Finnair Q3 result info 31 October 2014 CEO Pekka Vauramo CFO Erno Hildén 1
Difficult market environment especially in Finland prevailed 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. Several income currencies weakened against Euro. The price of jet fuel remained high despite its 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, market capacity between Helsinki and Finnair s European destinations grew by approximately one per cent. Market capacity between Finnair s Asian and European destinations grew by 3.3 per cent. Finnair increased its market share in European traffic, while in Asian traffic market share decreased slightly year-on-year.* 2 *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.
Weak domestic market and exchange rate fluctuations contributed to decline in traffic revenues in Q3 North-Atlantic** ASK -6.0 % RPK -8.6 % PLF -2.5 %-p Traffic revenue* -6.8 % Europe ASK 12.1 % RPK 10.8 % PLF -0.9 %-p Traffic revenue* 4.8 % Domestic ASK -0.1 % RPK 0.3 % PLF 0.3 %-p Traffic revenue* -5.1 % Asia ASK -3.7 % RPK -1.2 % PLF 2.3 %-p Traffic revenue* -3.6 % Passenger revenue split 38% 4% 5% 5% 47% Charter traffic ASK -29.9 % RPK -31.8 % PLF -2.5 %-p Traffic revenue* -33.3 % Total ASK -0.7 % RPK -0.5 % PLF 0.1 %-p Traffic revenue* -2.8 % Cargo ATK -3.1 % RTK -0.7 % OLF 1.7 %-p Traffic revenue -3.6 % Asia Domestic North-Atlantic Europe Leisure *Passenger revenue. **Atlantic Joint Business revenue contribution included. 3
Agreements reached with crew 4 Finnair and the Finnish Airline Pilots Association (SLL) reached an agreement bringing 17 million euros in permanent annual savings. In return, protection against redundancies for the next two years and an incentive plan. Finnair and the Finnish Cabin Crew Union (SLSY) reached a savings agreement that brings 18 million euros in permanent annual savings. In return, Finnair protection against redundancies for the next two years, protection from outsourcing, and a pension incentive. Savings impact gradually from 2015 onwards
Target 200 M permanent cost savings almost reached Phase I:140 M Savings reached by 30 September 2014 189 M Total target 200M Other 140 4 49 Phase II: 60 M Pilots* 17 Cabin* 18 Technical & ground services Other employee groups and other savings 5 Realised Phase I additional + Phase II realised savings *Agreements on savings made, not yet realised Remaining target 1 7 8 9
Progress in cost savings did not offset decline in revenues Turnover 622.7 M, -2.2% y-o-y Weak home market demand Currency effects Operational result 26.7 M, -37.8% y-o-y RASK -1.6% Excl. Fx, -0.4% CASK ex. fuel -0.4%. CASK 1.3%. Operational result, M 60 50 40 30 20 10 0-10 -20-30 -40-50 Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 6 * 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.
Focus on pursuing additional revenue with A350s and product upgrades Signature meals and new buy onboard menu, Sky Bistro Lounge renewals New In-flight entertainment system Full flat seats 7 New Economy Comfort package Wireless on-board Airbus 350 XWB
Outlook* for 2014 unchanged Finnair estimates: Its turnover in 2014 to be significantly lower than in 2013. Fuel costs are expected to remain high. Due to delays in the personnel cost reduction negotiations and the decline in unit revenue, 2014 operational result will show a significant loss. *The full outlook can be found from interim report 1 January 30 June 2014 8
Financials 9
Key figures Key figures Q3 2014 Q3 2013 Change % Q1-Q3 2014 Q1-Q3 2013 Change % 2013 Turnover and result Turnover, EUR million 622.7 636.9-2.2 1,731.8 1,839.8-5.9 2,400.3 Operational result, EBIT, EUR million * 26.7 43.0-37.8-27.1 33.0-182.2 11.9 Operational result, % of turnover 4.3 6.8-2,5 %-p -1.6 1.8-3,4 %-p 0.5 Operating result, EBIT, EUR million 23.6 39.8-40.7-31.1 15.8 <-200 % 7.9 Operational EBITDAR, EUR million 80.1 91.4-12.3 133.1 182.1-26.9 210.1 Result before taxes, EUR million 21.2 35.9-40.9-43.7 40.0 <-200 % 26.8 Net result, EUR million 16.6 27.0-38.3-35.4 29.4 <-200 % 22.9 Balance sheet and cash flow Gross investment, EUR million 15.3 12.6 21.6 68.4 50.7 34.8 77.3 Net cash flow from operating activities, EUR million -8.9 38.7-122.9 39.8 128.4-69.0 142.4 Share Share price at the end of quarter, EUR 2.50 3.12 2.77 Earnings per share from the result of the period, EUR ** 0.13 0.21-38.4-0.28 0.23 <-200 % 0.18 Earnings per share, EUR 0.11 0.19-39.8-0.33 0.16 <-200 % 0.11 10 * * Before Hybrid Bond interest
