DLAKY - Deutsche Lufthansa AG (DLAKF) Q3 2022 Earnings Call Transcript

Deutsche Lufthansa AG (DLAKF)

Q3 2022 Earnings Conference Call

October 27, 2022 4:00 AM ET

Company Participants

Dennis Weber - Head of IR

Carsten Spohr - Chief Executive Officer

Remco Steenbergen - Chief Financial Officer

Conference Call Participants

James Hollins - BNP Paribas

Alex Irving - Bernstein

Ruxandra Haradau-Doeser - Kepler Cheureux

Stephen Furlong - Davy

Sathish Sivakumar - Citi

Jamie Rowbotham - Deutsche Bank

Muneeba Kayani - Bank of America

Sumit Mehrotra - Societe Generale

James Goodall - Redburn

Johannes Braun - Stifel

Jarrod Castle - UBS

Ashok Kumar - HSBC

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Lufthansa Group's Third Quarter 2022 Results Conference Call. Throughout today's recorded presentation all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operators Instructions]

I would now like to turn the conference over to Dennis Weber, please go ahead sir.

Dennis Weber

Yes. Thank you, Emma and good morning ladies and gentlemen. Welcome to the presentation of our results for the first nine months of 2022.

With me on the call today are our CEO, Carsten Spohr, and our CFO Remco Steenbergen. The two will give you an update on operational and financial performance and our outlook for the rest of the year and beyond. Afterwards, you will have the opportunity to ask your questions.

Carsten, over to you.

Carsten Spohr

Thank you, Dennis and ladies and gentlemen, warm welcome from Frankfurt from my side as well. And I’m -- would dare to say that today's meeting is the ideal conclusion to another quite eventful months for the Lufthansa Group. As you probably all know that it was just a few weeks ago in the middle of the month, we presented the details of our product and quality initiatives. We included into this the introduction of our new seats, which will be on all wide bodies and in all travel classes be replaced on our long-haul routes.

Then we celebrated the newest addition to our fleet, the Boeing 787. And last but not least on that for sure you all know, we raised our full-year forecast only last week and I expect an adjusted EBITDA of over EUR1 billion for ’22. And I'm happy to say that I think we did indeed impressively demonstrate this month that the Lufthansa Group has left the crisis mode behind.

After the operational challenges of the past few months now more than 99% of our flights are operating regularly again and over 70% are on-time. We have nearly 80% of our passengers of 2019 back on board and we already have 650 aircraft back in the air, and this figure will go to above 700 by the summer of ’23.

In economic terms, we have had an extremely strong summer behind us. The Lufthansa Group achieved an adjusted EBIT of EUR1.1 billion for the third quarter period. Our operating margin is double-digit again and amounted to 11.2%. Group revenues totaled EUR10.1 billion, almost double the prior year period. Between July and September, we welcome more than 33 million passengers aboard our Group airlines and our yields were 23% above the 2019 pre-crisis levels and thus reached a new all-time record high.

All our business segments the passenger airlines, Lufthansa Technik and cargo including contributed to this very positive quarterly results. Lufthansa Technik benefited from the high demand for maintenance and repair services from airlines all over the world with an adjusted EBIT of EUR177 million. Lufthansa Technik achieved the best quarterly results in its history. And for the full-year, the colleagues are also confident of exceeding the current all-time record result of EUR463 million dated back from 2019.

Let's talk about Lufthansa Cargo who as well expects to post another record result for ’22. The first nine months of this year, our cargo colleagues have generated an operating profit of an impressive EUR1.3 billion and therefore expect their full-year result to exceed last year's figure of EUR1.5 billion. Overall, it doesn't take much to hear that from my voice here, we remain optimistic for the rest of this year.

The demand for air travel is still strong. Our yields remain high and book load factors for the fourth quarter are already higher today than they were at the same time in 2019. In view of these positive developments, we have doubled our forecast for profits in ‘22 as you know. We now expect to report an adjusted EBIT for the year of over EUR1 billion and as important, an adjusted free cash flow of more than EUR2 billion.

Another piece of good news. Following the early repayment in Germany and Switzerland, we will now also payback the remaining government stabilization measures in Austria and Belgium by the end of the year. This means that by the end of ‘22 we'll have paid back all stabilization packages way ahead of schedule.

Ladies and gentlemen, we consider the coronavirus pandemic over in economic terms and our focus is now again on shaping our future, and to this end, we have set ourselves three priorities, the three P’s as I like to call them with discussions with our staff further upgrading our product offering for our guests, offering our people new prospects and returning to profitability and growing in the coming years. These 3 P's will be our benchmark for the coming months, but before I go into more detail on each of them, Remco will give you a deep dive on our third quarter figures.

Remco, over to you. Thank you.

Remco Steenbergen

Thank you very much, Carsten and a warm welcome to all of you as well. As Carsten said our Q3 results indeed do not show any signs of crisis anymore. In the third quarter, adjusted EBIT amounted to more than EUR1.1 billion. Net income exceeded EUR800 million. All business units contributed to the positive results testifying to the strength of our portfolio.

And importantly, we also generated a positive free cash flow of EUR410 million, despite a EUR1.1 billion cash outflow related to the seasonality of customer bookings. As a result, we continue to deleverage and we also strengthened equity.

Let me present you the results of the different parts of our business in more detail. The passenger airlines offered 78% of pre-crisis capacity in the third quarter with short-haul being back to almost 90% and long-haul to 70% of 2019 levels. Total capacity offer was lower, compared to original plans, because the flight cancellations in response to significant system-wide operational disruption in June and July, which eased significantly in the further course of the quarter.

However, the additional buffers we created to stabilize operations and EUR239 million of irregularity costs that means customer compensation payments and cost of care expenses were a drag on unit costs, which were 9.5% higher than in 2019, excluding currency effects. Some of the irregularity cost also related to strikes with Lufthansa ground and corporate personnel, which has an overall profit impact of around EUR70 million when also considering the lost revenues.

In addition, maintenance expenses increased due to the reactivation of additional parts of our fleet. Higher costs, however were more than offset by better revenues. The huge demand, especially from leisure travelers, limited capacity and passing on of higher fuel cost resulted in higher yields and load factors.

As a result, yields were 22.5% above pre-crisis levels and loads were almost as high as in 2019. Once more, the Transatlantics stood out with strong U.S.-based premiums selected amount being a key driver. By airline, Swiss and Austrian Airlines outperformed with operating margins of 15% and 16%, respectively with Austrian even generating a record operating profit of EUR110 million in the third quarter. In total, adjusted EBIT in the passenger airline business amounted to EUR709 million.

Turning to our aviation services, profits in our logistics business exceeded the prior-year record level amounting to EUR331 million, despite easing of disruptions in ocean shipping, which has been a big driver of demands in prior quarters. Yields continue to be up by more than 20% on the prior year. Compared to pre-crisis levels, they were more than twice as high in the third quarter.

