Building A New Silk Road – Capacity Planning and Selecting Markets Greg Kaldahl SVP Resource Managem ent 1 Finnair Capital Market Day, 3 Dec 2012
The Airline I ndustry I s I n A State Of Constant Change Market cap (€bn) as of 1 Jan 1999 10 9.3 NA/ EU Rest of world 8 7.0 6.5 6.4 6.4 6.1 6 4.9 4.8 4.3 4.2 4.0 4 2.9 2.7 2.5 2.1 1.9 1.8 1.8 1.7 2 1.5 1.5 0 Note: AMR is parent company of American Airlines, Sairgroup of swissair Sources: Capital IQ, Bloomberg, Datastream, Analyst Reports, ECB 26 Finnair Capital Market Day, 3 Dec 2012
The Airline I ndustry I s I n A State Of Constant Change Market cap (€bn) as of 1 Jan 2005 10 9.4 NA/ EU Rest of world 8 6.3 6 Bankruptcy process Bankruptcy process 4.7 4.2 4.0 4.0 3.9 Merged with AF Acquired by DL 3.7 Acquired by LH 4 3.6 2 1.5 1.3 1.0 0.7 0.7 0.7 0 Sources: Capital IQ, Bloomberg, Datastream, Analyst Reports, ECB 27 Finnair Capital Market Day, 3 Dec 2012
The Airline I ndustry I s I n A State Of Constant Change Market cap (€bn) as of 1 Jan 2012 10 NA/ EU Rest of world 8 7.1 6 5.4 5.2 5.1 5.1 Bankruptcy process Bankruptcy process BA merged with IB 4.2 Merged with CO Merged with UA Merged with DL Merged with AF Acquired by DL Acquired by LH 4 2.6 2 1.2 1.1 0.6 0 Sources: Capital IQ, Bloomberg, Datastream, Analyst Reports, ECB 28 Finnair Capital Market Day, 3 Dec 2012
The Airline I ndustry I s I n A State Of Constant Change Market cap (€bn) as of 1 Jan 2012 10 9.1 NA/ EU 8.4 Rest of world 8 7.1 New in top 20 6.3 6 5.4 5.3 5.2 5.2 5.1 5.1 4.8 4.6 4.2 4 3.3 2.6 2.5 2.2 2.1 2.0 2.0 2 0 Note: Market value of Emirates estimated, LAN/ TAM shown as combined entity Sources: Capital IQ, Bloomberg, Datastream, Analyst Reports, ECB 29 Finnair Capital Market Day, 3 Dec 2012
Finnair I s Changing As W ell I n Order To Succeed • Narrow body fleet optimization – Nine aircraft removed from service – Renegotiated leases with multiple Airbus lessors – Total savings in excess of 10M€ • I mproved route planning and aircraft utilization – New network forecasting and fleet planning tools – Narrowbody utilization up almost two hours and over 9 hrs/day • Partnerships for improved cost efficiency and flexibility – FlyBe Finland provides lower cost base for turboprops and small jets • 20 airplanes now under contract – Fewer excess aircraft = more lease in opportunities 6 Finnair Capital Market Day, 3 Dec 2012
W hat I s I m portant – Finnair’s 2 Fold Strategy LONG HAUL SHORT HAUL Top-3 in Nordic Europe – Asia Cham pion Profitable • Competitive Seat Costs Finnair • Competitive Fares • Global Network Offering • Flexible Cost Structure • Economies of Scale • Rapid Market Entry & Exit • Large Home Market • High Aircraft Utilization • Strong Relationships with Travel Agents • Point-to-Point Operation • Brand • Ancillary Revenue • Loyalty Programs • Internet Distribution Customer Oriented – Agile – Right Partners 7 Finnair Capital Market Day, 3 Dec 2012
Geography Provides A Competitive Advantage North Asia Nordics BJS GOT CPH Above alps HAM BRU BCN South South Asia Europe To: BJS vs. LH vs. EK vs. SK From: GOT -23% -52% -5% CPH -18% -48% 0% Distance advantage to LH and EK HAM -11% -43% 0% Neutral: No significant distance BRU -5% -38% 0% advantage Distance disadvantage BCN + 1% -23% 0% 8 Finnair Capital Market Day, 3 Dec 2012
Geography Provides A Competitive Advantage North Asia Nordics GOT TYO CPH Above alps HAM BRU BCN South South Asia Europe To: TYO vs. LH vs. EK vs. SK From: GOT -21% -50% -4% CPH -17% -46% 0% Distance advantage to LH and EK HAM -11% -43% 0% Neutral: No significant distance BRU -5% -38% 0% advantage Distance disadvantage BCN 0% -25% 0% 9 Finnair Capital Market Day, 3 Dec 2012
Geography Provides A Competitive Advantage North Asia Nordics GOT CPH Above alps HAM BRU HKG BCN South South Asia Europe To: HKG vs. LH vs. EK vs. SK From: GOT -17% -26% -3% CPH -13% -23% + 1% Distance advantage to LH and EK HAM -7% -20% + 1% Neutral: No significant distance BRU -2% -17% + 1% advantage Distance disadvantage BCN + 3% -6% 0% 10 Finnair Capital Market Day, 3 Dec 2012
W e Have Successfully Exploited Our Geographic Advantage Tokyo 10 Nagoya 7 Osaka 7 Toronto 5 Seoul 7 New York 7 Beijing 7 Shanghai 7 Hong Kong 9 2012 Chongqing 4 Destinations: 13 Frequencies: 90 Bangkok 7 Singapore 7 Delhi 6 11 Finnair Capital Market Day, 3 Dec 2012
Long Haul Netw orks Depend On Exponential Effects B E G C B A A D E H D C F Results Results Four aircraft Four aircraft Ten markets Four markets One market per aircraft 2.5 markets per aircraft 12 Finnair Capital Market Day, 3 Dec 2012
Key Elements Of Market Selection – Let’s Examine Singapore • 30 new city pairs • High beyond demand • Biggest Scandinavia to Asia Traffic Flows 1 route unserved by Finnair 2 Competitive Capacity • Highly competitive 3 Fare Levels • Growing market • High share of business travel Trip Cost; Unit Cost • Long haul drives lower unit costs 4 13 Finnair Capital Market Day, 3 Dec 2012
Key Elements Of Market Selection – Let’s Examine Singapore Traffic Flows 1 Sufficient demand 2 Competitive Capacity Competitive product Attractive fare levels 3 Fare Levels Reasonable costs Trip Cost; Unit Cost 4 14 Finnair Capital Market Day, 3 Dec 2012
‐ 2000000 ‐ 1000000 1000000 2000000 3000000 4000000 15 Leads To Overperformance vs. Plan 0 Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 SIN Performance vs Original Forecast Dec 2011 Jan 2012 Feb 2012 Mar 2012 Original forecast Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Actual performance Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Finnair Capital Market Day, 3 Dec 2012 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013
Summary • Finnair is a strong network carrier • Capturing our share of traffic between Europe and Asia is critical to Finnair’s success • We are also striving for increased presence in the Nordics • Our goal is to continue to profitably increase utilization and ruthlessly decrease costs → leading to improved profitability 16 Finnair Capital Market Day, 3 Dec 2012
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