ANNUAL REPORT 2017 FINNAIR ANNUAL REPORT 2017 2 CONTENTS 2 About this report 93 Governance 94 Corporate governance statement 2017 in brief 106 Risk management and major risks 3 CEO’s Review 111 Remuneration statement 5 2017 Highlights 118 Board of Directors 119 Executive board 7 Strategy 120 Information for the shareholders 8 About Finnair 9 Operational environment 122 Sustainability 10 Megatrends impacting Finnair 123 Materiality analysis 11 Value creation and strategy 125 Reporting principles 17 Stakeholder engagement 127 Management principles 18 Commitment to Sustainable 133 Economic responsibility development 136 Social responsibility 20 Key Performance Indicators 146 Environmental responsibility About this report and value creation, as well as a review of stakeholder 155 Global Compact content index This report’s intended audience consists of shareholders, engagement and megatrends. In addition, the Annual 21 Finance 156 GRI G4 content index investors, analysts, media, customers, employees, other Report includes a tax footprint statement. The sustainabi- 22 Key figures 160 Independent Practitioners’ interested stakeholders and the general public. Finnair lity section describes Finnair’s management principles and 24 Report of the Board of Directors Limited Assurance Report Group’s core business consists of the airline business. The its materiality analysis process, and the resulting reporting aspects, indicators and data in more detail. 37 Financial Statements purpose of the Annual Report, including its sustainability 85 Calculation of key ratios 161 Contact information section prepared under the GRI G4 reporting framework, 86 Board of Directors’ is to account for the company’s financial, economic, social Finnair has made efforts to facilitate reading its financial and environmental impacts, and to explain their strategic proposal on the dividend statements and to clarify the overall picture that can be business significance. 87 Auditor’s report derived from them. 91 Tax footprint • The notes of Finnair’s financial statements have been Finnair considers sustainability a critical and strategic combined to business related sections. Each section aspect of business performance. Thus, sustainability repor- sets out the accounting principles applied in producing ting is an integral part of its annual reporting framework. these notes together with any critical accounting esti- The report describes Finnair’s material activities in 2017 mates and sources of uncertainty. across all its units. Non-financial reporting required by The • Interesting figures have been highlighted by circling Finnish Accounting Act for the first time for the year 2017 them, and these as well as other highlights are is included in the Report of the Board of Directors in the explained in a text box marked with a star. Finance section of this Annual Report. • Illustrating charts have been inserted in various sections of the financial statements so as to facilitate The Annual Report contains highlights in Finnair’s business understanding the figures. units in 2017, a statement by the CEO, a section on str ategy FINNAIR ANNUAL REPORT 2017 3 CEO’S REVIEW 2017 was an excellent year for Finnair. We succeeded in accelerating growth while improving our result. The turnaround we have achieved in our operations we have succeeded in developing our products and and financial performance is a shared accomplish- services in the right way. Additional revenue, cargo and ment by everyone at Finnair. For this, I wish to thank travel services all saw significant growth. I am especially our personnel who have made an excellent contribution delighted by how Aurinkomatkat Suntours was able to during this period of growth and transformation - and improve its operations during the past couple of years, also during the past hard times. There are one thousand transforming into the largest tour operator in Finland more people working at Finnair now than at the begin- when measured by number of passengers. The recovery ning of 2017. I also wish to thank our customers for their in demand for cargo services was also visible as load continuing trust and support. factors and cargo unit revenue both improved. Our COOL Nordic Cargo terminal, which is partly using own solar The overall favourable market environment in 2017 power, was opened at the end of the year, giving us the supported our growth. Also well-timed increases in possibility to increase cargo volumes and the handling of capacity, the right decisions concerning routes and the special cargo. growth in air travel demand all positively contributed to our passenger traffic. Measured by passenger numbers In 2017, we focused on digitalisation. We have built a and increases in capacity, we were able to outgrow our strong digitalisation team and we have made a good competition in Asian traffic and increase our market start in the transformation of our business. New techno- share. Competition remained intense on routes to logies and digital transformation offer us wonderful new Europe and