Finnair Group
Interim Report
1 January – 30 September 2010
Cautious growth in the sector
Demand has gradually returned during this year
Business travel has clearly picked up
Capacity has increased less quickly than demand, so
load factors have improved
Sector’s profit forecast for current year 9 billion dollars
Price level has improved from last year, but is still below
the 2008 level
Next year, growth is expected to increase less quickly
and capacity additions to accelerate
For Finnair, a historically good quarter
First profitable quarter after seven successive loss-making
quarters
Demand and unit revenues improved in the third quarter,
turnover up 26.2%
Operational result, 41.9 million euros, in January-September 2.0
million euros
Efficiency programme reduced unit costs by 3.8%, in first nine
months 7.1%
Scheduled traffic unit revenues improved 23.5% in Europe-Asia
traffic due to increased business travel
Passenger load factor is good
Cargo is clearly profit-making
Cash flow from operations clearly positive
Strong balance sheet and cash position
Operational result improved
Q3/10
Q3/09
Change %
Turnover
mill. euro
551,4
436,9
26,2
Operational expenses
mill. euro
513,9
473,6
8,5
Adjusted EBITDAR*
mill. euro
86,1
15,3
-
Adjusted EBIT* i.e. Operational result
mill. euro
41,9
-32,9
-
One off items/ capital gains
mill. euro
0,3
8,6
-
Changes in fair value of derivatives and
exchange rates in fleet overhauls
mill. euro
8,4
3,7
-
Operating profit/loss (EBIT)
mill. euro
50,6
-20,6
-
Profit before tax
mill. euro
43,9
-24,5
-
*excl. capital gains, changes in fair value of derivatives and exchange rates in fleet overhauls
and non recurring items
A record quarter after
seven loss-making quarters
EBIT* per quarter
MEUR
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 Q2 Q3
-20
-40
-60
2005
2006
2007
2008
*excl. capital gains. fair value changes of derivatives and non recurring items
2009
2010
Positive trend strengthened in unit
revenues and cost development
Change YoY
Yield (EUR/RTK)
%
15
Unit costs (EUR/RTK)
10
5
0
-5
-10
-15
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2005
2006
2007
2008
2009
2010
Efficiency program lowered unit costs
Q3/10
Q3/09
Unit costs of flight operations*
c/RTK
-3,8%
-8,0%
Unit costs of flight operations* excl. fuel
c/RTK
-3,6%
-2,5%
Personnel expenses
c/RTK
-18,3%
+1,5%
Fuel costs
c/RTK
-4,6%
-20,3%
Traffic charges
c/RTK
-0,8%
+0,7%
Ground handling and catering
€/psgr.
+1,3%
-2,2%
Sales and marketing
€/psgr.
+43,8%
-32,8%
Aircraft lease payments and depreciation
c/RTK
-17,2%
+13,8%
Other costs*
c/RTK
+2,5%
-4,9%
* excluding fair value changes of derivatives and non-recurring items
RTK = Revenue Tonne Kilometre
Headcount shrinks
Personnel
Personnel on average
12000
10000
8000
6000
4000
2000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q3
2010
Finnair’s long-haul fleet grows
Harmonised Airbus long-haul fleet,
average age less than three years
Later this year one more A330 aircraft and at turn of year
two more A340 aircraft. Next year a total of 15 long-haul
Airbus aircraft
Five new Airbus A321ER aircraft for leisure traffic 2012-13
Last MD-11 aircraft were sold; one is used in Finnair’s
cargo traffic
Asian strategy stands up
Finnair’s market share in Asian traffic 6%
Asian revenues clearly above European revenues
In August, sales in Japan greater than in Finland
New openings next year
• Daily direct flight to Singapore next spring
• Weekly frequencies to Hong Kong up from 7 to 12
• In spring, additional flights to present Asian
destinations
• After planned capacity increases Finnair is flying over
70 weekly flights to Asia
Cargo traffic rising strongly and with an improving price
level
Consistent growth in Asian traffic
Finnair weekly frequencies to Asia
(summer season average frequencies)
80
70
60
India
SE Asia
50
China
NE Asia
40
30
20
10
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
Summer peak season frequencies per week
2010 2011F
Asian traffic Finnair’s corner stone
Geographical distribution in scheduled traffic
Domestic
3%
Europe
33 %
Asia
57 %
North Atlantic
7%
RPK July-September 2010
Majority of Finnair’s revenues comes
from Europe–Asia traffic
Distribution of passenger and cargo revenues in scheduled traffic Jul-Sep 10
Domestic
4%
5%
Europe
12%
6%
36%
34%
AasiaEurooppa
Via Helsinki
>65 %
54%*
48%*
* Cargo revenues represent 17% of Asian revenues
Asia
US
Funding secured
Funding ensured for the final part of the investment
program
Cash reserves 540 mill. euros
Funding sources totalling over 500 mill. euros
• 1 A330 in Q4 probably operational lease
• Loan-back of TyEL pension fund reserves, 330 mill.