Ongoing supply constraints, especially on the Euro-Asia trade lane contributed to this. In addition, companies are focusing on making sure that they have enough inventory in light of the still many fault risks to supply chains. Lufthansa Technik continues to take advantage of the global recovery in air travel and the resulting strong demand for MRO services, which allows passing through cost inflation in materials and labor to customers.

The stronger U.S. dollar also supported earnings, which reached EUR177 million, the highest adjusted EBITD the business ever achieved in the third quarter. The catering business around LSG benefited from a large footprint in Americas where business has picked up far more significantly than in Asia. Only the grants under the U.S. CARES Act included in the prior-year base meant that adjusted EBIT was down year-on-year, amounting to EUR6 million.

Finally, the result of the other businesses and group functions was minus EUR69 million, below the prior year level, because of the end of short-term work benefits, which were still included in last year's results. Once more, cash conversion was strong in the quarter, especially when considering negative seasonal effects. Customer prepayments related to new bookings were EUR1.1 billion lower than the end of June in line with pre-crisis patterns.

However, this was more than offset by the high profit and further improved working capital management. We are focused on managing payment terms and on enforcing on-time collection of receivables continued to pay off. In sum, adjusted free cash flow amounted to EUR410 million in the third quarter and EUR3.3 billion in the first nine months, the best ever performance in the group's history even exceeding the record levels of 2017.

As a result, net debt declined to EUR6.2 billion, EUR2.8 billion below the level at year-end 2021. Let me remind you that our net debt is fixed rate finance at less than 3% per year with an average maturity of approximately five years. In addition, maturing liabilities amount to just EUR2 billion in the next 15-months, even including the remaining EUR500 million of government-backed loans in Austria and Belgium, which we intend to pay back by the end of this year.

Considering current liquidity of EUR11.8 billion and our expectations for cash generation also going forward, our refinancing needs are, hence, very limited. The net pension obligation decreased by EUR4.5 billion to EUR2.1 billion in the first nine months of the year, because of the increase in the discount rate to now 3.8%.

As a result, financial leverage, measured as net financial debt plus net pension obligations over adjusted EBITDA is down to EUR2.5 billion based on results in the past 12-months, demonstrating the progress made towards our goal of regaining an investment-grade rating by 2024. Shareholders' equity increased to EUR9.2 billion with net debt over equity now amounting to 90%.

In this context, let me emphasize that our success in deleveraging and strengthening the balance sheet does not change our view on potential asset divestitures. The decision to divest AirPlus and the remaining catering business around LSG was made based on strategic considerations. So the sales process continue as planned in both cases. The same is true for Lufthansa Technik, where we prepare for a partial divestiture or partial IPO in 2023.

A healthy balance sheet is the basis for profitable growth, especially in economically challenging times. In addition, we continue to be laser focused on cost management and the implementation of our EUR3.5 billion cost reduction program. In the area of personnel costs, we had to reduce our savings ambitions by around EUR400 million in light of high inflation. However, we target to make up for this in other areas of our cost base, especially sales-related costs and maintenance. The latter where we identified additional synergies via our joint management of engines across the group.

Taking into account, previously mentioned one-off effects in Q3 related to the ramp-up, strikes and operational disruption, as well as the ongoing implementation of structural cost savings, we are confident that we can narrow the ex-fuel unit cost gap versus 2019 in the fourth quarter compared to the third quarter.

As far as fuel costs are concerned, effective hedging will limit this year's cost to around EUR7.6 billion, around EUR1 billion less than we would have otherwise had to bear. For next year, we have hedged around 50% of our exposure in terms of crude oil at a breakeven rate of $89 through options. 32% of our jet fuel exposure is hedged completely, that means including the Jet Crack.

Let me emphasize that there is a likelihood that the jet fuel cost will remain equally high in 2023 as in 2022, regardless of the current decline in forward rates. We, hence, intend to at least maintain our current yield levels in 2023. Compared to fuel, the cost impact from exchange rate fluctuations is far smaller, especially when considering the natural hedge provided by our ex-European operations.

The revenues generated in U.S. dollar reduced our U.S. dollar operating exposure by around 60%. For 2023, we expect our net U.S. dollar exposure to amount to EUR6.2 billion, which we have currently hedged at 37% at an average rate of EUR1.09 with the target to increase the hedge ratio to around 60%.

Regarding the U.S. dollar exchange rate hedging for our aircraft purchases, 50% of this exposure is hedged when the contract is signed. In the last 24-months before final payment, the hedging level has increased in half yearly steps of 10%, reaching 90% in the end. Naturally, the average hedge rate moves far slower here due to the long order side, of course. To be noted that we have currently hedged 70% of our U.S. dollar currency exposure around EUR16 billion at an average rate of 1.23.

Let me finish with our financial outlook for the rest of the year. In line with previously communicated expectations, we intend to operate around 80% of pre-crisis capacity in Q4. Hence, the average capacity operated by our airlines in the full-year will be close to 75% of 2019. Assuming no currently unforeseen deterioration in the operating environment, such as revival of pandemic related travel restriction and escalation, the Ukraine war or events of a similar magnitude, we are confident to generate an EBIT -- adjusted EBIT of more than EUR1 billion for the full-year 2022. This represents a significant upgrade of our previous outlook based on the positive developments in the third quarter.

Record results in Cargo and Technik, as well as the current booking situation, which Carsten will elaborate on in a minute. Adjusted free cash flow is expected to reach more than EUR2 billion with the exact outcome dependent on booking levels at year-end. With these results, we're on track for the achievement of our 2024 targets and adjusted EBIT margin of more than 8% and a capital return of more than 10%.

Pending our formal 2023 guidance, we intend to -- which we intend to publish in March next year, we expect further progress in 2023, meaning a further increase of profits, compared to the current year level.

Over to you, Carsten, with a more detailed explanation of what will be driving this?

Carsten Spohr

Yes. Thank you, Remco. And ladies and gentlemen, as mentioned before, it's now in the next months about our product, our people and our profitability. And these three P’s will determine our actions, activities over the next months to come. The new Dreamliner, which we presented in the middle of the month in a way, embodies all three. It's a state-of-the-art aircraft with an improved business class and like any long-haul aircraft, provides around 200 jobs on-board on the ground for Lufthansa Group alone. And it's obviously particularly efficient, consuming an average of just 2.5 liters of kerosene per passenger per 100 kilometers. And that obviously doesn't just lower fuel cost, but also contributes significantly to our profitability.

And the Dreamliner is just one out of almost 200 new aircraft that we will have joined the Lufthansa fleet by 2030 and for which we are more or less investing EUR2 billion a year. We have also launched the biggest product renewal in the history of our company. Starting next year, we will be renewing more than 30,000 seats on our long-haul aircraft. And the first airline to introduce a new travel experience will be our core airlines, Lufthansa Airlines.

