FINNAIR GROUP INTERIM REPORT JANUARY 1 – MARCH 31, 2011
28. huhtikuuta 2011 1
Key Facts from the First Quarter
1 Industry continues on growth track
• Air Traffic on the rise: – IATA estimate for the capacity growth 6%* in 2011 – Weak Net Profit Margins expected (1.4 %) • External disturbances and overcapacity have a negative effect on the load factors, the fuel cost increase cannot be transferred to ticket prices • Finnair Q1 traffic +12.1% (ASK): – Asian traffic grew 20.2% (ASK) – Asian traffic revenue +23% – Global corporate sales +19%, outside Finland +43% • Finnair Passenger load factor 72.6% – Q4 2010 Strike continued to have an effect on Asian leisure demand during Q1 – Events in Japan , Middle East and Africa affected strongly on the Q1 sales • Cargo continued to develop positively, revenue up by 57% * compared with previous year
Traffic Region Development Q1 2011 vs. Q1 2010
North Atlantic Europe Asia ASK 15,1 % ASK 9,7 % ASK 20,2 % RPK 9,6 % RPK -0,8 % RPK 5,0 % PLF% -3,7 %-p PLF% -6,4 %-p PLF% -10,7 %-p Traffic revenue 18,8 % Traffic revenue 0,4 % Traffic revenue 22,9 %
Leisure traffic Domestic Total ASK -3,1 % ASK 20,0 % ASK 12,1 % RPK -3,8 % RPK 5,1 % RPK 1,7 % PLF% -0,7 %-p PLF% -7,6 %-p PLF% -7,4 %-p Traffic revenue -2,3 % Traffic revenue 9,6 % Traffic revenue 9,4 %
Cargo ATK 62,4 % RTK 42,5 % CLF% -8,7 %-p Traffic revenue 57,0 %
2 We are Investing in Growth and Partnerships • Singapore route launch in May 2011; outlook positive • We are developing our cooperation in feeder fraffic and cargo to enable growth and to increase cost efficiency – Air Berlin cooperation had a good start – In Finncomm Airlines’ partnership arrangements we are seeking a solution in cooperation with an industry partner – American Airlines’ Chicago route launch in May 2011 – Kingfisher connections in India – Qantas/Jetstar offers connections to Australia and New Zealand from our Asian flights – Cargo Joint Venture – cost-efficient cargo capacity from Helsinki to long-haul destinations at the end of the year
We will continue to improve productivity and invest in service expertise
• In our operations, we will focus on business growth areas • Cost-efficiency and additional capacity in European traffic with Airbus A32S cabin retrofit and higher fleet load factor • Catering: industry review of alternative cooperation solutions • Operational efficiencies through process development projects • Improved efficiency in purchasing • Significant service-expertise training and development programme under way
3 Finnair is a quality airline
• We are the leading European airline in level of customer service; customer satisfaction still rising
• Our operational quality is top class, punctuality has returned to a good level, operational quality indicators have improved all along the line
• Competitive advantage from customer service: status of most desired airline in Asia-Europe traffic the goal
• We are developing our service culture and sharpening our service identity
Key figures January - March 2011 vs. 2010 mill. EUR Q1 2011 Q1 2010 vs. PY FY 2010
Turnover 533,7 481,5 10,8 % 2 023,3
Operational result, EBIT -43,1 -26,3 -63,8 % -4,7
Operational result, EBIT, -8,1 % -5,5 % -2,6 %-p -0,2 % % of turnover
EBIT -43,1 -25,9 -66,4 % -13,3
