Thomas Kropp. Senior Vice President Deutsche Lufthansa AG. 3rd Transatlantic Market Conference Washington, D.C. May 14th, 2007.

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1 Senior Vice President Deutsche Lufthansa AG 3rd Transatlantic Market Conference Washington, D.C. May 14th,

2 Development of oil prices 2006: 66, USD/bbl Settlement Brent IPE, in USD/bbl. *Stand Apr : 73, : 53,63 04/2007: : 37, : 28,45 Lufthansa fuel bill in 2007: 3.5 bn! /2/2003 1/2/2004 1/2/2005 1/2/2006 1/2/2007 Airlines are interested in energy efficiency for economic reasons, but substitutability of kerosene is limited! 2

3 The Climate Discussion Second reason for airlines interest in energy efficiency: Climate change is one if the top issues in public discussion in Europe Public Image: Climate Killer no. 1 3

4 Reality Significance of air traffic oil consumption in 1000 bbs per day Total global oil consumption Aviation!! Source: Judith Patterson, International Civil Aviation and the End of Cheap Oil, Montreal

5 Aviation and supply security In aviation there is no short-term substitute for kerosene. Airlines are vulnerable to supply shortages, strategic reserves not feasible: Price for reserve of 30 days: 600,000 t kerosene x 670 $/t = 404,000,000 $ Holds oil reserve for 90 days 5

6 What has already been achieved Continuous reduction of fuel consumption However, progress is only gradual. Breakthrough technologies are lacking. litres / 100 pkm ,2 % Reduction since l/100pkm Average specific fuel consumption of Lufthansa airplanes in l/100pkm Measures taken include continuous fleet modernization, increased load factor, operational improvement

7 Consequence: Decoupling of growth and fuel consumption / emissions 220% CO TKT 180% 140% NOx UHC Kerosin / CO NOx 102 % 100% Transportleistung kerosene/ CO 2 60% 20% + 30 CO -20% -60% UHC... by continuous investments in new technologies and operative measures. 7

8 Steps ahead Energy efficiency and emission avoidance: An integrated strategy Two main targets: competition-orientated search for Win-Win Options sustainability-orientated fulfilling social expectations Technological advance Improved infrastructure Operative measures Economic instruments Innovation (bodies / material /aerodynamics, engines, electronics) Alternative fuels Better use of the sky Airport infrastructure designed to meet requirements no subsidisations for small airports More efficient airplane sizes Ideal flight routes and speeds Optimised processes on the ground - Emissions trading as addition to other measures which receive the same level pf attention - Voluntary compensation Factors 1 3: Chances for international alliances + cooperation! 8

9 Lufthansa invest > 12 bn. in modern aircraft 15 Airbus A 330/340 In Lufthansa fleet since 2004 Fuel consumption: l/100pkm 27 Bombardier CRJ 900 In Lufthansa fleet since 2006 Fuel consumption: 3.5 l /100pkm 15 Airbus A In Lufthansa fleet from 2008 Fuel consumption below 3.0 l/100pkm (Airbus) 30 Embraer 190 In Lufthansa fleet from 2008 Fuel consumption: about 3.9 l /100pkm 20 Boeing In Lufthansa fleet from 2010 Fuel consumption: about 3.0 l /100pkm 9

10 Operative measures It s the result that counts Modernized Fleet: 12 mn. Invest Effective Engine Wash Reduced fuel consumption and emissions: 33% ( ) 38% ( ) Adjusted speed: 22,500 t kerosene Lighter Seats: 3,800 t kerosene Accurate calculation of fuel demand: 17,150 t kerosene Optimized Freshwater Load: 1,500 t kerosene 10

11 Technological advance: Innovation in airplane engineering Aerodynamics Sharkskin Adaptive Wing Weight Compound Material Fuel savings: up to 3% Fuel savings: 5-15% Fuel savings: up to 3% Engine Design High-Bypass-Engine A 380: RR Trent 900 Intercooled Recuperated Aero-Engine (IRA) Optimized Energy Supply Fuel savings: about 8% Fuel savings: 15-20% Fuel savings: up to 3% 11