And under the name Lufthansa Allegris, we want our product to set new industry standards with more booking options in economy class, with a comfortable new hard shell seat in premium economy, which our guests are already experiencing in SWISS, with seven different versions of the seat in the business class. And of course, with the new Lufthansa First Class, for which our guests for the first time will travel in advanced suites.

More comfort, more individuality and more premium can hardly be offered in a commercial aircraft today. So Lufthansa will continue to live up to its claim of being the leading Western premium airline. But our product innovations at the Lufthansa Group go far beyond new aircraft and seats. We're also enhancing our catering, our amenities and our lounge. And we are hiring new employees in many areas to further improve our customer service and continue to ensure reliable flight operations.

On top of this, we are investing substantially in developing digital solutions that will enhance the digital travel experience throughout the customer journey. The teams of our newly established Digital Hangar, first focused on expanding rebooking options in our digital chatbot. On some days, the chatbot already rebooks more passengers than our call centers. And this will be, of course, expanded over the next years.

In addition to digitalization, sustainability is a further key element in any premium product. The Lufthansa Group aims to be an industry leader regarding climate protection. And in doing so, we put our prime emphasis on technological innovations in line with the reduction plan underlying our commitment to the science-based target initiative. We already made good progress and reduced our specific carbon emissions by 2%, compared to 2019 as a base year, and we constantly keep on innovating.

Last week, for example, SWISS became the first airline in the world to use AeroSHARK technology on its passenger flights. The special AeroSHARK film has been developed by Lufthansa Technik in cooperation with BASF here in Germany. It sustainably reduces an aircraft's aerodynamic drag and as a result, its fuel consumption.

Sustainable aviation fuel or SAF for short, is another key component in our sustainability strategy. Thanks to SAF, carbon-neutral air travel is already possible today, but these fuels are not yet available in sufficient quantities. And as things currently stand, even in 2030, volumes of SAF produced will still only meet roughly 3% of global fuel demand. This is why the Lufthansa Group currently supports more than 10 SAF projects in Germany, Europe and worldwide and has already concluded long-term SAF uptake agreements.

SWISS, for example, has teamed up with the Synhelion company, which produces SAF using the SUN-to-LIQUID process in a plant in Juelich, Germany. SWISS will be the first airline in the world to fly with this so-called solar fuel.

But let's move on to the second P, People. Recently, I have often talked about the fact that we need to have a new understanding of our social and collective bargaining partnerships with our unions, so that they once again deserve to be called partnerships. I'm aware that this is not an easy task. It will certainly take time, but we are making significant progress.

Just since August, we have reached 10 agreements with nine unions in four countries. This week alone, collective agreements were reached with the Aeropers pilots’ association in Switzerland, as well as agreements for cockpit, cabin and ground staff of Austrian Airlines and a new collective agreement was concluded with a very trade union for our pilots in AeroLogic. We must succeed in negotiating further improved conditions for our employees without strikes in all areas of our group. And this week, SWISS, Austrian Airlines, AeroLogic have shown that this is possible.

We want to create prospects, not only for the employees though, who already are working for us, but also for those who are joining us, because business is coming back so strongly, we need additional hands on deck. We are hiring primarily and product-related and service-oriented functions, as well as in IT and in cockpit and cabins. As a result, we forecast to have around 115,000 employees onboard of the Lufthansa Group by the end of ‘23. That is 7,000 more compared to today, but still more than 20,000 less, compared to the end of 2019 before corona and the appropriate crisis started.

So with that, let's move on to the third P, Profitability. Without profitability, everything is nothing, in any company for sure in an airline, which is trying to modernize. So having already returned to profitability in the past quarter, we now aim to further increase our earning power and generate sustainably high cash flows. The signs are good for this. After all, global aviation will not return to the overcapacities witnessed in previous pre-pandemic times anywhere soon, because capacity development will be limited by several factors.

First, like any other industry, our industry is affected by global supply chain bottlenecks. Missing semiconductors or various other components and parts caused massive delays in the delivery of new aircraft, as well as repairs and overall. And if you just listen to my colleagues from Boeing and Airbus over the last days, you get a lot of confirming information on this one. Just one example, it's currently basically impossible around the world to obtain a cockpit window for the 787. And by the way, also for other aircraft types, because of supplier insolvency, shortages of staff, of materials, supply chains and so on.

Secondly, the industry-wide personnel shortages of the past summer have not yet been fully overcome across the entire value chain. The many still unfilled vacancies at airports, ground service providers and security check organizations around the world continue to limit any significant capacity expansion. And if you take on top of that, the U.S. carriers fact that they are suffering from a dramatic pilot shortage that will take years to address, it's another proof that overcapacities are not to be seen.

And last but not least, the high cost of fees, materials and fuel, raised the hurdle for additional capacity deployment to be a profitable, preventing expansion as well. And against these limitations on the supply side, several factors continue to support demand on the other hand. Business travel, for instance, continues to recover for us to some 70% of pre-crisis levels in terms of revenues. We expect volumes to continue normalizing at the current rapid pace.

This is because of present geopolitical uncertainties and the disruption of supply chains, which I partly mentioned earlier, are prompting a diversification of supply chains and target markets in almost all industries worldwide. This creates additional travel needs to establish and maintain relationships with additional suppliers and sometimes additional customers.

When it comes to VFR, Visiting Friends and Relatives and leisure travel, one summer was surely not enough to release all the demand, which has been built up during the pandemic. For many people, travel has obviously become more important in their personal hierarchy of needs. Especially in the U.S., our distribution partners report high levels of demand for travel to Europe also in the next months and quarters.

We also see further potential beyond our home markets. Asia hasn't been a factor in the recovery of our industry yet. But now with the opening of Japan, traditionally a high-yield market, that is changing. Travel restrictions are also being lifted in Hong Kong. And there is a reason to be confident that this could, to a certain extent, at least also serve as a blueprint for Mainland China next year.

In sum, supply chain constraints in our industry, on the one hand, will limit the addition of capacity in global aviation probably for years to come. And at the same time, on the other hand, the post-pandemic recovery is far from over, structurally supporting demand in -- generally, economically more challenging times in the global economy.

Ladies and gentlemen, the Lufthansa Group is well positioned to take advantage of these favorable supply demand dynamics. Our global organization makes us very flexible to adjust our offer based on regional and segment-specific trends. Compared to 2019, we have significantly diversified our customer base. Today, we sell three out of four tickets to customers outside of our home market, Germany. Revenues generated in the all-important U.S. market are up 15%, compared to 2019 levels. This is all the more remarkable given that the capacity offered on the Transatlantic is still 20% below pre-crisis levels.