Net profit -33,8 -21,7 -56,2 % -22,8
Capital expenditure (gross) 30,9 68,7 -55,1 % 183,5
4 Jet fuel spot + fwd curve
Cost Structure Q1 2011
Fuel 23 %
Personnel 20 %
Other Costs 10 %
Traffic Charges 9 %
Depreciation and Leasing 7 %
Groundhandling and Catering 7%
Tour operator costs 7%
Other Rents 5%
Maintenance 5%
Sales and Marketing 4%
5 Headcount in decline
Number of Employees Average number of employees
12000
10000
7470 8000
6000
4000
2000
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1 2011
Restructuring of technical services
• In the restructuring the company discontinues the heavily loss- making aircraft base maintenance service offered to external customers • Service provision will in future be focused on line maintenance of the company’s own aircraft • Employee consultations within Finnair Technical Services were completed at the end of March, a reduction of 450 jobs will be implemented by the end of the year • As part of the restructuring, a letter of intent signed on a possible transfer of business of warehouse services • The first-quarter results include a non-recurring personnel expense item of 18.4 million euros for the restructuring
6 Development of operating expenses per ASK, Airline, Change Quarter 1 2011 vs. Quarter 1 2010
c ASK Change %
RASK, tuottorevenue per per ASK ASK -1,3
CASK, costkustannus per ASK per ASK -0,1
CASK ilmanexcl. Fuel pa. -2,5
PolttoaineFuel 7,4
HenkilöstökustannusStaff costs -2,5
LiikennöimismaksutTraffic charges -1,1
Maapalvelu-Ground handling ja catering-kulut & catering exp. -8,0
PoistotDepreciation ja leasing-maksut & lease expenses -6,9
MuutOther kulut expenses 1,3
Change % Q1 2011 vs. Q1 2010
Strong balance sheet Equity ratio and adjusted gearing
% Omavaraisuusaste Oikaistu nettovelkaantumisaste, Adjusted Gearing 120
100
80,6 80
60
40 34,7
20
0 2006 2007 2008 2009 2010 Q1 2011
7 Strategy – From Vision to Implementation
Finnair’s vision 2020
• Finnair’s vision is to be number one in the Nordic countries
• The most desired option in Asian traffic, in the transit traffic between Asia and Europe among the three largest
• Significance of Scandinavia as part of domestic market is growing
• Our growth strategy is based on cost- competitiveness, our success factors are quality, freshness and creativity
8 74 Weekly Departures to Asia in the Summer 2011
Tokio 7 Nagoya 7 Osaka 7 7 New York Soul 7 Peking 7 Shanghai 7
Hong Kong 12 Bangkok 7 Singapore 7
Delhi 6
New destinations and additional flights in European summer season
• Route to Aarhuus opened in cooperation with Sun-Air • Malaga and Toronto become scheduled services, five flights per week • Nice becomes scheduled service, three flights per week • Four flights per week to Ljubljana • Daily connection to Gdansk • Krakow twice per week • Venice three times per week • Stuttgart service increased to two flights per day • Lissabon three flights per week • Service to Pisa starts on May 13, two flights per week • Three flights per week to Bergen via Arlanda from May 22 • Three flights per week to Murmansk in summer from 15 June
9 Outlook for the Year 2011 • Finnair expects that the second-quarter result will be negative
• The results of the second half of the year expected to be positive
• Turnover expected to grow by more than 10% in the full year
