1
Finnair Q3 Result 2012
26 October 2012
Content
Finnair Q3 Result, 26 October 20122
• Market environment in Q3
• Business performance and strategy execution
• Outlook
• Financials
Market Environment
• The global economy remains fragile, slow growth expected throughout 2012 in most economies. The main downside risk of substantial deterioration of the Eurozone remains, while economy in China appears to stabilize.
• According to IATA, airline performance remains challenging; – Historically airlines have slipped from profit to loss whenever GDP growth has fallen below
2%. – Oil price developments and expectations for the rest of the year have also left IATA’s 2012
forecast unchanged at $110 a barrel, an historically high level. – The modest improvement in 2012 airline industry profits is due to better airline
performance, and also due to more robust demand to travel earlier this year.– Consolidation is producing positive results.– Asset utilization in the passenger business is high across many markets. – In past cycles, passenger load factors and aircraft utilization have fallen by this stage, in
the face of slowing demand and increasing aircraft deliveries. – In this cycle, airlines have kept both load factors and aircraft utilization high, allowing
yields to improve and spread fixed costs more widely. – Weaker cargo market has, however, seen asset utilization fall.
Finnair Q3 Result, 26 October 20123
Consolidation continues in the industry
• Alliance landscape is changing– Qatar to join Oneworld alliance, Middle-Eastern airlines active in
partnering with legacy carriers
• Market exits in short haul traffic
• Legacy carriers continue to restructure their loss-making short haul operations
Finnair Q3 Result, 26 October 20124
5
Positive trend in business performance strengthens
Finnair’s position in the market
Strong Q3 performance
• All time high Q3 Turnover and Operational EBIT – Turnover 650.3 M€ (+7.1%), EBIT 48.9 M€ (+77.2%)
• Stable financial position– Net cash flow from operations 44,5 M€ in July-September– 402.9 M€ short-term cash and cash equivalents (approx. 18% of
annual turnover)
• Notable improvements in traffic performance:– Load factor +3.9% -p– RASK +7.8%– Top performance in punctuality, over 90% of flights arrived on time
Finnair Q2 Result, 10 August 20126
Turnover growth continued while EBIT* improved by 77.2%
Quarterly turnover, € million
7 Finnair Q3 Result, 26 October 2012
Quarterly Operational EBIT, € million
-60
-40
-20
0
20
40
60
2008 2009 2010 2011 2012
Q1 Q2 Q3 Q4
0
100
200
300
400
500
600
700
2008 2009 2010 2011 2012
Q1 Q2 Q3 Q4
*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
Operational EBIT build-up in Q3 2012
8 Finnair Q3 Result, 26 October 2012
27,6
48,9
11,0
5,8-2,4
-4,6
-6,1-6,2
-35,3
49,2
12,7
8,6
-11,4
0,0
20,0
40,0
60,0
80,0
100,0
120,0
140,0
Milj. Eur
Operational EBIT build-up YTD 2012
Finnair Q3 Result, 26 October 20129
-29,3
38,6
22,7
20,6
11,0
-21,1
-18,1
-1,7
-96,3
147,7
11,111,5-19,3
-50,0
0,0
50,0
100,0
150,0
200,0
250,0
10
Unit revenue improvement continues
Q3 RASK+7.8%
PLF +3.9%-p
RPK yield +2.3%
Finnair Q3 Result, 26 October 2012
• Unit revenue per available seat kilometre (RASK) up by 7.8% in Q3 as both passenger load factor (PLF, +3.9%-p) and yield per revenue passenger kilometre (RPK yield, +2.3%) improved y-o-y
Strong traffic performance in Q3 2012
North America
ASK 1,3 %
RPK 1,9 %
PLF 0,5 %-p
Traffic revenue* 8,1 %
Leisure traffic
ASK 23,6 %
RPK 29,9 %
PLF 4,5 %-p
Traffic revenue* 24,2 %
Europe
ASK -0,5 %
RPK 9,2 %
PLF 6,9 %-p
Traffic revenue* 12,2 %
Total traffic
ASK 3,4 %
RPK 8,6 %
PLF 3,9 %-p
Traffic revenue* 11,0 %
Asia
ASK 4,3 %
RPK 6,4 %
PLF 1,6 %-p
Traffic revenue* 11,4 %
Domestic
ASK -9,5 %
RPK 2,6 %
PLF 7,4 %-p
Traffic revenue* -9,4 %
Cargo
ATK -41,7 %
RTK -26,3 %
OLF 17,0 %-p
Traffic revenue -30,3 %
Asian share 52.3% of the total capacity
* passenger revenue
11Finnair Q3 Result, 26 October 2012
51 %32 %
5 %5 %
7 %
Asia
Europe
Domestic
North Atlatic
Charter
Passenger revenue split
12
Strategy implementation yielding results
Finnair has strong presence in Asian key economies, weekly frequencies*
Finnair Q3 Result, 26 October 201213
27
50
34
2429
Finnair Lufthansa Air France KLM IAG
China Japan
Republic of Korea
6
13
7 7
Finnair Lufthansa Air France KLM
2428
2116
Finnair Lufthansa Air France KLM
7
12
7 7
Finnair Lufthansa Air France KLM
Singapore
• *Finnair is the 3rd largest carrier in its destinations, estimated market share of 5.9%.• Market size of 20 million transfer passengers annually, globally one of the fastest growing traffic areas. • Traffic between Europe and China forecasted to triple during the next 30 years.
