Finnair Q1 result info/media/Files/F/... · – Concern wider use of outsourcing in the cabin service of its long-haul and short-haul traffic. – In the initial stage, the company

FinnairQ1 result info7 May 2014CEO Pekka VauramoCFO Erno Hildén

1 Finnair Q1 2014 tulos 7.5.2014

Finnair Q1 2014 tulos 7.5.20142

Updated mission and strategic targets

Our Mission

3

Offer the smoothest connections in the northern hemisphere via Helsinki, and the fastest and best network to the world in its home market

Create value to our shareholders by providing an attractive return on investment

Our strategic goals

4

Double Asian revenuesby 2020

Grow traffic via Helsinki by utilising Finland’s geographic location

Create shareholder value and be attractive investment

Our path forward

5

The Foundation

Competitive Cost Structure

Leading Commercial Strategy

Safe, Efficient Operations

The Building Blocks

Cargo

The Tools

Network Strategy

FinancingFleet strategy Strategic partnerships

New Digital Finnair


Q1 2014 result

Difficult market environment especially in Finland• The weakness of the Finnish economy was reflected in home market demand, in both business

travel and leisure traffic.• Growth in the BRICS economies, including China, slowed.• Negative exchange rate development of several income currencies.

– The year-on-year depreciation of the yen against euro was significant still in Q1.

• The price of jet fuel remained high despite its slight decrease.• Cargo traffic continued to suffer from overcapacity and negative exchange rate development. • Capacity growth in the market was mostly conservative.

– Measured in seat kilometres, overall capacity between Helsinki and Finnair’s European destinations grew by approximately 4%.*

– Overall capacity between Finnair’s Asian and European destinations grew by some %.* – Finnair increased its market share in European traffic, while in Asian traffic market share remained largely

unchanged from the comparison period.*


*Finnair’s estimate based on MIDT data collected on the sales volumes of travel agencies and Finnair’s estimates of airlines’ sales through their own sales channels, such as websites.

Passenger load factor 78.7%. The weak domestic market, contraction of leisure traffic and exchange rate fluctuations contributed to decline in revenues

8

North-Atlantic**

ASK 8.0%

RPK 2.9%

PLF -3.9%-p.

Traffic revenue* 4.6%

Leisure traffic

ASK -23.0%

RPK -28.1%

PLF -6.2%-p.

Traffic revenue* -24.4%

Europe

ASK 2.9%

RPK 7.6%

PLF 3.2%-p.


Total

ASK -2.9%

RPK -4.0%

PLF -0.9%-p.


Asia

ASK -0.9%

RPK -1.6%

PLF -0.6%-p.


Domestic

ASK 8.5%

RPK 12.0%

PLF 2.1%-p.

Traffic revenue* 2.7%

Cargo***

ATK 39.4%

RTK 36.9%

OLF -1.5%-p.

Traffic revenue 29.4%40%

34%

11%

12%3%

Asia EuropeDomestic LeisureNorth-Atlantic

Passenger revenue split

*Passenger revenue.**Atlantic Joint Business revenue contribution included.

*** Freighter.Finnair Q1 2014 tulos 7.5.2014

One fifth of Finnair’s revenue in the scope of JBAs

• To enable growth, enhance revenues and control capacity.

• Customers can mix and match fares from all participating airlines: best schedules at competitive prices.

• Revenues are shared in relation to capacity shares.

• Atlantic Joint Business from 1 July 2013

• Siberian Joint Business (btw Europe and Japan) from 1 April 2014


Long-haul Joint Business Agreements

Status of savings negotiations and employee consultations• Employee consultation negotiations in admin and support functions

– Focus is on productivity improvements– Possible reduction of 140 employees

• Cabin crew employee consultation negotiations– Concern wider use of outsourcing in the cabin service of its long-haul and short-haul traffic. – In the initial stage, the company plans to outsource the cabin personnel of three long-haul routes at

maximum during this year. In the next stage, Finnair would outsource the cabin service of more than 10 routes.

– The reduction of approximately 540 cabin attendants could be required.

• The deadline for savings negotiations with the Finnish Airline Pilots' Association (SLL) is 13 June 2014. – The targeted annual savings total EUR 17 million, and the savings are sought primarily from renewal of

working time and compensation structures.

