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Finnair Group
Interim Report 1 January – 31 March 2007
An encouraging start to the year
Scheduled Passenger Traffic demand strong,
particularly from Asia
Finnair’s market share growing in international traffic
from Finland
Unit costs fell
Passenger traffic profitability improved
Finnair Technical Services and FlyNordic also clearly
better than previous year
Fuel price stable, but on a high level
FlyNordic joins Norwegian Air Shuttle, creating a
strong Scandinavian airline
Finnair sold FlyNordic to Norwegian
Memorandum of Understanding in April, final deal
during Q2/07
Payment in shares, Finnair’s holding in Norwegian Air
Shuttle rises to more than five per cent
An option allows Finnair to increase its ownership to
around ten per cent by end of 2008
FlyNordic’s charter traffic revenue divided 50/50 until
October 2008
Cooperation agreement between Finnair and
Norwegian in Asian feeder traffic
Efficiency programme takes shape
Target EUR 80 million, of which half is
personnel expenses
Efficiency areas specified in full
Savings weighted towards end of year
Profit impact for 2007 around EUR 40 million
Full financial impact will begin in 2008
Personnel reductions to date ~300; total in 2007,
~600
More than 200 people recruited into Flight Operations
Total number of employees stays nearly the same
Key efficiency areas
Technical Services competitiveness programme
Flight personnel agreements
Savings from support functions
More efficient crew utilisation through network reform
Management of exceptional situation processes
Feeder traffic reform
Mergers in travel agency network (SMT+Area)
Cutting distribution costs
Fuel costs a fifth of turnover
2003:
2004:
2005:
2006:
2007:
10.2% of turnover
12.5% of turnover
15.6% of turnover
19.4% of turnover
~20% of turnover at current price level
and planned traffic growth
Finnair scheduled traffic has hedged 70% of its fuel
purchases for the next six months, thereafter for the
following 30 months with a decreasing level. Finnair
leisure flights hedged 60% of summer traffic
programme’s consumption.
Higher jet fuel prices anticipated
Passenger traffic and
Technical services profitability improved
Q1/2007
Q1/2006
Change %
528.5
480.3
10.0
54.8
40.9
34.0
EBIT excl. capital gains, fair values changes
of derivatives and reorganization of expenses
5.8
-5.1
-
Capital gains
1.9
0.0
-
Fair value changes of derivatives
6.0
-0.1
-
Operating profit/loss (EBIT)
13.7
-5.2
-
Profit after financial items
13.4
-5.2
-
Turnover mill. €
EBITDAR
Unit costs decreased
Change YoY
15
%
Yield (EUR/RTK)
Unit costs (EUR/ATK)
10
5
0
-5
-10
-15
-20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2002
2003
2004
2005
2006
2007
Fuel costs even out
Unit costs of flight operations* c/ATK
Unit costs of flight operations excl. fuel*
c/ATK
Personnel expenses c/ATK
Fuel costs c/ATK
Traffic charges c/ATK
Ground handling and catering €/passenger
Sales and marketing €/passenger
Aircraft lease payments and depreciation
c/ATK
Other costs c/ATK
* excluding fair value changes of derivatives
ATK = Available Tonne Kilometre
Q1/2007
2006
-2.1%
+1.8 %
-3.7%
-3.5 %
+0.2%
-4.1 %
+3.6%
+24.1 %
+1.1%
-3.9 %
+1.7%
-1.0 %
+16.0%
-7.9 %
-3.9%
+1.9 %
-7.6%
-3.1 %
Business growing,
operations systematically rationalised
Personnel
Personnel on average
14000
12000
10000
8000
6000
4000
2000
0
1999
2000
2001
2002
2003
2004
2005
2006
Q1 2007
01/07
10/06
07/06
04/06
01/06
10/05
07/05
04/05
01/05
10/04
07/04
04/04
01/04
10/03
07/03
04/03
01/03
10/02
07/02
04/02
ATK
1000/person
01/02
10/01
07/01
04/01
01/01
Productivity improved
Productivity (incl. Aero and FlyNordic)
(ATK/person) 12 m rolling sum
540
490
440
390
340
290
240
Liquid funds used for investments
Cash flow January-March
Cash flow statement (EUR mill.)