• Finnair will continue measures aimed at restoring operational profitability and will explore new means of increasing cost-efficiency
Thank You
10 Operating profit* by quarter
Milj. EUR
60
40
20
0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
-20
-40
-60 2006 2007 2008 2009 2010 2011
* excl. capital gains, fair value changes of derivatives, changes in the exchange rates of overhauls and non-recurring items
Result Q1 2011 vs. Q1 2010
Mill. EUR Q1 2011 Q1 2010 Change %
Turnover 533,7 481,5 10,8
Operating expenses 580,8 511,1 13,6 Profit before depreciation and lease payments, 3,6 20,0 -82,0 EBITDAR* EBIT excl. asset sales, hedging & arrangements -43,1 -26,3
Capital gains and non-recurring items -19,6 0,0 Fair value changes of derivates and changes in the 19,6 0,4 exchange rates of overhauls
Operating profit (EBIT) -43,1 -25,9
Profit before taxes -46,2 -29,4
*excl. capital gains, non-recurring items and fair value changes of derivatives and changes in the exchange rates of overhauls
11 Asia Representing Majority of Scheduled Traffic
Domestic 7 %
Europe 29 %
Asia 58 %
North Atlantic 6 %
Revenue Passenger Kilometers Q1 2011
Over a Half of Traffic Revenue from Asia in Scheduled Traffic (Q1/11) Domestic Europe Asia US 5 % 13 %
Aasia- EurooppaAasia- ViaEurooppa Helsinki >60 % 47 % >50 % 35 %
* Cargo revenue about 20 % of Asian traffic revenue total
12 Finnair Group 2010 Q1 EBIT* to 2011 Q1 EBIT* build up
40,0
30,0 -2,2 -3,7 5,7 20,0 -4,0 -4,9 10,0 20,6 -6,1 -10,3 -43,1 0,0
-10,0 -26,3 26,6 -27,4 -20,0 -43,1
-30,0 -11,2 -40,0
-50,0 ue nue e penses Fuel x Salaries go reven Other exp. r Other rents 2010Q1 EBIT Maintenance ops. E 2011Q1 EBIT Ca Other revenue Traffic Charges Traffic rev ur To * Operating EBIT Ground Handling & Catering
Development of operating expenses, Finnair Group, Quarter 1 2011 vs. Quarter 1 2010
Mill. EUR Change %
Operating expenses +69,8 13,6
Operating expenses excl. Fuel +42,3 10,4
Fuel +27,4 26,1
Staff costs +4,9 4,4
Traffic charges +6,1 13,7
Ground handling & catering exp. +3,7 9,0
Expenses for tour operators +4,0 10,6
Depreciation & lease expenses +0,4 0,8
Other expenses +23,3 18,7
Change % Q1 2011 vs. Q1 2010
13 Development of operating expenses per ASK, Airline, Change Quarter 1 2011 vs. Quarter 1 2010
c ASK Change %
RASK, tuottorevenue per per ASK ASK -1,3
CASK, costkustannus per ASK per ASK -0,1
CASK ilmanexcl. Fuel pa. -2,5
PolttoaineFuel 7,4
HenkilöstökustannusStaff costs -2,5
LiikennöimismaksutTraffic charges -1,1
Maapalvelu-Ground handling ja catering-kulut & catering exp. -8,0
PoistotDepreciation ja leasing-maksut & lease expenses -6,9
MuutOther kulut expenses 1,3
Change % Q1 2011 vs. Q1 2010
Airbus A32S Cabin Configuration Retrofit –Increased Capacity and Productivity
Airbus A319 From 123 to 138 seats +12.2% capacity -10.8% unit cost reduction
Airbus A320 From 159 to 165 seats +3,8 % capacity -3,6 unit cost reduction
14 Key figures of the business segments
Q1 2011 vs. Q1 2010
Travel in m EUR Airline Business Aviation Services Services Turnover 452,3 114,5 106,6
(vs. PY) 12,2 % 3,5 % 6,5 %
Operating result -43,9 2,8 1,1
(vs. PY) -78,5 % 75,0 % 175,0 %
Adj. op. margin -39,9 -15,6 1,1
(vs. PY) 52,9% <-200 % 175,0
EBITDA -19,2 7,5 1,3
(vs. PY) <200 % 34,4 % 93,7 %
