Finnair Group
Interim Report 1 January – 30 September 2007
Finnair meeting expectations
Strong demand in scheduled traffic continues
In addition to Asia, European traffic is also growing
Finnair’s market share growing in international
traffic departing from Finland
Unit revenues decreased due to new launches, price
level improving towards end of year
Unit costs have fallen thanks to efficiency measures
FlyNordic sold to Norwegian Air Shuttle, 14 million
euro sales profit
Improved results by efficiency programme
Q3/2007
Q3/2006
Change %
545.2
515.4
5.8
EBITDAR excl. capital gains, fair values
changes of derivatives and reorganization
expenses
88.0
69.8
26.1
EBIT excl. capital gains, fair values changes
of derivatives and reorganization expenses
39.2
22.5
74.2
One off items/ capital gains
17.3
0.1
-
3.4
-7.9
-
Operating profit/loss (EBIT)
59.9
14.7
-
Profit after financial items
55.9
13.5
-
Turnover mill. €
Fair value changes of derivatives
Scheduled Passenger Traffic
and Aviation Services improved
Profitability of scheduled traffic improved clearly,
even as unit revenues decreased
Unit costs have fallen
Finnair Technical Services efficiency project is
bearing fruit
Average prices for cargo have fallen due to tighter
competition, but demand is picking up
Catering profitability improved
Northport still loss-making: Sweden ja Norway
operations to be sold to Menzies Aviation
Aurinkomatkat-Suntours expands
Finland’s leading tour operator, strategy to expand in
neighbouring areas
Acquired Estonia’s second largest tour operator Horizon
Travel at start of year…
and St Petersburg area tour operator and travel agency
Calypso in October
Growing target group increasingly wealthy middle class
in Russia
Winglets installed on Leisure Traffic fleet (seven Boeing
757-200s), decreasing fuel consumption by five per
cent
Unit costs decreased more than yield
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 Q2 Q3
2002
2003
2004
2005
2006
2007
Efficiency programme yielding results
80 million euro efficiency programme completed
by end of year
Effect felt strongest in the second half of the year
Profit impact for 2007 over EUR 40 million
Full financial impact will begin in 2008
Jobs cut by around 600 in 2006-07
Business growing,
number of staff stable
Personnel
Personnel on average
14000
12000
10000
8000
6000
4000
2000
0
1999
2000
2001
2002
2003
2004
2005
2006
Q3 2007
Unit costs dropping
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
Q3/2007
2006
-7.7%
+1.8 %
-9.5%
-3.5 %
-7.2%
-4.1 %
-2.0%
+24.1 %
-7.3%
-3.9 %
+18.7%
-1.0 %
-12.3%
-7.9 %
-1.7%
+1.9 %
-15.3%
-3.1 %
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
Jet fuel prices going up
Jet fuel price risk hedging
(Scheduled traffic, 30.9.2007)
70%
62%
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
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 (approx. 450 MEUR)
Finnair scheduled traffic has hedged 66% of its
fuel purchases for the next six months, thereafter
for the following 24 months with a decreasing
level. Finnair leisure flights hedged 60% of
summer traffic programme’s consumption.
Improved cash flow used for
investments
Cash flow January-September
Cash flow statement (EUR mill.)