Q1/2007
Q1/2006
1
- 33
-58
-52
-6
-20
-49
-29
-6
-6
Change in liquid funds
-63
-59
Liquid funds at the beginning
273
339
Liquid funds at the end
210
280
Cash flow from operations
Investments and sale of assets
Investments
Change of advances and others
Cash flow from financing
Strong balance sheet
Equity ratio and adjusted gearing
%
Equity ratio
140
Adjusted Gearing
120
100
80
60
40
20
0
2002
2003
2004
2005
2006
Q1 2007
Expansion to Asia continues
Demand grew during Jan-Mar07 by 35.4%, passenger
numbers 29.9%, cargo 19.7%
Passenger load factor 36.8%, business class demand
grew by 38.8%
Asian revenues increased by over 40%
This year sees Indian traffic quadrupled, new
destination Mumbai
This summer 59 flights a week to Asia
Non-stop flights to 10 destinations, six out of which
daily
Growth in different markets in Asia diversifies risk
Capacity will grow by over 30% this year
Long-haul network – 2001
number of weekly frequencies
Tokyo 2
7 New York
Beijing 3
Helsinki
Bangkok 4
Singapore 4
Long-haul network – summer 2007
7 New York
Helsinki
Tokyo 4
Nagoya 4
Osaka 7
Beijing 7
Shanghai 7
Guangzhou 4
Hong Kong 7
Bangkok 7
Delhi 7
Mumbai 5
Share of Asian traffic growing
Scheduled traffic passenger and cargo revenues Q1/2007
Domestic
Europe
3%
18%
37%
42%
Asia
America
Most modern European fleet
Average age of European fleet below four years
29 Airbus A320 family aircraft
New Embraer 170/190 aircraft increase flexibility and
load factors, decrease costs and are eco-efficient
A total of ten smaller and two larger Embraer in fleet,
eight larger aircraft coming
A fleet of eight wide-bodied aircraft
Two new Airbus A340 aircraft annually 2007-2008
oneworld energized
oneworld a high quality and only profitable alliance.
Three new members as of April 1st
• Japan Airlines, largest in Asia and the Pacific
region
• Royal Jordanian, complementing our network in
growing Middle-East market
• Hungary´s Malev will serve as partner in Central
Europe
Appraisal of future development
High degree of hedging will stabilise fuel costs in latter
part of year
Renewal of wide-bodied fleet will begin
New route openings will impose temporary pressure on
Asian traffic load factors
Two MD-11 and four ATRs will be sold
Unit costs will decline further
Restructuring will proceed, results already visible
New collective employment agreements in autumn,
negotiations already under way
Potential to exceed 2005 operational result
Appendices
Profitability is back
Change in EBIT per quarter (Excluding capital gains, fair value
changes of derivatives and reorganization expenses)
MEUR
40
30
20
10
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
-10
-20
-30
-40
-50
2002
2003
2004
2005
2006
2007
Average yield and costs
EUR c/RTK & EUR c/ATK
Yield (EUR/RTK)
120
Unit costs (EUR/ATK)
100
80
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
2002
2003
2004
2005
2006
2007
Aviation Services on black
Excluding capital gains, fair value changes of
Derivatives and reorganization expenses
MEUR
Scheduled Passenger Traffic
Leisure Traffic
Aviation Services
Travel Services
Unallocated items
Total
2007
Q1
2006
Q1
-0.3
5.6
3.3
1.3
-4.1
5.8
-4.4
6.2
-3.6
0.3
-3.6
-5.1
Investments and cash flow
from operations
MEUR
Operational net cash flow
300
Investments
250
200
150
100
50
0
2002
2003
2004
2005
2006
Q1 2007
Aircraft operating lease liabilities
Flexibility, costs, risk management
MEUR
600
500
400
300
200
100
0
2002
2003
2004
2005
2006
Q1 2007
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 March 2007 would have been
116,5%
1
Q
20
02
2
20
02
Q
3
20
02
Q
4
20
02
Q
1
20
03
Q
2
20
03
Q
3
20
03
Q
4
20
03
Q
1
20
04
Q
2
20
04
Q
3
20
04
Q
4
20
04
Q
1
20
05
Q
2
20
05
Q
3
20
05
Q
4
20
05
Q
1
20
06
Q
2
20
06
Q
3
20
06
Q
4
20
06
Q
1
20
07
Q
ROE and ROCE
Rolling 12 months
%
ROE
ROCE
14
12
10
8
6
4
2
0
-2
-4
Emissions trading for air traffic
EU air traffic accounts for only 0.5% of all CO2
emissions in the world
Finnair in favour of emissions trading principles
EU proposal sets airlines at somewhat unequal footings
depending on route network structure
Should be global
Competitively neutral
Investments already made in new technology should
be taken into account
Open emissions trading
Customers can already make
environmental choices when flying
Choose an airline with a modern fleet
Fly in the right direction all the way, without
unnecessary stopovers. Shorter flight routes result in
less emissions
Avoid large, congested airports
By making these choices, fuel consumption and
emissions can drop by at best 30%!
Finnair Financial Targets
”Sustainable value creation”
Operating
profit (EBIT)
EBIT margin at least 6% => 110-120 mill. € in the coming
few years
EBITDAR
EBITDAR margin at least 17% => over 300 mill. € in the
coming few years
Economic
profit
Adjusted Gearing
Pay out ratio
To create positive value over pretax WACC of 8%
Gearing adjusted for aircraft lease liabilities not to exceed 140 %
Minimum one third of the EPS
Finnair’s Financial Targets
Description of targets
Operating profit
(EBIT)
EBITDAR
Economic profit
Adjusted Gearing
Pay out ratio
Turnover + other operating revenues – operating costs
Result before depreciation, aircraft lease payments and capital gains
Operating profit EBIT – Weighted Average Cost of Capital
Interest bearing debt + 7*Aircraft lease payments – liquid funds)
/ (Equity + minority interests)
Dividend per share / Earnings per share
www.finnair.com
Finnair Group Investor Relations
email: [email protected]
tel: +358-9-818 4951
fax: +358-9-818 4092