Operational result, M, Q3 2013 vs. Q3 2014 60.0 50.0 7.9 0.9 0.6 0.3 0.3-0.8-1.1-2.5-5.8 40.0-7.8 30.0-8.4 20.0 43.0 10.0 26.7 0.0 11
Revenue, M, Q3 2013 vs. Q3 2014 2.0 0.0-2.0-4.0-6.0-8.0-10.0-12.0-14.0-16.0 0.4 0.3-6.1-13.8-8.4 Other revenue Cargo revenue Travel Services Traffic revenue TOTAL DEV. 12
Segment results: Airline Business* Airline Business turnover 596.2 M Key figures 7 9 2014 7 9 2013 Change % 1 9 2014 1 9 2013 Change % 2013 10 % 3 % Turnover, EUR million Operational result, EUR million Average number of employees 596.2 609.5-2.2 1,645.7 1,745.0-5.7 2,271.9 25.9 43.1-39.9-29.3 30.7-195.5 8.8 4,400 4,883-9.9 4,834 14 % Scheduled traffic Cargo Scheduled traffic development in Q3 Capacity decreased in all traffic categories except Europe. Passenger unit revenues decreased in all traffic areas, mainly due to currency effects. 73 % Other Charter traffic * Includes from 1 Jan 2014 onward aircraft maintenance, Finnair Travel Retail Oy and Finnair s property holdings and the management of properties related to the company s operational activities. 13
Airline business: Q3 RASK & CASK development Unit cost excluding fuel (CASK. excl. fuel) -0.4% Unit revenue (RASK) at constant currency -0.4% Change, % -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% RASK, unit revenue CASK, unit cost CASK, excl. Fuel Fuel cost Staff cost Depreciation & lease costs Traffic charges Maintenance Ground handling Catering Other expenses -7.9 % -1.6 % -1.3 % -0.4 % -3.1 % -3.8 % -2.2 % 1.0 % 0.5 % 3.8 % 9.5 % 14
Segment result: Travel Services Key figures 7 9 2014 7 9 2013 Change % 1 9 2014 1 9 2013 Change % 2013 Turnover, EUR million 44.4 50.1-11.3 161.2 183.2-12.0 251.7 Operational result, EUR million 0.8-0.1 >200 2.2 2.3-2.9 3.1 Average number of employees 669 761-12.1 751 The weakness of the Finnish economy was reflected in home market demand, in both business travel and leisure traffic. Consumers uncertainty was reflected in the demand for leisure travel 15
Operating costs 600 M Fuel largest cost item 4% 3% 3% Change, % 5% Total 0.4 % 5% 30% Fuel -4.3 % 7% Staff costs Ground handling and catering -0.9 % 1.0 % 9% Traffic charges 1.8 % 10% 14% Other rental payments Depreciation -6.5 % 6.4 % 11% Maintenance -1.1 % Fuel Ground handling and catering Other costs Depreciation Leasing Sales and marketing Staff costs Traffic charges Other rental payments Maintenance Tour operations Tour operators -4.6 % Leasing 52.4 % Sales and Marketing -10.9 % Other costs 9.8 % -20% 0% 20% 40% 60% 16
Fuel, spot-price development 17
Revenue currency split Revenue currencies Q3 2014 Revenue currencies 2013 21% 18 % 4% 4% 49% 4 % 5 % 6 % 58 % 10% 10 % 12% EUR JPY CNY USD SEK Other currencies EUR YEN CNY SEK USD Other 18 18
Airbus fleet The first four A350s arrive in H2 2015 9 AIRBUS A319 10 AIRBUS A320 11 AIRBUS A321 8 AIRBUS A330 7 AIRBUS A340 H2 2015 onwards: AIRBUS A350 XWB First four by the end of 2015 Next 7 firm orders by the end of 2017 19
Strong financial position supports business development and future investments % 120 Strong balance sheet M 600 Good cash position 100 80 450 60 300 40 20 150 0 0 20-20 2010 2011 2012 2013 Q3 2014 Equity ratio Gearing Adjusted gearing -150 2010 2011 2012 2013 Q1-Q3 2014 Net cash flow from operations Investments, gross Short term cash and cash equivalents
Fuel cost build up Comparable Q3 fuel cost, M 200 180 160 1 0.5% -8 0-1 -4.5% 0.0% -0.5% Q3/13 hedging loss 2,6 M Q3/14 hedging loss 1,7 M 140 120 100 80 186 177 60 40 20 21 0 Q3/2013 Volume Price Currency Hedging deviation Q3/2014
Rolling hedging policy Hedging positions as of 30 September 2014 Hedging ratio 2014: 75% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% hedge ratio upper lower Finnair hedges jet fuel consumption 24 months ahead within the limits defined in the hedging policy. Finnair s fuel purchases are 72% hedged for the H1 and 50% for the H2 of 2015. 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. 0% 22
Thank you 23