Finnair Group
Interim Report
1 January – 30 September 2006
Industry faces challenges
despite lower oil prices
• Lower oil prices pave the way for better
profitability
• Competition remains tough in Nordic
countries, but unprofitable routes already cut
• Two airlines have withdrawn from Finnish
market
• Strong airlines invest in new aircraft with low
fuel consumption
• New security procedures add costs
Weak third quarter
•
•
•
•
•
•
Demand still strong
Record load factors
Increasing Business Class demand
Fuel expenses up 25 MEUR
Decreasing unit costs
Aviation Services and Leisure Traffic below
targets
• FlyNordic´s operating result in profit
Restructuring programme
well underway
• Planned restructuring programme to bring 80
MEUR annual cost benefits
• 670 jobs will be cut in 2006-2007
• Emphasis on Finnair Technical Services and
support functions
• Efficiency measures and flexibility also include
pilots and cabin staff, negotiations underway
• Finnair Facilities Management to be outsourced
• Owner- and partnership options are being
explored for Northport Oy and its subsidiaries
Operations systematically rationalised,
Asian growth requires more personnel
Personnel on average
Personnel
12 000
11 000
10 000
9 000
8 000
7 000
1999 2000 2001 2002 2003 2004 2005
Q3
2006
Result pressed
by fuel and support services
Q3/2006
Turnover mill. €
EBITDAR
Q3/2005
Change %
515.4
479.7
7.4
69.8
71.0
-1.7
25.7
-12.5
-83.3
EBIT excl. capital gains, fair
values changes of derivatives,
reorganization expenses,
depreciation and rents
22.5
Capital gains
0.1
0.6
Fair value changes of
derivatives
-7.9
5.8
Operating profit/loss (EBIT)
Profit after financial items
14.7
13.5
32.1
36.2
-54.2
-62.7
Unit costs fell
Q3/2006
Q1-Q3/2006
-4,7%
+3,6 %
Unit costs of flight operations excl. fuel* c/ATK
-10,0%
-2,3 %
Personnel expenses c/ATK
-12,0%
+2,8 %
Fuel costs c/ATK
+15,5%
+29,3 %
Traffic charges c/ATK
-4,7%
-1,5 %
Ground handling and catering €/passenger
-2,0%
-2,3 %
-10,9%
-7,8 %
-7,0%
+0,2 %
-10,0%
-4,5 %
Unit costs of flight operations* c/ATK
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
Fuel bill up with almost 80 MEUR
• 2003:
10.2% of turnover
• 2004:
12.5% of turnover
• 2005:
15.6% of turnover
• 2006: ~20% 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 30 months
with a decreasing level. Finnair leisure flights hedged 78% of
winter traffic programme’s consumption.
Jet Fuel derivatives still on a high level
Development of average flight
and fuel price 2001 - 2006
12,00
600
550
500
10,00
450
9,00
400
350
8,00
300
7,00
Finnair average price
Fuel tonne price
250
6,00
200
2001
2002
2003
2004
2005
2006 Q1Q3
€/ tonne
Average price / RPK
11,00
Unit costs down 4.7%
Yield (EUR/RTK)
Unit costs (EUR/ATK)
Q3
2006
Q1
Q4
Q2
Q1
Q4
Q3
Q2
Q1
Q3
2005
2004
Q2
Change YoY
Q4
Q3
Q2
Q1
2003
Q4
Q3
Q1
15
10
% 5
0
-5
-10
-15
-20
Q2
2002
Most modern European fleet
• Average age of European fleet below four years
• Boeing MD-80 aircraft retired from parent
company fleet in July
• Popular new Embraer 170/190 aircraft increase
flexibility and load factors, decrease costs and are
eco-efficient
• A total of ten new Embraer 170 in November, six
new Embraer 190 next year, four options
• Eighth wide-body aircraft, Finnair’s first Airbus 340
took flight in July
• Two new Airbus A340 aircraft annually 2007-2008
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
Q3 2006
Adjusted gearing
Group continues to have
strong liquidity
Cash flow January-September
CASH FLOW STATEMENT (EUR mill.) 2006
Cash flow from operations
2005
23
123
-149
-57
Cash flow from financing
73
-6
Change in liquid funds
-53
60
Liquid funds at the beginning
339
250
Liquid funds at the end
286
310
Investments and sale of assets
Asian success continues
• Demand (Jan-Sept) grew 29,2 %, passenger
numbers 28,5 %, load factor 1,6 %, cargo 22,4 %
• New route to Delhi opened in October. 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
Share of Asian traffic growing
Scheduled traffic passenger and cargo revenues Q1-Q3/2006
America
5%
Domestic
13 %
Asia
37 %
Europe
45 %
Finnair transforming
to Europe-Asia traffic
• This year two new aircraft for long haul traffic
• Competitive operating terms a necessity
• 1-2 new Asian destinations per year, more
frequencies to existing destinations
• New feeder lines in European network
• Demand remains strong at a higher price level
• Market share continues to increase, Finnair’s
Asian sales have, for example, increased by
70% in Sweden
Assesments for future development
• Impact of Flight Attendants´strike on Q4 is 10 MEUR
• The 80 MEUR savings of the restructuring
programme mainly felt in 2007, fully evident in 2008
• Fleet renewal continues
• Flexible capacity => load factors improve
• 2006 result expected to be in profit, but clearly
below previous year’s level
• Unit costs development on track
• Good conditions for a clearly more positive financial
performance next year
Appendices
Weak quarter
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 Q3
-20
-30
-40
-50
2002
2003
2004
2005
2006
Average yield and costs
EUR c/RTK & EUR c/ATK
2002
2003
2004
2005
2006
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
100
90
80
70
60
50
40
Yield (EUR/RTK)
Unit costs (EUR/ATK)
Development of Group Business Areas
Excluding capital gains, fair value changes of
Derivatives and reorganization expenses
2006
2005
Q3
Q3
MEUR
Scheduled Passenger Traffic
20.3
20.1
8.2
8.5
-4.4
7.9
1.0
1.9
Unallocated items
-2.6
-12.7
Total
22.5
25.7
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-Q3 2006
Aircraft operating lease liabilities
Flexibility, costs, risk management
500
450
400
350
300
MEUR 250
200
150
100
50
0
2002
2003
2004
2005
Q3 2006
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 2006 would have been
108,0%
ROE
-6
ROCE
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
3
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
2
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
6
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