• Negotiations for new collective agreements white-collar employees and engineers’ (FYT and FIRY ) are currently in progress.


Target 200 M€ permanent cost savings and cost competitiveness in all cost categories


136Other

Pilots

Cabin

Technical & ground services

23

17

18

8

Phase I:140 M€

Phase II: 60 M€

Realised Remaining target

Total target200M€

4

Other employee groups 17

Phase I additionalsaving reached

Savings reachedby 31 March 2014

163 M€

Progress in cost savings didn’t offset decline in revenues

• Turnover 543.3 M€, -8.4% – a slight decrease in overall capacity, – continued strong contraction in leisure traffic volume, – Asian traffic revenue decline mainly due to exchange rate

fluctuations, and – a decline in home market demand, particularly in business travel.

• Operational result -34.2 M€, -95.1%• RASK -4.0%

– Excluding the effect of exchange rate fluctuations, passenger unit revenue declined by 2.6%

• CASK ex. fuel -0.2%. CASK –1.0 %.

Necessaryto improve profitability


Change from Q1 2013. RASK= Revenue per Available Seat Kilometre.

CASK = Cost per Available Seat Kilometre.

Turnover and operational result decreased yoy

Turnover, M€

0

100

200

300

400

500

600

700

Q1/

10Q

2/10

Q3/

10Q

4/10

Q1/

11Q

2/11

Q3/

11Q

4/11

Q1/

12Q

2/12

Q3/

12Q

4/12

Q1/

13Q

2/13

Q3/

13Q

4/13

Q1/

14Q

2/14

Q3/

14Q

4/14

Operational result, M€


-50-40-30-20-10

0102030405060

Q1/

10Q

2/10

Q3/

10Q

4/10

Q1/

11Q

2/11

Q3/

11Q

4/11

Q1/

12Q

2/12

Q3/

12Q

4/12

Q1/

13Q

2/13

Q3/

13Q

4/13

Q1/

14Q

2/14

Q3/

14Q

4/14

* Operational result (EBIT), excluding non-recurring items, capital gains and changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves.

Outlook for 2014 unchanged

• The ongoing uncertain economic outlook in Europe and Asia is contributing to weak consumer demand in some of our main markets.

• Air traffic is expected to grow moderately in 2014. • Finnair, however, will not be able to benefit from that growth without progress in

its cost savings program and its target cost structure in place.• Finnair estimates its turnover to be close to previous year’s level in 2014.• Fuel costs are expected to remain high. • The outcome of Finnair's on-going cost-saving negotiations will have a significant

impact on financial performance in 2014, and therefore the company will reconsider giving guidance for its full-year 2014 financial performance after the savings negotiations have been concluded.

Finnair Q4 & FY 2013 result. 11 February 201414


Financials

Key figures1–3

20141–3

2013Change

% 2013

Turnover and resultTurnover EUR million 543.3 593.2 -8.4 2,400.3Operational result, EBIT EUR million -34.2 -17.5 -95.1 11.9Operational result, % turnover % -6.3 -3.0 -3.3 %-p 0.5Operating result, EBIT EUR million -28.4 -13.6 -108.4 7.9EBITDAR EUR million 17.4 33.3 -47.7 210.1Result before taxes EUR million -33.9 -18.6 -82.7 26.8Net result EUR million -28.1 -15,7 -79.4 22.9Balance sheet and cash flowCapital expenditure, CAPEX EUR million 33.1 24.1 37.2 77.3Net cash flow from operating activities EUR million -20.5 -11.5 -78.4 142.4ShareShare price at end of quarter EUR 2.69 2.55 5.5 2.77Earnings per share, from the result of the period* EUR -0.22 -0.12 -78.1 0.18Earnings per share EUR -0.24 -0.15 -61.8 0.11

