Finnair Group
Interim Report
1 January – 30 June 2006
Sense is slowly returning,
even in airline industry
• Many airlines still in shaky financial shape
• Competition remains tough in Nordic countries
• Two airlines have withdrawn from Finnish
market
• Successful airlines have strong economy,
effective strategy and costs in check
• Strong airlines invest in new aircraft with low
fuel consumption
Quarter of structural change
• Finnair’s increasing role in Asia-Europe traffic is
reflected in the company structure
• One-off adjustment costs of structural change
15.2 MEUR, result clearly under last year’s level
• Introduction of new aircraft temporarily
weakened productivity in first half of year
• Average price of flight tickets decreased
• Good development in demand
• Record load factors
Personnel cuts agreed
• 670 jobs will be cut in 2006-2007
• Emphasis on Finnair Technical Services and
support functions
• Planned efficiency measures to bring 80 MEUR
annual cost benefits
• Efficiency measures everywhere in the
organisation
Operations systematically
rationalised
Personnel on average
Personnel
12 000
11 000
10 000
9 000
8 000
7 000
1999 2000 2001 2002 2003 2004 2005
Q2
2006
Structural change
weighed on result
Q2/2006
Turnover mill. €
Q2/2005
Change %
494.6
469.4
5.4
68.2
73.5
-7.2
18.2
30.0
-39.3
Capital gains
1.9
1.8
Fair value changes of
derivatives
0.6
3.5
-82.9
Operating profit/loss (EBIT)
Profit after financial items
5.5
3.3
35.3
36.3
-84.4
-
EBITDAR
EBIT excl. capital gains, fair
values changes of derivatives
and reorganization expenses
5.6
Fuel bill rose by over 50 MEUR
in first half of year
Q2/2006
Q1-Q2/2006
Unit costs of flight operations* c/ATK
+6,5%
+8,3 %
Unit costs of flight operations excl. fuel* c/ATK
+1,4%
+2,1 %
Personnel expenses c/ATK
+8,4%
+5,4 %
Fuel costs c/ATK
-29,7%
+37,4 %
Traffic charges c/ATK
-4,5%
+0,1 %
Ground handling and catering €/passenger
-4,8%
-3,5 %
Sales and marketing €/passenger
-5,2%
-5,7 %
+13,3%
+5,8 %
+9,5%
+8,8 %
Aircraft lease payments and depreciation c/ATK
Other costs c/ATK
* excluding fair value changes of derivatives
ATK = Available Tonne Kilometre
Fuel costs increasing
• 2003:
10.2% of turnover
• 2004:
12.5% of turnover
• 2005:
15.6% of turnover
• 2006: ~20.0% of turnover at current price level and
planned traffic growth
Finnair scheduled traffic has hedged 62% of its fuel purchases
for the next six months, thereafter for the following 18 months
with a decreasing level. Finnair leisure flights hedged 60 % of
winter traffic programme’s consumption.