North America. We opened five new long- opportunities to develop our customer service, to make haul routes in 2017 and added flights to many Asian our operations more efficient and to transform the way and European destinations. Finland is experiencing we work for the better. However, we have just scratched significant growth in tourism, which is why we strongly the surface here. I strongly believe that in the future, increased the number of flights to Lapland. Lapland digitalisation will provide us with completely new busi- will remain the number one destination for our Asian ness opportunities. passengers in the winter of 2018, as it was in 2017. NEW TECHNOLOGIES OFFER US WONDERFUL We also continued the modernisation of our fleet and we Despite the growth in capacity, it was extremely pleasing now have eleven A350 aircraft. The A350 aircraft have NEW OPPORTUNITIES TO DEVELOP OUR that our aircraft were full throughout the year. Record proven to be reliable and have been very well received CUSTOMER SERVICE, TO MAKE OUR passenger numbers, an increase in the passenger load by customers. They have also contributed to an increase OPERATIONS MORE EFFICIENT AND factor and improvement in the Net Promoter Score, in fuel efficiency as expected: fuel consumption per which indicates customer satisfaction, all tell us that available seat kilometre was reduced by 3.2 per cent TO TRANSFORM THE WAY WE WORK. FINNAIR ANNUAL REPORT 2017 4 THIS TRANSFORMATION HAS ALLOWED PROFITABLE GROWTH TO REALLY TAKE OFF AND WE PLAN TO CONTINUE IN THE SAME WAY. ABOVE ALL, GROWTH IS GENERATED FROM OUR CORE BUSINESS, BUT WE ARE ALSO LOOKING FOR NEW AVENUES FOR GROWTH. last year, and consumption as well as CO2 emissions per remained strong despite major investments in our fleet. available tonne kilometre were reduced by as much as Our efforts could also be seen in the trust shown by 6.7 per cent. the stock market in our performance: our share price increased 218 per cent during 2017, and we reached In addition to reducing emissions, we also work acti- the large companies class on the Nasdaq Helsinki stock vely in other fields of sustainability. Finnair is deeply exchange at the beginning of 2018. involved in the international work on sustainability in the aviation industry. Our industry has actively pursued This transformation has allowed profitable growth to the realisation of the goals for sustainable development really take off and we plan to continue in the same way. set by the UN and made use of these goals in suppor- Above all, growth is generated from our core business, ting work in sustainable development. The Air Transport but we are also looking for new avenues for growth. Action Group (ATAG), which represents the whole field Last year, we introduced the Finnair Holidays product in of commercial aviation, published the Flying in Forma- Finland and Sweden, and we are continuing the deter- tion report last year to clarify the importance of these mined development of new products. Interest in the sustainable development goals for our industry, and to Nordic Countries is a rising trend, which is why we are highlight how our industry can make it possible to reach making a strong effort to market the unique Nordic these goals. We were actively involved in the drafting of experience. I believe in the strong growth of air traffic this report because we believe that further cooperation and in the new business opportunities made possible by will help us reach our goals and support our commit- the global travel ecosystem and digitalisation. ment to the UN’s Global Compact initiative.1 Our renewal and growth will continue, and at the begin- We have also been recognised for our work in sustaina- ning of 2018, at a faster pace than ever before. bility. You can read more about this work in the review by our Director of Corporate Sustainability and in the Sustainability section of this annual report. Pekka Vauramo President and CEO The excellent work done by everyone at Finnair was @pekkavau mirrored in the positive development of our finances last year. Our revenue grew by nearly 11 per cent to 2.6 billion euros. Our comparable result more than tripled, reaching 170 million euros, and our balance sheet 1 https://gcnordic.net/about-the-nordic-network/countries/finland/ FINNAIR ANNUAL REPORT 2017 5 2017 HIGHLIGHTS New digital services taken in use Approximately one quarter of Finnair sales come through the company’s digital platform – company internet pages, mobile application and in-flight entertainment system – and Finnair continued to develop these platform. Finnair also took into use new digital services. On Finnair’s flights to and from China, Finnair took into use the popular Alipay mobile payment solution, and also started ticket sales in China through its WeChat account and enabled WePay payments. Finnair took into use a new SkyPay sales system for its inflight Record number of passengers sales, which makes it easier to pay purchases and Finnair increased its passenger numbers by over enables contactless payments.