16 Finnair Q1 2014 tulos 7.5.2014

* * Before Hybrid Bond interest

Comparable operational result in Q1, M€


-17,5

-34,2

3,0

9,9

-17,4

5,4

-1,60,0

8,4

-32,311,6

-3,80,2

-40,0

-30,0

-20,0

-10,0

0,0

10,0

20,0

30,0

Segment results: Airline Business*

Key figures 1–32014

1–32013

Change, %

1–122013

Turnover, M€ 508.1 552.2 -8.0 2,271.9

Operational result, M€ -34.5 -20.5 -68.5 8.8

Personnel, average 4,533 5,016 -9,6 4,834


65 %9 %

11 %

15 %

Airline Business turnover 508.1 M€

Scheduled traffic

Leisure traffic

Cargo

Other

Scheduled traffic development in Q1• Available seat kilometres, revenue passenger kilometres and number of

passengers increased in all traffic areas except Asia.• Passenger revenues increased in North Atlantic and Domestic traffic.• Passenger revenues decreased in European and Asian traffic.

* Includes from 1 Jan 2014 onward aircraft maintenance, Finnair Travel Retail Oy and Finnair’sproperty holdings and the management of properties related to the company’s operational activities.

Leisure traffic and Cargo development in Q1

Leisure traffic • Consumers’ uncertainty regarding

their own economic development depressed the overall demand for leisure travel.

• Purchases by tour operators outside the Group declined substantially yoy.

• Cancellation of 2013–2014 winter season tours to Egypt was still reflected in the volumes and revenues for the first quarter.

• Improving cost competitiveness extremely important.

Cargo• Overcapacity in the cargo market put

average yields under increased pressure. • Exchange rate fluctuations weakened the

result, only 30% of cargo revenue in euros.

• Belly cargo accounted for approx. 17% of total long-haul revenue.

• Separate cargo capacity flights* (Hanoi, Hong Kong, New York, Brussels, and Tokyo/w JAL Cargo) approx. 26.5% of total cargo traffic.

• Early signs of a recovery in demand.


*separate wet-leased cargo flights operated by Finnair Cargo.

Airline business: Q1 RASK & CASK development

-4,0 %

-1,0 %

-0,2 %

-2,6 %

-3,2 %

-0,4 %5,7 %

-0,4 %1,7 %

3,7 %

-2,7 %

-5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7%

RASK, unit revenue

CASK, unit cost

CASK, excl. Fuel

Fuel cost

Staff cost

Depreciation & lease costs

Traffic charges

Maintenance

Ground handling

Catering

Other expenses

Muutos, %

20 Finnair Q1 2014 tulos 7.5.2014

• Unit cost excluding fuel (CASK. excl. fuel) -0.2%• Unit revenue (RASK) at constant currency -2.6%

Airline business: Q1 CASK excl. fuel build-up


4,38 4,37

-0,03

-0,020,00 0,00

0,010,01 0,04

4,20

4,22

4,24

4,26

4,28

4,30

4,32

4,34

4,36

4,38

4,40

Q1 2013CASK ex. Fuel

Staff costs Otherexpenses

Depreciation& lease

expenses

Maintenance Groundhandling

Catering Trafficcharges

Q1 2014CASK ex. Fuel

c/ASK

Airline business: Decrease in ASKscontributed to slower unit cost* decline


-7,6 %

-11,3 %-13,9 % -14,1 %

-16,00%

-14,00%

-12,00%

-10,00%

-8,00%

-6,00%

-4,00%

-2,00%

0,00%2011 2012 2013 2014Q1

*Excl. fuel, adjusted for 2010 ash and industrial action. If applied, the effect of new engine overhaul accounting principles on 2010 costs would be MEUR 11 and 0.8% additional decline in cumulative CASK .

Cumulative unit cost decline since 2010, %

Segment result: Travel Services

Key figures 1–32014

1–32013

Muutos, %

1–122013

Turnover, M€ 74.2 81.8 -9.3 251.7

Operational result, M€ 0.3 2.9 -90.3 3.1

Personnel, average 704 787 -10.5 751


• The weakness of the Finnish economy was reflected in home market demand, in both business travel and leisure traffic.

• Consumers’ uncertainty regarding their own economic situation was reflected in the demand for leisure travel a larger share of the package tours was sold at a discount at the last minute, which decreased the unit revenue of package travel.

• Cancellation of winter season travel to Egypt is still visible in Q1 figures.