Q1-Q3/2007
Q1-Q3/2006
169
23
-226
-264
+38
-149
-195
+46
32
73
Change in liquid funds
-25
-53
Liquid funds at the beginning
273
339
Liquid funds at the end
248
286
Cash flow from operations
Investments and sale of assets
Investments
Change of advances and others
Cash flow from financing
Strengthening of capital structure
by share offering
Equity ratio and adjusted gearing
%
Equity ratio
120
Adjusted Gearing
100
80
60
40
20
0
2002
2003
2004
2005
2006
Q3 2007
Asia growth continues on good level
Demand grew during January-September by
30.9%, passenger numbers 25.8%, cargo 18.9%
Passenger load factor 78.5%
Business Class selling well
59 flights a week to Asia
Non-stop flights to 10 destinations, daily to six
Growth in different markets in Asia diversifies risk
End of year capacity will grow by over 30%
Seoul new destination in 2008
Capacity in Asia has grown rapidly
China
2001:
3 flights/week
2007:
25 flights/week
Japan
2001:
2 flights/week
2007:
15 flights/week
India
2006:
3 flights/week
2007:
12 flights/week
Long-haul network 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
Over third of revenue from Asia
Scheduled traffic passenger and cargo revenue JanuarySeptember
Domestic
4%
Europe
12 %
38 %
Asia-Europe
gateway
50%
46 %
Asia
US
New planes enable future growth
In 2007-14
• A330/A340 fleet of maximum 15 planes in
total
In 2014-16
• A350 fleet of maximum 15 planes in total
Most modern European fleet
Average age of European fleet four years
29 Airbus A320 family aircraft
A total of ten smaller Embraer 170s and five
larger Embraer 190s in fleet, five larger aircraft
arriving later
New aircraft increase flexibility and improve load
factors, decrease costs and are eco-efficient
Planned share offering
part of investment financing
Renewal and expansion of long-haul fleet part of
Finnair strategy
Aircraft acquisitions in 2007-2016 amount to almost
two billion euros
Extraordinary General Meeting 21.11.2007
Size of offering up to 250 million euros, existing
shareholders would have a pre-emptive right to
subscribe
Finnair’s vision 2017
Take further advantage of Helsinki’s geographical
position
Via Helsinki a travel concept
The airline of choice for quality and environmentally
conscious air travellers in intercontinental traffic in the
Northern Hemisphere
A reliable and safe option in an uncertain world
As large European airports become increasingly
congested, Helsinki-Vantaa Airport has plenty of room
for construction and possibilities for development
Sustainable, profitable growth, an attractive
investment
Finnair 2017 – ”On top of the World”
India opens up new opportunities
Indian traffic makes it possible to open the fastest
connections between North America and India
Finland is situated along the shortest route
Demand expected to grow significantly
Russia’s air traffic markets expected to open up in the
future, offering opportunities to complement network
Success factors
Safe
• Expert, professional people doing quality work
• Modern fleet
• Sound finances
• Trust
• Caring for customers and personnel
Finnish
• Reliable, responsible, punctual, professional
Creative
• Modern, developing, innovative
Fresh
• Clean, stylish, refreshing, uncomplicated
Future outlook
Asian demand remains strong
Average price fall leveling out even though average
route length increasing
Unit costs still decreasing
Cooperation with Norwegian continues
Expensive fuel will not increase costs significantly at the
end of year because of hedging
Five collective agreements renewed
The operational result for the full year is expected to
exceed 70 million euros, last quarter profitable
Appendices
Profitability development
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 Q2 Q3
-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 Q2 Q3
2002
2003
2004
2005
2006
2007
Segment results
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
Q3
2006
Q3
28.8
7.8
2.7
1.3
-1.4
39.2
20.3
8.2
-4.6
0.9
-2.3
22.5
Investments and cash flow
from operations
MEUR
Operational net cash flow
300
Investments
250
200
150
100
50
0
2002
2003
2004
2005
2006
Q3 2007
Aircraft operating lease liabilities
Flexibility, costs, risk management
MEUR
600
500
400
300
200
100
0
2002
2003
2004
2005
2006
Q3 2007
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 2007 would have been
103,3%
1
Q
20
2 02
2
Q 00
2
3
20
Q
4 02
2
Q 00
2
1
20
Q
03
2
2
Q 00
3
3
20
Q
4 03
2
Q 00
3
1
20
Q
04
2
2
Q 00
4
3
20
Q
4 04
2
Q 00
4
1
20
Q
2 05
2
Q 005
3
2
Q 00
5
4
20
Q
1 05
2
Q 00
6
2
20
Q
06
3
2
Q 00
6
4
20
Q
1 06
2
Q 00
7
2
20
Q
3 07
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
Should be global
Competitively neutral
Investments already made in new technology
should be taken into account
Open emissions trading
Customers can 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% => over 120 mill. € in the coming
few years
EBITDAR
EBITDAR margin at least 17% => over 350 mill. € in the
coming few years
Economic
profit
To create positive value over pretax WACC of 9,5%
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