Realized prices and swap prices
12,00
550
11,00
500
450
10,00
400
9,00
350
8,00
300
7,00
Finnair average price
Fuel tonne price
250
6,00
200
2001
2002
2003
2004
2005
2006 H1
€/ tonne
Average price / RPK
Development of average flight
and fuel price 2001 - 2006
Unit costs +6.5%,
without fuel +1.4%
Change YoY
15
10
% 5
0
-5
-10
-15
-20
2002
2003
2004
2005
2006
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Yield (EUR/RTK)
Unit costs (EUR/ATK)
Most modern European fleet
• Boeing MD-80 aircraft retired from parent
company fleet in July
• Popular new Embraer 170/190 aircraft increase
flexibility, decrease costs and are eco-efficient
• A new Embraer joins fleet monthly until end of
year, four new aircraft next year (total 16)
• Eighth wide-body aircraft, Finnair’s first Airbus 340
took flight in July
• New Airbus A340/350 aircraft replace current
wide-body fleet
Harmonised fleet
Airbus A340/A350
Long haul
- 12-18 aircraft
- 250-314 seats
Airbus A319/A320/A321
Mid haul
- 29 aircraft
- 126-181 seats
Embraer 170/190
Feeder traffic
- 16 aircraft
- 76-100 seats
Strong balance sheet
Equity ratio and adjusted gearing
120
100
% 80
60
40
20
0
2002
2003
Equity ratio
2004
2005
Q2 2006
Adjusted gearing
Group continues to have
strong liquidity
Cash flow January-June
CASH FLOW STATEMENT (EUR mill.) 2006
2005
Cash flow from operations
24
106
-113
-37
Cash flow from financing
72
-10
Change in liquid funds
-17
59
Liquid funds at the beginning
339
251
Liquid funds at the end
322
310
Investments and sale of assets
Asian success continues
• Demand (Jan-June) grew 23.3%, passenger
numbers 24.4%, load factors 3.3%, cargo 17.2%
• New route to Nagoya opened in June and Delhi will
be launched in November. Next year Kuala Lumpur
which is 11th Asian destination.
• Over 100 flights a month to China
• Capacity will grow by 30% in last half of year
• Lie-flat bed seats installed in long-haul business
class
Finnair long haul network
7
2
Tokyo
Nagoya 3
Osaka 6
Beijing 7
Shanghai 7
Guangzhou 4
Hong Kong 5
New York
Helsinki
Bangkok
Singapore
41 flights to Asia per week
7
7
Sustainable competitive edge
based on geography
Most preferred choice
for passengers
needing at least one
stop-over. Examples:
Stockholm
Gothenburg
Oslo
Hamburg
Dusseldorf
Berlin
Stuttgart
Edinburgh
Tallinn
Krakow
Riga
Vilnius
Budapest
Warsaw
Prague
Barcelona
Madrid
Milan
Zurich
Venice
HEL
LON
PAR
CPH
FRA
Finnair favored in reservation systems
AN1A09SEP ARNPVG (=Stockholm-Shanghai)
** AMADEUS AVAILABILITY - AN ** PVG PU DONG.CN
1 AY 892 J9 C9 D9 RL UL Y5 B4 /ARN 2 HEL 2 1425 1620 E0/320
AY 057 J9 C9 D9 I9 RL UL Y9 /HEL 2 PVG 1700 0650+1E0/M11
10:25
2 SK 415 C9 D9 J9 Y9 S9 B9 M9 /ARN 5 CPH 3 1320 1430 E0/321
SK 997 A2 C9 D9 J9 Y9 S9 B9 /CPH 3 PVG 1515 0735+1 0/343
12:15
3 KL1110 J0 C0 Z0 S0 B0 M0 K0 ARN 5 AMS 1300 1505 E0.737
KL895 C4 D4 W4 Y9 T4 K4 H4 AMS PVG 1720 0845+1 0.74M
13:45
4 CA 912 C4 D4 Y4 B4 H4 K4 L4 ARN 5 PEK 1750 0800+1 0.767
MU 583 C4 Y4 V4 Q4
PEK PVG 1140+1 1335+1 0.320
13:45
=> total travel time defines the order of alternatives
Share of Asian traffic growing
Scheduled traffic passenger and cargo revenues Q1-Q2/2006
America
4%
Domestic
17 %
Asia
30 %
Europe
49 %
Finnair significant player
in Europe-Asia traffic
• Two new destinations in long-haul network this
year and recruitment of pilots and cabin crew
• Size of long-haul fleet will grow to meet
demand for Asian traffic
• 1-2 new Asian destinations per year, more
frequencies to existing destinations
• New feeder lines in European network
• Demand remains strong at good price level
• Market share continues to increase, Finnair’s