Targeted savings of 80 M€ already achieved, 90 M€ by the end of the year
Finnair Q3 Result, 26 October 201214
Savings progress to targetTotal target 140 M€
155%
38%
148%
109%
105%
102%
43%
26%
62%
57%
74%
0% 20% 40% 60% 80% 100% 120% 140% 160%
Fuel
Groundhandling
Catering
Sales anddistributi…
Leasing
Othercosts
Personnel
Maintenance
25 %
24 %
14 %
10 %
9 %
8 %
8 %2 %
Maintenance PersonnelOther costs LeasingSales and distribution CateringGround handling Fuel
Fleet
New 60 M€ savings program launched
• Despite the good advancement of the structural change and cost reduction program as a whole, the company has not progressed as planned in all its savings categories– Finnair still has a long way to go to reach its long-term target
operating profit margin of 6 per cent– In the face of high fuel prices, intensifying competition and
significant fleet investments in the coming years, the company must achieve a marked improvement in profitability.
• New cost reduction program published with the aim of achieving a permanent reduction in costs of a further 60 million euros by the end of 2014
Finnair Q3 Result, 26 October 201215
Achievements so far
• Fleet optimisation in European traffic: 11.5 M€ savings– discontinuation of 4 A320 series aircraft lease agreements and subleasing 5 E170 aircraft– Fleet leasing contracts renegotiated and renewed
• Improved route planning and aircraft utilisation– Low performing routes discontinued, average aircraft utilisation up by over an hour a day to
9 hours
• Partnerships in non-core areas for improved cost efficiency
• Support functions streamlined
• Centralized procurement in place– cost savings so far 16 M€
• Faster check-in with automation
Operation Partner Status
European Airbus traffic Analysis on-going
European Embraer traffic Oct 2012
Domestic traffic Oct 2011
Catering Aug 2012
Engine and component maintenance
Jul 2012
Ground handling Nov 2011
Partnerships an integral part of restoring profitability
17 Finnair Q3 Result, 26 October 2012
Flybe cooperation brings cost benefits
• Contract Flying for Finnair:– Finnair purchases 100% of seat capacity in Flybe-operated ATR-72 and Embraer
190 aircraft– Finnair network planning, pricing, revenue management, marketing and
commercial risk– Flybe on board product on ATR aircraft– 10 international and 5 domestic routes
• Contract flying effects on the P&L– A proportion of staff costs and fleet maintenance reserves will shift to ”other
rental payments” inside the P&L– No changes in fuel, traffic charges, ground handling, catering and maintenance
cost book entries– No decreasing effect on the top line
18 Finnair Q3 Result, 26 October 2012
Flybe Nordic already the 4th largest operator in the Nordic and Baltic Countries*
• Leading regional carrier in the Nordic and Baltic Countries– Turnover of 102 million euros in 2011– Approx. one million passengers
during the first year– Over 600 employees in Finland in
October 2012 – Number of employees has doubled
during the first year of operations, growth continues
– 34 aircraft
Finnair osavuosikatsaus, 26.10.201219
* Measured in the number of flights
Distinct products for different traffic areas
Finnair Q3 Result, 26 October 201220
LONG HAULAsia & North America
SHORT HAULFeeder traffic, European major routesJV and/or tactical partnerships possible
Feeder traffic, European niche routesEmbraer contract flying / *
REGIONAL TRAFFICDomestic and some Nordic routesATR contract flying / *
* Finnair owns 40% of Flybe Nordic
Fleet renewal is key for successful strategy implementation
Finnair Q3 Result, 26 October 201221
• Fleet investments reduce unit costs and improve fuel efficiency
• More capacity and lower seat cost with next generation aircraft
• Airbus 350 XWB from H2 2015
• Up to 18% more capacity: from 270 seats to 310-320 seats
• Estimated seat cost -30% compared to Airbus 340
• Improved revenue position with superior product
• 11 orders and 8 options
Outlook for 2012
Guidance on 26 October 2012:• Finnair estimates that the operational result for the second half of the year, which is stronger
than the first half of the year due to seasonal variations, will reflect improved profitability compared to the first half of the year, leading to a profitable operational result for the full year 2012.
