. It also does that on the passenger side, but even more on the cargo side. The cargo team knows that. That's why I already indicated we'll be seeing more MD 11s on the ground after Christmas.

Damian Brewer

Okay, thank you. And can you just give us some idea of the range or flex within CapEx you could look at next year?

Simone Menne

Difficult to give a range, Damian, but we have some options, which we always and for every year are considering. And we are doing that at the moment, so that concerns freighter, as well as 777 and A350. And we have options here, but I would not like to give a range here. But thank you very much for your kind words. Yes, all the best for you too.

Damian Brewer

Thank you.

Carsten Spohr

Maybe I can sum it up in a way. Don't tell some analysts I said this, but whenever you call Airbus right now and tell them you want to take a 320neo or a 350 later, they don't complain.

Damian Brewer

Okay, very clear. I [Indiscernible].

Carsten Spohr

Show our flexibility.

Damian Brewer

I assume that means some TDPs moved backwards then as well. Thank you.

Operator

Next question comes from the line of Penny Butcher of Morgan Stanley. Please go ahead.

Penny Butcher

Good morning. Thanks very much. Just a follow up actually as maybe another angle on Damian's question on capacity. Going into next year, I appreciate you have said that there could be some downside to the 3% average growth. Is it possible under the current structure of the labor agreements to actually have negative ASK growth at the Group level? Or does that potentially put at risk some of the unit cost declines that you're also targeting? And another question on the fuel side, just to ensure that we understand the math heading into ’17, based upon your chart today, with the forward curve outlook at a little above $50. Is it fair to assume we're talking around mid single-digit percentage decrease in the fuel bill based upon the current outlook for the headline pricing? Obviously, capacity decisions aside, is that the right way to think about the evolution of the total fuel bill in 2017? Thanks.

Carsten Spohr

On the flexibility again on ASK, yes indeed, we could even go down not only in the number of aircraft next year. We could also go down the numbers of ASK if we wanted to. That is just due to the crew situation I described. We have had a hiring freeze on the collective labor agreement, and we're even somewhat short on the cabin staff, as well. So if we decided to bring down the number of aircraft further, the resulting negative ASK growth, we wouldn't have any redundancies. We would just extend the hiring freeze we had started for other reasons in the last years. And that increases our flexibility again towards the lower side. We don't have much flexibility on the upper side. It doesn't look like we would need it.

Simone Menne

And Penny, regarding your fuel assumption, a single digit on fuel cost is a good assumption I would say.

Penny Butcher

Okay, great. Thanks very much. And good luck, Simone, on your new adventures.

Simone Menne

Thanks.

Operator

Next question is from the line of Jack Diskin of Goodbody. Please go ahead.

Jack Diskin

Just two from me, firstly, I'd just like to I guess look into the Q2 performance short-haul RASK and try and get an idea of how the point-to-point side performed in comparison to the theatre flows. And obviously going forward, clearly, the pressure points are on long-haul economy, but whether you think that short-haul performance could be sustainable or close to it going forward. And then secondly, I just want to return to your previous question on the DCC. So you mentioned the net neutral impact to the bottom line. You obviously have the €16 charge offsetting any lost bookings. But does that imply that you're as yet not seeing any sort of material visible pickup in ancillaries per passenger, because I'm just wondering about the cross-selling opportunities that you mentioned before from having I guess more booking shift towards the direct channel. Thank you.

Simone Menne

Jack, regarding the RASK, it's difficult to give a guidance between the feeder and the point to point. Obviously, there is more pressure on the point to point just because also of the competition and the new growth. And the established feeder-routes are in a better shape there. Regarding the DCC, I think that obviously we mentioned that already.

We have the possibility with an online accessibility of our customers to individualize the product, so we have already quite a success in some of the products, like reserved seats or seat reservation, advanced seat reservation. We introduced the baggage fee, so in all this area we are seeing progress and in this regard, also the distribution channel helps. But we cannot give you figures at the moment.

Operator

The next question is from the line of Johannes Braun of Commerzbank. Please go ahead.

Johannes Braun

Yes, hi. Good morning. Actually, I've just one question left on my list, and it's on the Frankfurt fees. You mentioned earlier in the presentation that you would insist that the fees will not go further up in Frankfurt. My understanding is that the new proposal by Fraport is again for a 1.9% increase in fees for next year. So would that imply that you will challenge that proposal again? And yes, what would be the best case for the final outcome?