Our booking outlook for the fourth quarter also confirms the sustained strength of premium demand. Our seats offered in the final three months of the year are already better booked than at the same time in 2019, not only in Economy and Premium, but it's -- sorry in Premium Economy, but especially in First in Business Class. Our status customers continue to account for a large share of this, but premium leisure travel has also been driving demand since the start of the pandemic.

Given the current booking situation, it is evident already that our yields for the fourth quarter of ‘22 will be above our yields in 2019 at a similar rate as we have seen this in the third quarter. This continues to be driven first and foremost by the Transatlantic, where still strong consumer confidence, a relatively better economic outlook and the strength of the local currency, the dollar support demand. Our customers remain very short-term in their booking behavior, though, but we're also seeing signs of more long-term advanced bookings, especially for the holiday season in ‘23.

Ladies and gentlemen, coming to an end, the importance of the aviation industry and the demand for air travel continue unabated. People just wanted to travel. And they naturally prefer to do so with the best in the industry. We are convinced that with our extensive product innovations, we will deliver on our promise again and we will further strengthen our position among the world's top five airline groups.

We are convinced that we have the best team in the industry, and we will continue to offer conditions, which ensure that we attract the best people and retain them. And we are convinced, last but not least, that driven by all parts of our portfolio, we will continue to deliver strong results and attractive returns across the portfolio. After its biggest crisis in its recent history, the Lufthansa Group is in an excellent position to have a successful future.

In that regard, thanks for your attention, and now we look forward, Remco and I, and of course, also Dennis, to your questions. Over to you.

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from the line of James Hollins with BNP Paribas. Please go ahead.

James Hollins

Yes, Carsten, Remco, Dennis, good morning. Three, please. Just on your capacity, previously, you talked about 85% to 90% in 2023. I may have missed it, but is that still the guidance? And maybe just run us through, you talked about aircraft deliveries, staffing, obviously, we need to do that macro in fuel. Just wondering if that was still the number and which sort of end of that, you might be thinking currently given those factors?

Secondly, I was just wondering how United Airlines’ partnership with Emirates that might be impacting your alliance on some of those routes, just some general thoughts on that? And the final one on Cargo yield, I think it looks like it's down about 10% quarter-on-quarter, still extremely strong, obviously. I was wondering if you could maybe run us through your expectations on the trajectory into Q4 and beyond on those yields? Thank you.

Carsten Spohr

James, it's Carsten, yes. Thanks for your questions. When it comes to capacity, we'll stick with our guidance of 85% to 90%, but honestly, including the arguments you're referring to, rightly, the bottlenecks, I'd rather see it on the lower end of the 85% to 90% range on the higher end. That is probably worth to say. United Airlines partnership by far, the strongest one we have is hardly being impacted by their new friends in Dubai, because their partnership with the Dubai carrier is limited to routes, which we don't operate in our network portfolio. So there is more a political impact probably between the UAE and the U.S. of this than the commercial impact on Lufthansa.

And with Cargo yields, I will hand over to Remco, who has the latest details, because I'm still so jealous about these yields looking back to my own time in Cargo, I can hardly speak about it.

Remco Steenbergen

Yes. Thank you, Carsten. The Cargo yields indeed in Q3 are down versus Q2, what we currently see for Q4, that they are on a similar level as Q3, so that is all good news. For next year, we still expect the yields to be above what we had pre-crisis level, where they will land versus Q4. It's still too early to say. We have to see in the coming months where that will end. But we are so far still very optimistic also for Cargo for next year albeit to be at a lower level than this year.

James Hollins

Again, very clear. And Carsten, you sounded very emotional with it. I don't mean it. You're doing well. Carry on.

Carsten Spohr

Sorry, James. Say it again. James we missed that last comment, sorry for -- can you say again.

Operator

Your next question is from the line of Alex Irving with Bernstein. Please go ahead.

Alex Irving

Hi, good morning, gentlemen. Congratulations on the successful quarter. Three from me, please, two on cost and one on the fleet. So the first question is on labor costs. Can you please provide a bit more detail around the measures that we are no longer going to implement around your labor cost savings target? I think earlier on this year, the expectation was that these would be achieved as other unions would agree to the measures will have a [Technical Difficulty] what has changed, please?

The second is basically the mirror image on nonlabor costs. Can you please detail the source the additional EUR400 million targeted cost savings here? And why you're confident we can make these reductions without hindering the effectiveness of the business?

The third question is on the fleet. Great to see the 787s being delivered. Can you please remind us which planes these are going to replace in the fleet? And on some of the older types that are still in service, the A380, for example, are these now going to be around into next summer as well? Or how are you thinking about that? Thanks.

Remco Steenbergen

Hey, Alex, Remco here. I will take the first two questions. As we signaled already at the prior conference when we announced our half-year results, correct? That it would be likely that we could not realize the additional labor cost savings of EUR400 million. We worked through the quarter. And therefore, we have now added to the non-personnel costs, so that was also something we indicated before. So I hope it's not something new for you.

Overall, in the EUR3.5 billion, we are very committed. Now on the non-labor-related elements, there's still a couple of elements that also announced in muy speech particularly on the sales-related items, further automation, the channels we are working through. This is a part where we believe we can even do more efficiencies than we did before.

Secondly, on our MRO expenses, we also think we can further progress. Here, we have worked on certain things to jointly handle across the group, like the engines and particularly there are some savings coming out. So there, we are confident to move that further forward. So I think the bigger element for us is when you look at Q3 and you look at the 9.5% that it's a bit influenced seasonally with one-offs like we said before, the MRO costs, which related to the various heavy ramp-up of the fleet is a big one.

Also, you have to see that in Q3, we had a reinstatement of the variable pay, and you had the catch-up of the first half of this year in Q3. And of course, we had also quite some irregularity cost in Q3. So there you have to consider when you look at Q3 going forward, we have said from the beginning, EUR3.5 billion is our cost savings, we will stick to that, and we are confident we can make that.

Carsten Spohr

Yes, Alex, it's Carsten, for the fleet questions. The 787 is intending to replace our 340-300s, because that's more or less the same capacity, and both aircraft operate without a First Class. We have 32 on order total of the 787s coming in. So this will be just the beginning. And on your initial question on 380, we are currently looking at three 380s coming to Munich in May -- sorry, in June of next year, but that's just the beginning, we'll need to bring that number up from the demand we see and also for operational reasons, three is not enough, so we're currently working on the detailed plan for that. But expect three in Munich, and you should book now because our passengers love it, if you want to fly it.

Alex Irving

Wonderful. Thank you very much for the detail.

Operator

Next question is from the line of Ruxandra Haradau-Doeser with Kepler Cheureux. Please go ahead.

Ruxandra Haradau-Doeser

Good morning and congratulations on the performance. First, a follow-up question on Cargo. In the press release, you highlighted a good yield performance to Asia in Q3. Could you please give some details on the regional performance you expect in the Cargo division in Q4? And do you expect Asia to perform better than the other cargo markets until the end of the year?