euros remaining
• Unused credit facility of 200 mill. euros signed in June
Cash flow from operations turned to positive
In addition, 200 million euro commercial paper
programme, of which 46 in use
Cash flow improved in Q3
Cash flow statement
Q3/2010
Q3/2009
Cash flow from operations
mill. euro
+46
+1
Investments and sale of assets
mill. euro
-48
+29
mill. euro
-13
-11
mill. euro
-35
+40
Cash flow from financing
mill. euro
-28
+8
Liquid funds at the beginning
mill. euro
569
266
Change in liquid funds
mill. euro
-30
+38
Liquid funds at the end *
mill. euro
539
304
Grossinvestments **
Change of advances and
others
* incl. financial interest bearing assets at fair value
** incl. A330 aircraft lease arrangement
Strong balance sheet after investments
Equity ratio and adjusted gearing
%
Equity ratio
Adjusted Gearing
120
100
80
60
40
20
0
2005
2006
2007
2008
2009
Q3 2010
Full year result in black figures
Capacity will grow by nearly five per cent
Strengthening of demand and average price will continue
as business travel increases
Increased unit costs will undermine profitability
Leisure travel picking up
Cargo demand continues to be strong
Efficiency measures will continue, impact will also depend
partly on early-autumn collective agreement solutions
Final quarter weaker than third
The operational result for the full year is expected to be
in profit
Appendices
Strong growth in traffic
January-August traffic performance
• Scheduled traffic +4%
• Passenger load factor +2%-points
• Asian traffic +11%
• Business class in Asian traffic +34%
• Business class share of long-haul traffic 11%
• Cargo +38 %
Operational result in January-September
slightly on black
Q1Q3/10
Q1Q3/09
Change %
1380,0
9,2
1520,8 1526,0
-0,3
Turnover
mill. euro
Operational expenses
mill. euro
Adjusted EBITDAR*
mill. euro
138,6
9,1
-
Adjusted EBIT* i.e. Operational result
mill. euro
2,0
-133,4
-
One off items/ capital gains
mill. euro
1,4
8,6
-
Changes in fair value of derivatives and
exchange rates in fleet overhauls
mill. euro
-12,0
51,3
-
Operating profit/loss (EBIT)
mill. euro
-8,6
-73,5
-
Profit before tax
mill. euro
-23,4
-80,9
-
1506,4
*excl. capital gains. fair values changes of derivatives and non recurring items
Segment results* Q3
Mill. euro
Airline Business
Aviation Services
Travel Services
Unallocated items
Total
Q3/2010
45,2
2,8
-0,9
-5,2
41,9
* Operating profit. excluding capital gains, fair value changes of
derivatives and non restructuring items
Q3/2009
-24,8
-4,7
-0,4
-3,0
-32,9
Segment results* January–September
Mill. euro
Airline Business
Aviation Services
Travel Services
Unallocated items
Total
Q1-Q3/10
10,0
6,7
-2,1
-12,6
2,0
* Operating profit. excluding capital gains, fair value changes of
derivatives and non restructuring items
Q1-Q3/09
-116,0
-2,6
-5,5
-9,3
-133,4
Trend in profitability turned
Change in EBIT* per quarter
MEUR
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 Q2 Q3
-20
-40
-60
-80
2005
2006
2007
2008
*excl. capital gains, fair value changes of derivatives and non recurring items
2009
2010
Cash flow improved in January-September
Cash flow statement
Q1-Q3/10
Q1-Q3/09
Cash flow from operations
mill. euro
+48
-114
Investments and sale of assets
mill. euro
-125
-275
mill. euro
-156
-338
mill. euro
+31
+63
Cash flow from financing
mill. euro
+9
+301
Liquid funds at the beginning
mill. euro
607
392
Change in liquid funds
mill. euro
-68
-88
Liquid funds at the end *
mill. euro
539
304
Grossinvestments **
Change of advances and
others
* incl. financial interest bearing assets at fair value
** incl. A330 aircraft lease arrangement
1
Q
20
2 05
2
Q 00
5
3
20
Q
4 05
2
Q 00
5
1
20
Q
2 06
2
Q 006
3
2
Q 00
6
4
20
Q
1 06
2
Q 00
7
2
20
Q
3 07
2
Q 007
4
2
Q 00
7
1
20
Q
2 08
2
Q 00
8
3
20
Q
4 08
2
Q 00
8
1
20
Q
09
2
2
Q 00
9
3
20
Q
4 09
2
Q 00
9
1
20
Q
2 10
2
Q 01
0
3
20
10
Q
ROE and ROCE
Rolling 12 months
%
ROE
ROCE
20
15
10
5
0
-5
-10
-15
-20
Investments and cash flow
from operations
MEUR
Operational net cash flow
Investments
400
300
200
100
0
2005
-100
-200
2006
2007
2008
2009
Q3 2010
Aircraft operating lease liabilities
Flexibility. costs. risk management
MEUR
600
500
400
300
200
100
0
2005
2006
2007
2008
2009
Q3 2010
On 30 September all leases were operating leases. If capitalised using
the common method of multiplying annual aircraft lease payments by
seven, the adjusted gearing on 30 September 2010 would have been
90.0%
Fuel price development levels off
Finnair has a rolling hedging policy
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3
Fuel cost change in Q3
MEUR
150
9
-3
100
50
-18
21
Incl.
hedging
cost of
-6 MEUR
Incl.
hedging
cost of
-24 MEUR
117
108
0
2009Q3
Volume
Price
Currency
Hedging
Deviation
2010Q3
Finnair Financial Targets
”Sustainable value creation”
Operating
profit (EBIT)
EBITDAR
Economic
profit
EBIT margin at least 6% => over 120 mill. €
EBITDAR margin at least 17% => over 350 mill. €
To create positive value over pretax WACC of 8.25%
Adjusted
Gearing
Gearing adjusted for aircraft lease liabilities not to
exceed 140 %
Pay out ratio
Minimum one third of the EPS
www.finnair.com/group
Finnair Group Investor Relations
email: investor.relations@finnair.com
tel: +358-9-818 4951
fax: +358-9-818 4092