Operating costs 582.1 M€Fuel largest cost item


Muutos, %

-11,3 %

-20,2 %

10,4 %-10,5 %

-14,8 %

-2,0 %

10,8 %

3,1 %

-0,5 %

-11,4 %

-5,0 %

-5,4 %

-25% -20% -15% -10% -5% 0% 5% 10% 15%

Other expenses

Sales and Marketing

Lease payment for aircraft

Expenses for tour operators

Fleet materials and overhaul

Depreciation

Other rental payments

Traffic charges

Ground handling and catering

Staff costs

Fuel

Total

28%

15%

11%9%

7%

6%

5%

4%

3%2% 10%

Fuel Staff costsGround handling and catering Traffic chargesOther rental payments DepreciationFleet materials and overhaul Expenses for tour operatorsLease payment for aircraft Sales and marketingOther expenses

Fuel, spot-price development


USD / tonnia Jet fuel 31.12.2008–31.3.2014

58 %

10 %

6 %

5 %

4 %

18 %

EUR YEN CNY SEK USD Other

64%7%

5%

5%

3%

16%

EUR JPY CNY SEK USD Other

Revenue currency split

Revenue currencies Q1 2014

26 Finnair Q1 2014 tulos 7.5.201426

Revenue currencies 2013

Fleet financing in Q1

• In Q1, sale and leasebacks of three Airbus 330 aircraft and one A321 Sharklet aircraft completed.– Sale and leaseback of the fourth A330 aircraft to be completed in Q2 2014.

• In addition, Finnair agreed on the sale and leaseback of two A350 aircraft in Q1 2014.

• After Q1, sale and leaseback agreement for the fifth A321 Sharklet aircraft completed and MoUon the sale of three E170 aircraft announced.

• The financial arrangements of A330 and A350 aircraft relate to Finnair’s long-haul fleet renewal program.• Total value of A330 and A350 arrangements 430 M€• In Q1, 107 M€ EIB loan repaid.


The first four A350s arrive in H2 2015

Seats # Own Leased Finance leased

Averageage

Change to LY Orders Options

Narrowbody fleet

Airbus A319 138/123 9 7 2 12,7

Airbus A320 165 10 6 4 11,6

Airbus A321 209/196 10 4 6 8,0 +1 1

Boeing B757 227 0 0 0 16,0 -2

Widebody fleet

Airbus A330 297/271/263 8 1 4 3 4,4

Airbus A340 270/269 7 5 2 11,2

Airbus A350 na. 11 8

Total 44 23 18 3 9,6 -1 12 8

28

Finnair fleet 31 March 2014


Airbus fleet

29

9 AIRBUS A319 10 AIRBUS A321

8 AIRBUS A3307 AIRBUS A340

10 AIRBUS A320


H2 2015 onwards: AIRBUS A350 XWB• First four by the end of 2015• Next 7 firm orders by the end of 2017

Strong financial position supports business development and future investments

0

20

40

60

80

100

120

2010 2011 2012 2013 Q1_2014

Strong balance sheet

Equity ratioGearingAdjusted gearing

%


-150

0

150

300

450

600

2010 2011 2012 2013 Q1_2014

Good cash position

Net cash flow from operationsInvestments, grossShort term cash and cash equivalents

M€

Fuel cost build up


169 161

-2.0% -4.2% -3.6% 4.8%

-3 8-7 -6

0

20

40

60

80

100

120

140

160

180

Q1/2013 Volume Price Currency Hedgingdeviation

Q1/2014

Comparable Q1 fuel cost, M€

• Q1 2013 incl. hedging profit of 4.9 M€

• Q1 2014 includes hedging lossof 3.4 M€

Rolling hedging policy


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%hedge ratio

upper

lower

Hedging positions as of 31 March 2014Hedging ratio 2014: 71%

• Finnair hedges jet fuel consumption 24 months ahead within the limits defined in the hedging policy.

• Finnair’s fuel purchases are 75% hedged for the H1 and 69% for the H2 of of 2014.

• The company protects itself against the risks of currency, interest rate and jet fuel positions by using different derivative instruments, such as forward contracts, swaps and options.

Thank you

33 Finnair Q1 2014 tulos 7.5.2014

Documents

Finnair Q1 result info/media/Files/F/... · – Concern wider use of outsourcing in the cabin service of its long-haul and short-haul traffic. – In the initial stage, the company