Annual Report 2020 CONTENTS 3 REVIEW OF THE YEAR 2020 5 THE REPORT OF THE BOARD OF DIRECTORS 44 FINANCIAL STATEMENTS 98 CORPORATE GOVERNANCE STATEMENT 117 REMUNERATION REPORT 122 SUSTAINABILITY APPENDIX Review of The year 2020 will go down in history (160.0) and the result for the period was as the most difficult peacetime year in -523.2 million euros (74.5). the year 2020 commercial aviation’s 100 years of existence. The COVID-19 pandemic has been first and In the spring, we operated with a capacity foremost a human crisis and health crisis of a few per cent only, maintaining critical that has touched hundreds of millions of connections for Finland to key European cities. people. It has also been a severe crisis Even if people did not travel, goods had to for aviation and for the tens of millions of keep moving and we quickly ramped up our people globally whose livelihoods depend on cargo-only operations. All in all, we operated international travel, including us at Finnair. over 1,300 cargo flights during 2020, and Yet in this uncharted territory we have built cargo, supported by the shortage of capacity a path for ourselves through the pandemic. and increased prices in the market, played a For that, Finnair’s Executive Board and the significant role in our revenue. Among other Board of Directors are deeply grateful to things, cargo included goods and equipment the entire Finnair team. The commitment for managing the pandemic. In summer 2020, and resilience of our people during this year we started increasing the number of passenger of challenges is a source of inspiration and flights, but the pandemic situation continued hope. to be challenging and we operated a limited network of approximately 50 destinations and Amid lockdowns and exceptional restrictions 75 daily flights throughout the rest of the year. to travel across countries and continents, airlines suffered massive losses as passenger We paid over 460 million euros in refunds flows diminished. During the year, we carried for cancelled flights to our customers. Our 3.5 million passengers (14.7) and our revenue health-related measures and flexible booking for the year shrank to 829.2 million euros terms enabled travelling for those who (3,097.7); a drop of more than 70 per cent on needed to travel. Customers appreciated our IN 2020, WE RAISED both measures. Our comparable operating actions and our net promoter score (NPS) result was -595.3 million euros (162.8). Our rose to record heights during the year. In the APPROXIMATELY 1.8 BILLION operating result was -464.5 million euros last quarter, our NPS was 52. We are grateful EUROS OF NEW FINANCING for the trust our customers have shown us. 3 ANNUAL REPORT 2020 THE IMPORTANCE OF During the year, we concentrated on securing through reductions, ending of fixed-term The cornerstone of our strategy, the fuel- secure the acceptability of Finnair’s business SOCIAL AND ECONOMIC the continuation of operations and our long- contracts, retirements, and natural attrition. efficient route between Europe and Asia, and its long-term profitability, such as taking term competitiveness in a post-pandemic The job losses are saddening, but necessary. enabled by the location of our Helsinki hub, alternative fuels into use. This change in our RESPONSIBILITIES WAS market that will be different from what it was To support redundant employees find new supports global CO2 emission targets. This articles of association brought sustainability HIGHLIGHTED before the pandemic. Our financing measures jobs, we have collaborated with employment means that Finland and Finnair can bring to the core of our operations, where it were timely and comprehensive with which authorities and training organisations to build solutions larger than their size to climate belongs. we secured our equity and cash position. a comprehensive NEXT programme that has action. The rebuild of our operations enables We raised approximately 1.8 billion euros of started with encouraging results. us to come back better, and we intend to We expect travel to begin to recover from new financing including an oversubscribed ensure that our emissions do not increase at summer 2021 onwards as vaccination rights issue of over 500 million euros. In In making decisions that are crucial for pace with traffic recovery. coverage increases and countries start addition, together with the State of Finland, Finnair’s survival and future, our long-term lifting their travel restrictions. We intend to we are preparing a hybrid loan of up to 400 strategy and Finnair values have been our Year 2020 showed concretely how tightly come out stronger and serve our customers million euros, which awaits EU approval. The compass. The Finnair team have shown their environmental, social, and economic even better when the market starts moving. support from the State of Finland and other ability to renew ways of working in a rapidly responsibilities are interlinked. While CO2 We have enhanced the agility of our shareholders has been critically important in changing environment. Our employee satis- emissions from aviation decreased during