Second, you mentioned the outperformance of Austrian. It was the airline with the highest operating margin in the quarter. Historically, this was not the case. So what was driving this very strong performance and is it sustainable? And how did the Q3 regularity costs at Austrian compared with 2019 level?

And third, in the MRO business, what was the currency adjusted revenue performance in Q3 relative to 2019? And what share of the costs in the division are euro-denominated? Thank you very much.

Carsten Spohr

Ruxandra, the real secret about Austrian is we have put a lady on top, but I know that's not detailed enough for you. So Remco will give you a more qualified answer.

Remco Steenbergen

Yes, Carsten, you are right. Certainly, leadership is a very important one. We have a new leader in Austria and who is a very, very good leader. So that certainly helps. But if it go a little bit back in Austrian, correct, the crisis has also changed some things, right? Austrian from a cost perspective has become very, very competitive.

Secondly, the whole Austrian brand and service positioning is extremely good one and perceived very well in the Austrian market. And also, therefore, our competitive position, particularly versus the low cost is -- the airline is very much appreciated. So if we look through the year and also there, we have been able to really increase the yields in line with the cost increases we saw alone. And that combined with the cost savings, both Austrian in a very, very good position, also believe that, that will further improve in 2023. So we clearly believe it's sustainable, and we're extremely proud, I have to say, on Austrian that they manage this, and I really say that with a smile on my face.

If you think about your first question, correct, on the Cargo on Asia, you still have to mention that relatively there are less flights going to Asia, so of course the belly capacity is limited, and therefore, the rates overall are holding up very well. For Europe versus the Americas, it's lower, but still above the pre-crisis level. So I think those are the most important, say, regional performance elements. The currency adjusted profitability in terms of the EBIT for Lufthansa Technik, there's about a little bit more than $100 million impact coming for the full-year in the results. I have to check what the expectation is for Q3, but it should be about a quarter of that or slightly more than a quarter of that.

Ruxandra Haradau-Doeser

Great. Thank you very much.

Operator

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

Stephen Furlong

Good morning. So question for Carsten on the Transatlantic, and it's an important market, obviously. I mean, in terms of the general comments about the supply constraints, do you see next year the Transatlantic still being supply constrained? I know that your part of United is adding a lot of capacity. But on the other hand, if Japan, even China opens up and maybe some fairly scarce metal can move to the other markets. So just might talk about the Transatlantic market?

And then secondly for Remco, just on Lufthansa Technik, in the criteria you look at in 2023 to maybe spin it in terms of parcel IPO or private equity or whatever alternative. I presume you will take into account market conditions. Obviously, at the moment, valuations in general in the market are quite low. So just might comment on those two things. Thank you.

Carsten Spohr

Stephen, good morning, it’s Carsten. Yes, on the Transatlantic, obviously, not just Lufthansa knows that there's money to be made. So we do know that our competitors are looking at this as well. But you partly answered your question yourself, some capacity next year will be needed for Asia. I cannot tell you how much it is, because nobody knows how Mainland China will act next year. But sure, if it opens, we're all going to be moving some capacity into there, and we're already doing that now with Hong Kong and Japan to a certain degree. That's one element why I think we will see also good discipline on the North Atlantic just by being forced to be disciplined due to demands in other markets.

The second, let's call it, again, for us to be disciplined is that there is probably planes and flights in the schedule, which the industry will not be able to operate. Lack of pilots, lack of airplanes – sorry, being delivered late, listen to what Boeing and Airbus has been saying over the last days. So I think even if we wanted to bring more capacity, and I say we, I talk about the industry, not just Lufthansa Group. If we in the industry want to bring more capacity to North Atlantic, we probably will not have it.

Summing up, because we needed somewhere else or it's just not there in the first place. So I see a good profitable summer on the North Atlantic also for next year.

Remco Steenbergen

Stephen, on your second question, of course, Lufthansa Technik, we will deal with that in a very smart way. If we currently look at the interest for taking again, a partial sale into account, then there is a lot and lot of interest. And of course, for a partial sale also the way this is going to be financed for such an entity is also less debt dependent as we expected. We have to see what will come in when we start into the process.

But again, we have to keep in mind that for strategic considerations that overall of Lufthansa Technik from a strategic perspective and valuation over the mid and the long-term is in a better place than we can do it by ourself. And that has, of course, a lot to do with capabilities, which were brought in, in such a transaction. And of course, the valuation for a partial sale is very important to us. But we think with the amount of partial, which are currently interesting, the impact of the current market set should be limited. But again, we have to see when we are there. If it becomes something which is stupid, and of course, we will wait.

Stephen Furlong

Thanks, Remco. Thanks, Carsten and well done again.

Operator

Next question is from the line of Sathish Sivakumar with Citi. Please go ahead.

Sathish Sivakumar

Thanks. Thanks again, Carsten, Remco and Dennis. I've got three questions. So first on the CASK ex-fuel into Q4, your slide on page 11 you say that you will be smaller in Q4 than in Q3, and what does actually the driver, just because you're discounting the ramp-up and strikes and disruption cost out so you expect it to be somewhere similar to say Q2 levels around 6% up? Any color on that, what is going to the driver that it's going to slightly be less than in Q4 would be helpful.

And then what's your booking visibility into Q1 2023? It looks as we speak today versus say Q1 of this year. And then the third one on MRO, any color on what are the trends you're seeing as we go into Q4 on pricing would be helpful here. Thank you.

Remco Steenbergen

I take one and three, Remco here. On number one, yes, you're right, correct. So the Q3 was impacted by, say, one of the more one-offs related to MRO, variable pay catch-up, all the incidentals we had in the operations. So therefore, we expect Q4 to be lower. It's also, of course, that we further make progress on our cost savings, which will come into our P&L that's coming in as well. So therefore, we expected lower than the 9.5% it currently is. I hope it comes close to what you say, what we had in Q2 to more that level. We're also to see what will now happen in the last coming months, but that is certainly something we are targeting for.

With regard to your question three, right, on the pricing, as I said before, the pricing in terms of people and material is going up, because these inflation elements are passed on and we see no change in that situation in Q4 versus Q3.

With the second question, I give it back to Carsten.

Carsten Sophr

Yes. Sathish, on Q1, it's important to understand what I said in my little introduction, we see more and more short-term booking. So it's not just the math you can do between other Q1s to look at the current Q1s and the booking levels. And of course, short-term bookings tend to be good for the industry, because at least in our business model, yields are higher. But we don't see any end of the high yields looking all the way through Q4 and to take that into Q1 why would it suddenly end. So there is some optimism there, not that much based on data, but based on the curves we see and we have seen for Q4 or the other quarters.