12 Technological advance: Alternative Fuels Short-term replacements are not in sight Kerosene will remain the principal aviation fuel in the next years but research is on the way Virgin plans to fly 747 on biofuel in

13 Technological advance: Alternative Fuels Obstacles on the way Hydrogen Large volume, low energy density, difficult storage and handling Ethanol Combustion and freezing point at altitude Biofuel (renewable) Energy density, thermal and storage stability, freezing point, certification, supply F/T synthetic kerosene (GTL, CTL, BTL) Lubrication, energy efficiency, supply Blends of 20% (Biofuel) or 50% (F/T synthetic) with regular kerosene 13

14 Energy efficiency and emissions of different fuel types Only fuels derived from biomass show a satisfactory emissions benefit CO2 emissions ( Well-to-Wing ) 2.88 Index Conventional kerosene = Fuel from crude oil FT GTL FT CTL FT BTL Biofuel Based on: D. Gielen / F. Unander, Alternative Fuels: An Energy Technology Perspective, IEA/ETO 2005 J. Schindler / W. Weindorf, Einordnung und Vergleich biogener Kraftstoffe, LBST

15 Supply 1) Biofuel If the US domestic fleet were to use a 15% biofuel blend 51.5 bn litres fuel 15% biofuel 7.7 bn litres biofuel this would require about 10% of the US farmland (about land area of Florida) 2) Synthetic F/T kerosene Projected demand by 2015: Projected supply by 2015, GTL, CTL, BTL combined: 5.5 mn bbl per day 0.9 mn bbl per day Based on: IATA 2006 BoG Report on Alternative Fuels Boeing, Alternate Fuels for Commercial Aircraft 15

16 Infrastructure Energy Efficiency also depends on political decisions Inefficient transportation caused by the fragmentation of the European aviation infrastructure (e.g. airways, lack of slots) Potential: Over 17 mn. t CO2 saved per year; billions of additional cost caused by the inefficiency of the system Overcapacity arises from political decisions: Subsidisation of aicraft (producer, credit guarantees) Subsidisation of (regional) airports Public support for airlines ( 17 billion in the EU since1991, $ 18 billion in the USA since 2001) Often unlimited access to public finance for Arab and Asian airlines 16

17 Infrastructure EU ATM : 45 % lower performance - 75% higher cost USA ATM airspace: 9,8 million km² EUROPE ATM airspace: 10,5 million km² 1 ATC organisation (civil + mil.) 21 En-route centers 1 Operating system 47 ATC-organisations (civil + mil.) 58 En-route centers 22 Operating systems 900 flight movements per air traffic controler $380 ATM cost / flight 480 flight movements per air traffic controler $667 ATM cost / flight 17

18 The Climate Discussion: blurred perspectives Will a European ETS for aviation bring benefits for the climate? One single lignite power station. 25 mn tonnes p.a. 15 mn tonnes p.a. emits almost twice as much CO2 as the entire Lufthansa fleet! 18

19 Backup 19

20 However: Potential efficiency gains in the aviation sector are limited Source: Vattenfall 3C initiative 20

21 Operative measures Route L888 Used for flights to HKG since 2004 LH Boeing 747 carries additional technical equipment in order to fly LH888 Fuel savings of more than 2 mn. litres kerosene annually 21

22 Infrastructure ATC fragmentation is luxury which costs money, time, and nature Fragmentation (Airports, ATC) Inefficiency Additional cost, fuel consumption, and emissions Example: direct connection Paris - Munich: 680 km. Actually flown distance due to ATC restrictions: 910 km! On average, European connections are 15% longer, intercontinental connections 4% longer due to ATC. Graphics: Air France Annual Report

23 Background: Fuel consumption and emissions of air traffic Significance of air traffic emissions percentage of CO2-emissions caused by intra-eu flights only about 1% of the total emissions within the EU 6000 EU GHG emissions by sector in MT CO Total EU emissions 4000 MTCO Transport Year Aviation!! Source: Frontier Economics: Economic consideration of extending the EU ETS to include aviation, 2006; Greenhouse gas inventory , EC; inventory report 2005, Technical report No 4/