operations so that we can act fast when our this situation. faction survey shows that our value of working 2020, tens of thousands of jobs were lost in customers are again ready to travel. together has strengthened during the year. As a aviation and the global travel industry faced We made overarching adjustments to our team, we have grown stronger amidst the enor- severe difficulties. We saw this also in our The year 2020 showed how essential operations and processes during the year mous challenges brought by the pandemic. home market. Air connections provided by it is to balance social, economic, and and reduced costs by over 1.5 billion euros Finnair play a significant role in the Finnish environmental aspects of sustainability. compared to 2019. Of this, 30 per cent In the long-term, only a profitable company can economy, both for export companies and for This is a good guideline also in our rebuild was fuel related. Almost all our personnel shoulder its responsibilities and be a positive the Finnish travel industry. phase, which we start now with the Finnair were furloughed for a part of the year and, force in society. Our key target during 2020 team, our customers, and our partners. We unfortunately, furloughs continue for a was to ensure Finnair’s long-term future, our At Finnair, sustainability is not a separate look forward to welcoming our customers large share of our personnel. Our savings ability to continue to implement our strategy, department or process, but an integral on board again, calling our colleagues at programme, targeting a permanent reduction and our ability to continue to offer excellent part of everything we do. In line with this, Finnair back to work, and being able to of 140 million euros with full run-rate impact flight connections and employment for Finland. we report sustainability as a part of our bring strong value to Finland and to our in 2022, proceeded well as we sought savings We need profitability and investment capability annual report. Finnair’s Annual General shareholders again. from all parts of our operations. With these also for reducing our emissions because new Meeting approved in 2020 an amendment decisions, the number of personnel at Finnair technology plays a key role in solving the to our articles of association, enabling us to Topi Manner, President and CEO decreases altogether by 1,100 persons climate challenge. participate more actively in activities that Anne Larilahti, VP Sustainability 4 ANNUAL REPORT 2020 The Report of the Board of Directors 6 Business model and operational 35 Significant near-term risks and environment uncertainties 10 Financial performance in 2020 37 Seasonal variation and sensitivities in 15 Financial position and capital business operations expenditure 39 Outlook 18 Fleet 40 Performance indicators classified as 19 Strategy implementation alternative performance measures 22 Financial performance 2016–2020 42 Reconciliation of performance 23 Non-financial performance 2020 indicators classified as alternative 28 Changes in company management performance measures 29 Shares and shareholders 43 Other performance indicators 33 Finnair’s risk management principles 5 ANNUAL REPORT 2020 Business model Finnair is a network airline that special- traffic capacity by over 70 per cent meas- ises in passenger and cargo traffic between ured in available seat kilometres (ASK) and, MEGATRENDS IMPACTING FINNAIR’S BUSINESS and operational Asia and Europe. It also offers package thus, total revenue declined by more than environment tours under its Aurinkomatkat-Suntours 70 per cent. Finnair adjusted its operations (later Aurinkomatkat) and Finnair Holidays significantly which resulted in temporary brands. and permanent layoffs impacting almost all personnel during the majority of 2020. Also The cornerstone of Finnair’s strategy is other significant volume-driven, but also its geographical position, which confers a permanent, cost adjustment measures were competitive advantage because it enables introduced to minimise the losses caused by the fastest connections in the growing the very limited operations since Q1 and to market of air traffic between Asia and make sure that the company will be compet- VISION Europe. itive and will operate from a more efficient SHAPING THE cost base when passenger traffic gradually Increasing significance of sustainability Urbanisation WONDERS Finnair’s business is impacted by the four starts to recover. For some time, Finnair will OF TRAVEL WITH YOU megatrends described in the adjacent be a smaller company and, therefore, the picture. They offer numerous opportuni- number of employees was adjusted down- ties, but also add new requirements for wards by approximately 600. conducting business. The timing of the recovery in demand will Finnair’s business is cyclical in nature, and primarily depend on the implementation MISSION in addition to long-term megatrends, it of the vaccination programmes, lifting of INSPIRE YOU TO is heavily influenced by external factors travel restrictions and global acceptance of EFFORTLESSLY CONNECT AND described in the picture on the next page.