And that creates some optimism, as I said, going into the next year. And I think we shouldn't understand -- we shouldn't forget that the recession elements are much stronger potentially in Germany and maybe to a certain degree in Europe than we see in other parts of the world. So I think it's important for us, Europeans, not just to take the headlines of the paper and put that into revenue management, and as our data rather confirms strong forecasting rather than weak.

Sathish Sivakumar

Okay. Yes, thanks, Remco. Thanks, Carsten.

Operator

Next question is from the line of Jamie Rowbotham with Deutsche Bank. Please go ahead.

Jamie Rowbotham

Good morning, gents. Three for me, first also on the capacity, you're being cautious, which at the moment is allowing you to maintain these healthy price premiums versus pre-crisis. Clearly, the hope is that that can continue next year, even in a potentially weaker macro environment, but could you just expand a bit more on any extent to which you're worried about the behavior of other airlines impacting that. Perhaps you could split the answer into thoughts on short-haul and then long-haul?

Second one is, it's related and specific to long-haul. When I look at Transatlantic capacity from Germany in Q4, I hope the data is accurate, I see your ASK is almost 30% below pre-crisis. But I see your Star Alliance partner, United, is putting capacity 20% above with the result that the market sits about 90% of pre-crisis levels. As we head into next year, if demand starts to soften, I mean can you envisage a scenario where you're urging United to pull back a bit in order to protect pricing in that important market?

And then finally, third one much quicker. Could you just expand on the irregularities in air traffic figure, the EUR239 million? Does that include anything for Russia and Ukraine-related impacts at all and if not, is it possible to quantify how much the war has weighed on the performance in Q3, so that we can consider any potential upside should the situation there improve? Thanks guys.

Carsten Sophr

Yes, James. On capacity, I think I've said it before, there is, let's call them operational restrictions. Airplanes around the world, pilot shortage in the U.S., ground staff shortages, especially in Europe. Those things will not go away by next year. That's why I do believe, not that much that the industry has learned to be disciplined on capacity, which especially our shareholders or the industry have been waiting for decades. I don't know how steep that learning progress. It's just that we are now forced to be disciplined on capacity, because we cannot put it into the year.

In North Atlantic, it's true that United has put a lot more in there than we do, partly because we have also seen very good yields on the South Atlantic, in Africa, on the Chinese, sorry, on the Asian markets, which are open to us. So we are not only focusing that much on the North Atlantic, maybe that's a little different in United, but of course as you know, we have a joint venture and we are legally be able to talk about capacity measures and we're doing that while we speak. So, yes, we will continue to have that discussion with United and as you probably know, United also this year published quite a bit more than they were able to fly in the end. So maybe there is a certain element of that in them as well.

On irreg cost numbers maybe Remco has a few more, but indeed and I cannot disclose too much here on this, but yes, there are military elements of Aerospace Structures in Europe, partly some military closures, which cannot be forecasted for security reasons. So, that isn't complexity for air traffic control. And while we expect that lift of military equipment towards Ukraine or towards Poland to go on, we expect that to have an impact also on air traffic control next year.

But we are informed by the Air Traffic Control body MSPs around Europe that of course there is also a learning curve there how to deal with that fact it together with the Military Airforce experts. So I don't expect that to go up rather to go down that effect. Numbers, Remco, we heard maybe from you, I don't think we have any decent number on that question.

Remco Steenbergen

So the irreg cost is really all the operational elements with regard to Ukraine and Russia, perhaps you have to split it. If you think about sales from the airline perspective, of course we lost of sales, right. So -- but that is a very, very limited percentage, correct, so that's in the overall perspective, not material. As we said in Q1, correct, on the MRO side, we had a significant business in Russia. I have to think a couple of hundred million of turnover and that we are losing, correct since that will start actually there, we see the largest impact and unfortunately, because of that we had also quite a large write-off in Q1 of this year.

That I think would be the bigger impact directly related to this. And of course, we have an enormous impact on oil prices, we all know and that will be materially the biggest impact but that's probably not where you're referring to.

Jamie Rowbotham

Got it. Thank you guys.

Operator

Next question is from the line of Muneeba Kayani with Bank of America. Please go ahead.

Muneeba Kayani

Good morning, and thanks for taking my questions. Firstly, on cash flows. So strong cash flows in the nine months and the third quarter. Your guidance is for over EUR2 billion. So how are you thinking about cash flow in the fourth quarter? Do you think it will be negative? And if you could just talk about what movements we should expect from a working capital and CapEx perspective?

Secondly, Mr. Kuehne's stake is now 17.5% officially and he's looking for a board seat. Can you just talk about what your conversations with him and his representatives have been recently? And do you think he would be increasing his stake further?

And the third question on costs, just following up on some of the questions earlier on costs. So when -- in your 2024 EBIT guidance of over 8% -- EBIT margin guidance of over 8%, where do you see ex fuel CASK, compared with 2019? Thank you.

Remco Steenbergen

Yes, Remco here. Let me start, the free cash flow for Q4, we have to understand that there's still a seasonal impact of the prepayments in Q4, which historically is in the range of EUR700 million to EUR800 million. That is an impact, which we will certainly see in Q4. Of course, with the guidance we have given, you see that we expect a positive EBIT in the quarter. We don't expect too much of the working capital, but the really element -- the big element we place a role is the decline of the prepayments. And therefore, the EUR3.3 billion will go down, hence, that we are very confident that we can generate free cash flow for the full-year of above EUR2 billion, correct? So that means that Q4 is indeed negative.

Carsten, for sure, say a little bit more on Mr. Kuehne's stake. Of course, I'm personally very happy with an anchor shareholder in the company, and an anchor shareholder, who is really an entrepreneur and wants to grow a business and create value. I think that's very, very good for Lufthansa and having such an anchor shareholder and we're very much looking forward to work with him and his team.

With regard to the cost ex-fuel in February, March, when we come with our full-year, we will give a little bit more details at this because we're working currently through our budget for next year, as well as the inflationary impact. As you can understand, they work through the system, and we have to see where that lands. But certainly, with regard to our original commitment of the cost reductions in were there, if the inflationary aspect which impact the whole industry, that, of course, impacts that CASK shouldn't impact our competitive position vis-a-vis the cost savings we have. So we look forward very much to come with a very good and attractive CASK going forward, underpinning the 8%, but more detailed information will come in February, March.

Over to you, Carsten, if you want to say something more on Mr. Kuehne.

Carsten Spohr

Yes, sure, Remco. Obviously, we are in very close contact and exchange to all our shareholders. You all know Dennis, that's what he's paid for and that's what he's doing so well, among other things. And of course, especially close to a shareholder with the magnitude of Mr. Kuehne and as Remco said, to have that expression of faith into Lufthansa into our future is great for this company, and I think has sent a very strong signal. And if you own 17.5% of Lufthansa, I think a board seat would be a natural next step.