Asian sales have increased by 60% in Sweden
Assesments for future development
•
•
•
•
•
Passenger and cargo demand continues to grow
Competition remains tight
Flexible capacity => load factors improve
Focus on traffic expansion in Asia
2006 result still expected to be profitable, but
below previous year’s level
• High load factors and strong booking situation give
basis for improved price level
• Better productivity with structural change
• Good conditions for improving profitability in future
Appendices
Slow quarter as predicted
Change in EBIT per quarter
(Excluding capital gains, fair value changes
of derivatives and reorganization expenses)
MEUR
40
30
20
10
0
-10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
-20
-30
-40
-50
2002
2003
2004
2005
2006
Average yield and costs
EUR c/RTK & EUR c/ATK
2002
2005
2004
2003
2006
Yield (EUR/RTK)
Unit costs (EUR/ATK)
Q
2
Q
1
Q
4
Q
3
Q
2
Q
1
Q
4
Q
3
Q
2
Q
1
Q
4
Q
3
Q
2
Q
1
Q
4
Q
3
Q
2
Q
1
100
90
80
70
60
50
40
Development of Group Business Areas
Excluding capital gains, fair value changes of
Derivatives and reorganization expenses
2006
2005
Q2
Q2
MEUR
Scheduled Passenger Traffic
21.7
25.2
1.0
2.4
-1.5
10.6
0.9
2.0
Unallocated items
-3.9
-10.2
Total
18.2
30.0
Leisure Traffic
Aviation Services
Travel Services
Investments and cash flow
from operations
MEUR
250
200
150
100
50
0
2002
2003
2004
Operational net cash flow
2005
Investments
Q1-Q2 2006
Aircraft operating lease liabilities have
grown in line with strategy
500
Flexibility, costs, risk management
450
400
350
300
MEUR 250
200
150
100
50
0
2002
2003
2004
2005
Q2 2006
On 30 June all leases were operating leases. If capitalised using
the common method of multiplying annual aircraft lease payments by
seven, the adjusted gearing on 30 June 2006 would have been
92,6%
ROE
-6
ROCE
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
6
6
5
5
5
5
4
4
4
4
3
3
3
3
2
2
2
2
-3
Q
1
%
Q
ROE and ROCE
Rolling 12 months
15
12
9
6
3
0
Finnair Group Business Units
FINNAIR GROUP
SCHEDULED
PASSENGER
TRAFFIC
Finnair Scheduled
Passenger Traffic
Finnair Cargo
Aero
FlyNordic
Finnair Aircraft Finance
LEISURE
TRAVEL SERVICES
AVIATION SERVICES
Finnair Leisure Flights
Finland Travel Bureau
Suntours Ltd
Area
Finnair Technical
Services
Estravel
Amadeus Finland
Northport – ground
handling
Finnair Catering
Finncatering
Finnair Facilities
Management
Airline structure
• Finnair Scheduled Passenger Traffic
• Long-haul traffic
• European traffic
• Domestic trunk routes
• Finnair Leisure Flights
• Mediterranean, Asia, North and South America
• Aero
• Feeder traffic operator based in Tallinn, Estonia
• The Baltics and Southern Finland
• FlyNordic
• Low cost operator based in Stockholm
• Scandinavia and elsewhere in Europe
Superiority of product
• Direct to 50 international destinations
– No time-consuming transfers at crowded airports
• Best schedules
– Morning-evening concept
• Most punctual in Europe with least
cancellations
• Top class service in Europe
• oneworld – alliance with best quality and
coverage
• New aircraft in European traffic
Finnair Financial Targets
”Sustainable value creation”
Operating profit
(EBIT)
EBITDAR
Economic profit
EBIT margin at least 6% => 110-120 mill. € in the coming few years
EBITDAR margin at least 17% => over 300 mill. € in the coming few
years
To create positive value over pretax WACC of 8%
Adjusted Gearing
Gearing adjusted for aircraft lease liabilities not to exceed 140 %
Pay out ratio
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: investor.relations@finnair.com
tel: +358-9-818 4951
fax: +358-9-818 4092