Carsten Spohr

Well, we cannot comment on negotiations we have with anybody, but I repeat my expression. We expect fees not to grow also in Frankfurt, and Fraport knows that. Also the majority owner of Fraport knows that. It's not only in this call where we make that statement. So don't expect us to expect anything else from Fraport but a freeze or a lowering. Maybe one comment which fits in here. It's not by surprise that this year, 2016, will be one of the first years that I can remember that we have been able to bring down our fuel adjusted unit costs in Lufthansa. I'm here, they go up, I'm here 20 something years. So I think this is overall discipline which we have increased and even taking resistance and pain like labor activities that if necessary, we are determined to bring cost down, and that's what all these things, respective labor agreements, fee negotiations with Fraport, are all about. I think it was time to bring up the consequence and the discipline in Lufthansa and we have achieved to do that.

Johannes Braun

Yes, fair enough. Nevertheless, we have a regulatory system in Frankfurt and based on that at least, the argumentation of Fraport is that based on this, fees can still increase. I'm just wondering from which angle you will challenge that fee proposal, but I appreciate that you probably don't want to comment further.

Carsten Spohr

We stand [indiscernible].

Johannes Braun

Okay. Thank you, and thank you, Simone, and app the best.

Simone Menne

Thank you, Johannes.

Operator

Next question comes from James Hollins of Exane. Please go ahead.

James Hollins

Yes. Just one for me, actually. I was just wondering on the pilots' agreement, I was wondering if part of their negotiation is that they are looking for you to promise to grow the network airlines.

Also, the delay until Friday of talks, that feels better than obviously just you're abandoning it. Should we feel pretty confident that by the end of this week we'll have something in place to be voted upon? Thank you.

Carsten Spohr

No, no, we clearly don't promise any growth scenarios to our unions in any regard, neither ground nor cabin nor cockpit. What we are trying to achieve is career opportunities in the growing part of the Group, Eurowings, for the pilots, let's say, being stuck in a career path in the non-growing part in the network airline. But we're not promising any growth for labor concessions. That has happened in the past, it didn't work and it won't happen as long as I'm here.

Carsten Spohr

Don't consider the delay to be a negative news. Maybe you've read their message yesterday that they don't want this to be seen in a negative way. I think if we weren't positive that a conclusion could be reached they wouldn't have given us those extra five days. But again, if there is no agreement, still cockpit unit costs will go down. We'll just continue to transfer aircraft to the non CLA operations in Lufthansa, and of course they know that. That's their motivation to strike a deal.

Operator

We have time for one more question. That is from the line of Alexia Dogani of Goldman Sachs. Please go ahead.

Alexia Dogani

Thank you for taking my question. I just had one on the European market overall and your positioning there. I was a little bit surprised to see pricing growing in the second quarter, albeit at loss of volume. I just wondered if you could give us a bit of a color of how you're thinking about revenue management in the market that is seeing quite aggressive competition by local carriers? Thanks.

Carsten Spohr

I think you have two overlapping effects here. On the one hand, as you rightly said, there is huge price pressure on European routes due to the low cost exposure being increased. At the same time, Lufthansa is moving Eurowings from regional aircraft to 320s with 40% efficiency increases but of course also I think 50% more seats almost. Those two effects overlap in Eurowings, and that's why the load factors are not where we want them to be, and we're intending to close that gap over the next two years to where the other point to point carriers are. I'm quite confident we'll achieve that. Europe is more stable than other parts of the world. This is so from our numbers, if you look at America, for example. Is that answering your question?

Simone Menne

Maybe I can add something, because when we look at the European market, leisure is more down than business travel, so it has obviously an effect on the pricing, so we get more stable passengers on the higher classes. And that has an impact. And we try to manage pricing versus volume in Europe under this situation.

Alexia Dogani

Okay, great. Thank you. And best wishes on the new role, Simone.

Simone Menne

Thank you very much, Alexia, and as this was the last question, let me take the opportunity to thank all of you. Lots of you made a remark. I really had very good four years with your bunch. There were very challenging questions. I learned a lot from your questions and hopefully gave good explanations and transparency into the airline. I'm very positive that my successor will continue in this tradition. Going into a world of adventures, as rightly said, a world without road shows and quarterly talks, I will find out if I can survive without. But at the first, thank you to all of you and have a good time. Bye.

Operator

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Good bye.

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