But when it comes to disclosing details about that or also, of course, disclosing part of the conversation, we will understand that, that is private. And in terms of the board seat, we'll disclose next steps whenever that is appropriate.

Muneeba Kayani

Thank you.

Operator

Next question is from the line of Sumit Mehrotra with Societe Generale. Please go ahead.

Sumit Mehrotra

Thank you. So first a very mechanical one, the fourth quarter yields, do I understand correctly, will be like 23% above 2019 levels or they should be at identical levels, absolute versus for third quarter?

Secondly, SWISS has particularly been at a center of the strong performance for the group. You -- I mean, not only we're helped by the inclusion of the Cargo operations. Should we not see a rationalization next year at SWISS for this extraordinary good yields and cable mix situation that we have into 2023 for SWISS?

And lastly, the working capital difference between now and the 2019, I noticed the slide, still 20% below capacity, but is all of this coming from the very high yields booked in? Those are my three. Thank you.

Remco Steenbergen

Yes, Remco here. With regards to the yield improvement versus 2019, we expect to be Q4 also around 22% to 23% above 2019. Hopefully, that answers your first question.

With regard to SWISS, correct? SWISS is an extraordinary brand in an extraordinary situation and a macroeconomic situation in Switzerland around Zurich, very strong demand. Also a group of people, who quite afford to travel, travel and luxury, pay good prices for this, and the Zurich Airport and also with our slot position, we are very well positioned there. With that, we expect SWISS to further progress next year in profitability versus this year. Despite the fact that Cargo might still come down, you have to see that also volume will go up further next year and also there, there's certain cost savings, which will pay off. So we're very confident on the continued success in SWISS to further progress.

With regard to your last question on the working capital, there is an element of working capital related to the prepayments. And of course, when you think about prepayments, you have also to consider that prepayments go up by 20%, if the yields go up by 20% if you compare it to 2019. And there, we benefit from structurally to get a lower working capital level. Secondly, we've been working quite hard on our DSO positions. But you have to think particularly about Technik and in Cargo and on overdues in this regard.

On payables, the DPOs, historically, Lufthansa are more to 40 days, 50 days, and we are moving that up more in line what you find across the industries. And inventory management in Technik is also progressing through the learning of the crisis and also there, we hope to be in a better position. So all in all, although we are 20% below 2019, even when we move further up, we expect to be in a better position in 2019, which is extremely important, of course, for the right returns and also to reach our '24 target of a ROCE above 10%.

Sumit Mehrotra

Thank you.

Operator

Next question is from the line of James Goodall with Redburn. Please go ahead.

James Goodall

Yes, good morning, everyone. So a couple from me. Firstly, and apologies for a crying baby in the background. So firstly on staff agreements, you helpfully outlined that the 10 CLAs that have been concluded, just wondering if you could run us through which groups still remain outstanding and how these negotiations are progressing?

Secondly, just a follow-up actually on the sale of Technik. I was just wondering if the partial sale would be inclusive or exclusive of your investment in HEICO Aerospace or if you're actually considering that asset separately?

And then thirdly, your U.S. airline counterparts have talked fairly extensively about the structural change in business travel in so far, but it evolved to be more of a blend of business and leisure trips, which is being very beneficial in terms of yields, loyalty and how efficient it uses their networks. I was just wondering if that's a trend that we -- or you guys are seeing in Europe? Thank you.

Carsten Sophr

Yes, James, it's Carsten. On your last part, I will start with that. I think there is indeed a global shift of how people work, how people combine work with their way of life, and we see that as well. When I started in Lufthansa, the strongest day was always Friday. Now it's Thursday and Saturday, that says a lot, I think. So what Scott from United was seeing in terms of -- I think it was Scott -- or any of the U.S. carriers have been seeing, I think we will see that in Europe as well, probably a little later, probably a little less. But indeed, there is such a mix and that offers new opportunities for us. And when you walk through the Business Class cabin nowadays, you don't see necessarily typical business travelers. You see affluent individuals who can afford to travel Business Class, be the long-haul or short-haul.

On staff agreements, we are I think in the last days of concluding something with UFO, our cabin crew union for the main airline, I hear only good things about those negotiations, very constructive. And I already promised the staff that there will be significant improvements on their -- especially lower end of the pay scale. I think they deserve it with the inflation as we have in Germany. So I think this is going to be good, not just for us in terms of stability and going ahead, but also for our very important members of the cabin crews. On kapers, the cabin crew in Switzerland, there is also ongoing talks going on in a good way.

And then, of course, big thing is always pilot negotiations for the two main airlines in Germany, Eurowings Germany and the main airline. They are going separately. As you know, we have gained some pace here with the main airline negotiations until next summer to give ourselves more time for some discussions there. And on the Eurowings, the discussions you probably noticed that after those three days of strike, the management of Eurowings decided to reduce the German part of the fleet by five aircraft. I think that message has been understood and they are now talking about the next steps on that, which I cannot disclose more than that they are discussing currently how to discuss the future. But I think it was clearly heard what happened there last week.

Remco Steenbergen

Let me take the second question on the sale of Lufthansa or the partial sale of Lufthansa Technik, all the business subsidiaries of Lufthansa Technik were part and parcel of such sale, which would then also include the HEICO Aerospace Holding, correct, which is part of the HEICO segment, which is part of the HEICO Group. So it's one of the subsidiaries of the HEICO Group. And we're working very closely together there, but it will be part and parcel of the sale, yes.

James Goodall

Very clear. Thank you very much.

Operator

Next question is from the line of Johannes Braun with Stifel. Please go ahead.

Johannes Braun

Yes, hello, good morning. Thanks for taking my questions. I have two left basically. The first one is, I understand that the CEO position for Edelweiss and also Eurowings Discover has been merged. Just wondering what we should read into that? Is that kind of a prelude to a merger of those businesses as well?

And then secondly, coming back to the Eurowings pilots in Germany, I think I read that they ask for another 14 days off, and you offered 10. I think they also asked for 5 less working hours per week. Just, I mean, maybe you can elaborate a little bit how that will impact the competitive situation of Eurowings and the strategy of Eurowings to actually be a low-cost carrier? Thank you.

Carsten Sophr

[Foreign Language] Indeed, we decided -- let's go ahead one step. We always have said that the blueprint for Eurowings Discover is Edelweiss, who is very successfully adding to the network of SWISS in Zurich as Edelweiss -- sorry, as Eurowings Discover is adding to the network of Lufthansa and Frankfurt and Munich. So to have a very experienced person on top of both will mean we are looking not only for moving from the one successful blueprint to the other, but also, of course, we look for synergies. A clear no, though on a merger, that's not intended and will not happen. Also the brands will be as they are today.

