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1 Finnair Q3 Result 2012 26 October 2012

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Page 1: Finnair IR Q3 EN · 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

1

Finnair Q3 Result 2012

26 October 2012

Page 2: Finnair IR Q3 EN · 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

Content

Finnair Q3 Result, 26 October 20122

• Market environment in Q3

• Business performance and strategy execution

• Outlook

• Financials

Page 3: Finnair IR Q3 EN · 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

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

Page 4: Finnair IR Q3 EN · 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

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

Page 5: Finnair IR Q3 EN · 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

5

Positive trend in business performance strengthens

Finnair’s position in the market

Page 6: Finnair IR Q3 EN · 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

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

Page 7: Finnair IR Q3 EN · 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

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

Page 8: Finnair IR Q3 EN · 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

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

Page 9: Finnair IR Q3 EN · 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

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

Page 10: Finnair IR Q3 EN · 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

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

Page 11: Finnair IR Q3 EN · 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

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

Page 12: Finnair IR Q3 EN · 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

12

Strategy implementation yielding results

Page 13: Finnair IR Q3 EN · 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

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.

Page 14: Finnair IR Q3 EN · 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

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

Page 15: Finnair IR Q3 EN · 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

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

Page 16: Finnair IR Q3 EN · 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

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

Page 17: Finnair IR Q3 EN · 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

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

Page 18: Finnair IR Q3 EN · 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

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

Page 19: Finnair IR Q3 EN · 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

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

Page 20: Finnair IR Q3 EN · 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

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

Page 21: Finnair IR Q3 EN · 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

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

Page 22: Finnair IR Q3 EN · 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

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

Page 23: Finnair IR Q3 EN · 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

Coming Soon...

Finnair osavuosikatsaus, 26.10.201223

Page 24: Finnair IR Q3 EN · 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

Financials

24

Page 25: Finnair IR Q3 EN · 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

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

Page 26: Finnair IR Q3 EN · 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

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%

Page 27: Finnair IR Q3 EN · 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

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

Page 28: Finnair IR Q3 EN · 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

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

Page 29: Finnair IR Q3 EN · 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

Fuel, spot-price development

29 Finnair Q3 Result, 26 October 2012

Page 30: Finnair IR Q3 EN · 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

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

Page 31: Finnair IR Q3 EN · 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

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