Key figures January - March 2011 vs. 2010
31.03. 31.03. 31.12. Change % 2011 2010 2010
Equity ratio % 34,7 34,6 0,1 %-p 36,2 Return on equity (ROE) %, -4,2 -13,4 9,2 %-p -2,7 rolling 12 months ROCE %, rolling 12 months -1,5 -8,3 6,8 %-p -0,4
WACC % 8,0 8,25 -0,3 %-p 8,00
Gearing % 30,0 30,2 -0,2 %-p 27,8
Adjusted gearing % 80,6 91,9 -11,3 %-p 79,6 Liquid assets per revenue 24 % 29 % -0,1 %-p 26 % (12 months rolling) % Interest bearing debt, net, mill. EUR 253,4 251,4 0,8 % 235,1
Market capitalisation, mill. EUR 492,0 557,4 -11,7 % 645,8
Share price, EUR 3,84 4,35 -11,7 % 5,04
15 Cashflow from operating activites Q1 2011 vs. Q1 2010
Cashflow statement EUR million Q1 2011 Q1 2010 Cashflow from operating activities -38.0 -17.9
Cash from investing activities +69.7 +197.1 Fixed asset investments -30.9 -68.7
Change in advances +100.6 +265.8
Cashflow from financing activities -13.6 -108.2
Liquid funds at beginning +294.0 +262.9 Change +18.1 +71.0 Liquid funds at end +312.1 +333.9
Return on equity and capital employed rolling 12 months
% ROE return on equity ROCE return on capital employed 20
15
10
5 -1.5% 0
-5 -4.2% -10
-15
-20
007 009 010 2006 2007 2 2008 2008 2 2009 2009 2 2010 2010 1 2006 2 2006 2 2007 3 2008 4 2009 1 2011 Q Q Q3 2006Q4 Q1 Q Q3 2007Q4 Q1 Q2 Q Q4 2008Q1 Q2 Q3 Q Q1 2010Q2 Q3 Q4 Q
16 Capital expenditure and net operational cashflow
EUR million Net operational cashflow Capital expenditure 400
300
200
100 30.9
0
-38.0 -100
-200 2006 2007 2008 2009 2010 Q1 2010 Q1 2011
Aircraft operating lease liabilities
Milj. EUR 450
400
350
300 253,2
250
200
150
100
50
0 2006 2007 2008 2009 2010 Q1 2011
On 31 March all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments by seven, the adjusted gearing on 31 December 2010 would have been 80,6 %
17 Rolling Hedging Policy
100% hedge ratio upper 80% lower
60%
40%
20%
0%
2 3 4 1 2 3 4 1 2 3 4 1 2 Q Q Q Q Q Q Q Q Q Q Q Q Q
2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014
Change in fuel costs Q1 2011
EUR million
2 150 -24 38 11
100
132** 50 105*
0 Q1/2010 Amount Price Foreign Hedgings Q1/2011 currency
* Includes EUR 12 million hedging loss **Includes EUR 12 million hedging profit
18 Crude oil – speculative positioning on stronger oil is at all time high
Crude oil futures positions in CME
Source: Danske Markets
Capacity, Passenger volume and Load Factor development Q1 y-o-y
Airline Capacity Passenger Load Factor Change volume change change Finnair 12,10 % 1,70 % -7,40 % IAG 11,50 % 8,80 % -1,90 % British Airways 13,90 % 11,90 % -1,9 % Iberia 6,20 % 2,70 % Cathay Pacific 9,80 % -1,60 % -8,80 % SAS 7,60 % 0,20 % -5 % Lufthansa 7,50 % 0,30 % -5,30 % Singapore Airlines 6,40 % -3,60 % -7,60 % Air France-KLM 3,50 % 1,00 % -1,90 % Norwegian 27 % 22 % -3 % Easyjet n. 12 % 11,90 % Ryanair 8 % 8 % -
19 Finnair’s financial targets “Sustainable, value-creating growth”
Operating profit Operating profit margin at least 6% => over 120 milj. EUR
EBITDAR % at least 17% => over EUR 350 million EBITDAR EBITDAR
Financial Target is to generate positive financial added value added value over 8.25 % pre-tax WACC
Adjusted gearing Gearing adjusted for aircraft lease liabilities not to exceed 140%
Dividend ratio At least one third of annual profit to be paid as dividend
20