Last but not least, Eurowings, pilot. Yes, I think the answer of the Eurowings management has been very clear. Additional costs result in less routes being profitable, result in less aircraft being needed unless you can lower the cost somehow else. So that's why five aircraft have been taken out. And at the same time, the Eurowings management has considered that the workload was very high this summer for various reasons, including very high level of training and others. I'm not a real expert on the situation there.

So there will be some relief on working conditions for the cockpit crews of Eurowings, which is why there has been an offer because we believe it's a fair offer. But if they would go further, it would endanger the business model, and that's why they have not given in and that's indeed why they were forced to reduce the size of the German fleet by five aircraft, due to additional costs because also strike costs are HR cost. I think people have to understand that. And the way we allocate them in Lufthansa is that we always allocate them to the AOC, which goes on strike, because it wouldn't be fair to punish the rest of the group if some labor group go on strike. So we always consider strike costs to be particular labor costs for the AOC where they occur.

Johannes Braun

Thank you. Maybe just a follow-up on that, talking about strike costs. How much was the strike cost for Eurowings so far?

Carsten Sophr

We would say up to EUR10 million a day. So if you add that all up, gives you a number of EUR30 million, more than Eurowings could afford, which is why they are now smaller.

Johannes Braun

Thank you.

Operator

Next question is from the line of Jarrod Castle with UBS. Please go ahead.

Jarrod Castle

Great. Thanks and good morning everyone. And well done on the 3Q. Just on Sky Chefs, obviously, the profitability year-to-date and 3Q has gone backwards. And I mean, I guess in the report, you talked about restriction and CARES Act. But what is going on there? And is that impacting kind of demand levels for the business in terms of bidders for the business, and coupled with the fact that we've got rising discount rates just getting any views on the bid process?

Secondly, you're paying back government by the end of the year. Government stakes have exited share register. How close are we to dividends or other use of excess funds on the balance sheet? And then you've spoken extensively, and we've seen it in the news a lot about manufacturers struggling to deliver on time fleet. How are you thinking about fleet orders over -- not the near-term, but the medium term. Do you need to kind of put orders in earlier to secure slots? Or is it still -- how you've been preparing in the past? Thanks.

Remco Steenbergen

Let me take the first two questions. With regard to LSG and you look at the profitability, correct? You have to look at LSG in a split between the Americas and Asia, correct? So the Americas profitability, which is also business is fully up and running, it's going very well. But as you know, Asia is still quite down. And there, of course, goes to profitability the other way. That's where we end up on the number, which you have seen in our results.

When you think about the sale process, there's quite some interest in the sale process. Of course, with works going up, this has an impact. We do that evaluation as part of the sales process, but more than that, I can't comment. For the dividend, assuming that the profitability will continue into ’23, which we are clearly expecting. We will be looking to start paying dividends again in ‘24 over ’23, anyway, that is not yet decided, but it is clearly something we will be evaluating to start that again as of ‘24 for ‘23.

With regard to the third question, over to you, Carsten.

Carsten Sophr

Yes, thanks. You were asking if we are securing slots earlier or if we continue to move ahead as in the past, and I think that all is wrong, because Lufthansa Group has always been working with adding options to confirmed orders. So there's a three-digit number of options still out there, which we can convert into fixed orders. So I think it's a good question, but I think my answer basically is that we have always believed here to create some flexibility by adding options to orders. And to convert these options or to renegotiate new deliveries is always a discussion over two parameters. One is money, how much do you have to pay for an aircraft. The other one is slots time of delivery. And our team, of course, works on those two dimensions and parameters to optimize the fleet of the future.

But again, yes, we always will include a significant number of options. And that's why, as you probably know, Lufthansa has following for decades, the strategy of having a constant dialogue with at least Airbus and Boeing rather than making this huge orders and then not to talk to each other for years. We believe in this continuous engagement and that has been served as well. Thank you.

Jarrod Castle

Great. Thanks.

Operator

Next question is from the line of Ashok Kumar with HSBC. Please go ahead.

Ashok Kumar

Yes, hi. Morning, gentlemen. So I had a couple, so first of all, on the yields. So you are expecting to maintain the yield in 2023 at the same level. So what is that, that gives you confidence about the yield? Is it more to do with the business traffic recovery? Or is it because the customer behavior change and now the customers are booking very close? So is it related to the short-term booking window where, of course, the fares are high, closer to the flight? So what is it that exactly gives you confidence on the yield strength?

And secondly, about customers' behavior again. I mean, so you mentioned that the booking window is short, so that must be a bit of a challenge for you to manage your working capital. So how do you see that booking window going ahead? Do you think slowly, you can see the booking window expanding and that will help you in the working capital management? How do you see that going ahead? And how the booking window has changed over the last two years? Thanks.

Carsten Sophr

It's Carsten. Yes, on the yields question, of course, I could go on for probably hours, but we have to come to an end, I understand. Let me repeat a few things I've said. There is a squeeze of supply in the industry for the reasons I stated at least twice. So that usually creates high yields in a healthy demand environment. There's inflation all over the world. Surely, there's also inflation in travel. If you go to the U.S. now, you book a rental car, you book a hotel, you take your family out for lunch, you feel it. So we also see it in this case, not as a consumer, but as a business on the other side. So we see that even affecting higher yields.

And let's be honest, Lufthansa has a very high share of premium travel, First Class, Business Class, Premium Economy. And there's a lot of global wealth around which we are profiting from. And we only have every fourth passenger being coming from Germany, three quarters are coming from other parts of the world, which is why we are not affected by the recession, which probably Germany is entering as much as some other German businesses. With all that, I think we are indeed confident on yields for the next year as well.

Remco Steenbergen

Regarding your second question on the booking window, correct, and what it does for the prepayments, correct? It's probably where you are looking for. Indeed, it is shorter if the booking windows would increase, of course, our prepayments would accordingly increase as well. I think it's too early to say, but that trend definitely will be there, should the booking windows further increase.

Ashok Kumar

Sorry, would you mind giving some more color on the yield in terms of short-haul versus long-haul?

Carsten Sophr

Yes. Here, the pattern remains very much the same as we've also seen in 2021. So yields are not as up as much in short-haul as they are in long-haul, but we have seen increases all across our business over the course of 2022. And we don't see these trends changing anytime soon. So for the fourth quarter, we expect to see a very similar pattern compared to Q3.

Ashok Kumar

Okay. Thanks.

Operator

This concludes our Q&A session. I would like to hand back over to Dennis Weber.

Dennis Weber

Yes, thank you very much for your interest and all your questions. I think we have answered them all. If that's not the case, please let us know and otherwise, we look forward to meeting many of you over the next couple of weeks and months. Have a good day. Thank you. Bye-bye.

Operator

Ladies and gentlemen, this conference has now concluded and you may disconnect your telephone. Thank you very much for joining and have a pleasant day. Goodbye.

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Deutsche Lufthansa AG (DLAKF) Q3 2022 Earnings Call Transcript