• The outlook for the world economy is still uncertain, and Finnair will adjust its passenger traffic capacity with its current structure according to demand. Finnair estimates that this capacity will increase on last year but less than 5 per cent. The growth will mainly come from Asian traffic, where Finnair increased capacity in May by opening a new flight route to Chongqing, China.
• Finnair’s fuel costs are still estimated to be significantly higher in 2012 compared to the previous year due to increased capacity and high fuel prices.
• Cost reductions of approximately 90 million euros out of the structural change and cost reduction program’s total target of 140 million euros are expected to be achieved by the end of 2012. Finnair estimates that unit cost (CASK) excluding fuel will decrease year-on-year in the second half of the year.
22 Finnair Q3 Result, 26 October 2012
Coming Soon...
Finnair osavuosikatsaus, 26.10.201223
Financials
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Key figures Q3
Key Figures Jul-Sep 2012
Jul-Sep 2011
Change %
FY 2011
Turnover and result
Turnover EUR million 650,3 607,2 7,1 2 257,7
Operational result, EBIT EUR million 48,9 27,6 77,2 -60,9
Operational result, % turnover % 7,5 4,5 - -2,7
Operating result, EBIT EUR million 71,1 10,6 > 200 % -87,8
EBITDAR EUR million 97,8 75,8 29,0 139,6
Result before taxes EUR million 67,3 3,1 > 200 % -111,5
Net result EUR million 50,8 1,9 > 200 % -87,5
Capital expenditure, CAPEX EUR million 7,4 121 -93,9 203,9
Net cash flow from operating activities EUR million 44,5 -1,2 > 200 % 50,8
Share
Share price at end of quarter EUR 2,07 2,94 -29,6 2,30
Earnings per share EUR 0,43 0,00 - -0,75
25 Finnair Q3 Result, 26 October 2012
Airline business: RASK & CASK development Q3 2012
7,8 %
6,1 %
-1,1 %24,6 %
-1,4 %
-9,6 %
9,5 %
3,4 %
-6,4 %
-10,6 %
1,5 %
-15% -11% -7% -3% 1% 5% 9% 13% 17% 21% 25%
RASK, unit revenue
CASK, unit cost
CASK, excl. Fuel
Fuel cost
Personnel
Depreciation & leasing
Traffic charges
Maintenance
Ground handling
Catering
Other costs
Change, y-o-y, %
26 Finnair Q3 Result, 26 October 2012
• Unit revenue per available seat kilometre (RASK) up by 7.8%• Unit cost per per available seat kilometre excluding fuel (CASK, excl. fuel)
down by 1.1%
Fuel costs continued to climb in Q3 2012
Operational costs
580,8 621,7
557,2 586,1
584,2603,5
613,4
0
500
1000
1500
2000
2500
2011 2012
Q1 Q2 Q3 Q4
Mill. Eur
132,8 167,6131,7 157,9144,3
179,6146,4
0
500
1000
2011 2012
Q1 Q2 Q3 Q4
Mill. Eur
2.335.6
555.2
+3.3%
+24.5%
* Hedging taken into account
Fuel cost +24.5 % y-o-y*• The share of fuel costs 30%
27 Finnair Q3 Result, 26 October 2012
Fuel and personnel biggest cost items in Operational costs Q3 2012, total of 603.5 Mill. Eur
Finnair Q3 Result, 26 October 201228
Change, y-o-y, %
29,8 %
16,2 %
10,3 %
10,2 %
8,9 %
6,1 %
5,4 %
4,6 %3,1 %
2,8 % 2,7 %
Fuel Personnel
Ground handling and catering Traffic charges
Other costs Maintenance
Depreciation Other rental payments
Sales and marketing Tour operations
Aircraft leasing
-7,4 %
-39,6 %
-13,4 %
-23,8 %
6,5 %
14,2 %
-6,3 %
11,0 %
22,6 %
-11,5 %
24,5 %
3,3 %
-40% -20% 0% 20% 40%
Aircraft leasing
Tour operations
Sales and marketing
Other rental payments
Depreciation
Maintenance
Other costs
Traffic charges
Ground handling and catering
Personnel
Fuel
Total
Fuel, spot-price development
29 Finnair Q3 Result, 26 October 2012
Hedging successful at 7 M€ profit
30 Finnair Q3 Result, 26 October 2012
Fuel cost build up LTM
144*
180**
10-10
2115
0
50
100
150
200
Q3/2011 Volume Price Currency HedgingDeviation
Q3/2012
Mill. EUR
*Incl. Hedging profit of 22 Mill. EUR *
**Incl. Hedging profit of 7 Mill. EUR *) and emission trading cost of 0,8 Mill. EUR
Rolling hedging policy
Hedging positions, 30 September 2012 Hedge ratio H1 2013: 69%
31 Finnair Q3 Result, 26 October 2012
• Finnair hedges jet fuel positions 24 months ahead within the limits defined in the hedging policy
• Finnair is 74% hedged for the next six months
• 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