Finnair Group in nterim re eport 1 Ja anuary – – 31 Marc ch 2014 Difficult firs st quarter, c continued co ost reductio ons essentia al January–M March 2014 Tur rnover declin ed by 8.4% t to 543.3 mill ion euros (59 93.2). The e operational l result was - -34.2 million euros (-17.5 5). Net t cash flow fr rom operating g activities s tood at -20.5 5 million euro os (-11.5), an nd cash flow from inve estments tota alled 233.6 m million euros (-9.2). Uni t cost per av vailable seat kilometre ex xcluding fuel, CASK (CAS SK excl. fuel) ) decreased by 0.2 per ce ent from m previous y ear’s level. Uni t revenue pe er available s seat kilometre e (RASK) fe ll by 4.0%. Goo od developm ment in the tra ansatlantic jo oint business s, the compa ny made pre eparations to o begin a join nt bus siness for flig ghts between n Europe and d Japan. Mar rket outlook f for 2014 rem main unchang ged, Finnair’s s result for 2 014 will be s substantially affected by t the resu ult of cost re duction nego otiations and d employee c consultations . CEO Pekka a Vauramo: The first qua arter of the y year is typica ally Finnair’s weakest, an d this year th he period wa as particularly y difficult for us. Our turnove er declined b y 8.4% year- -on-year and d amounted t to 543.3 milli on euros. Th he decline in turnover wa as affected by a slight decr rease in over rall capacity, continued s strong contra ction in leisu ure traffic vol ume, Asian traffic reven nue decline m mainly due to o exchange r rate fluctuatio ons, and a de ecline in hom me market de emand, particularly in business t travel. Cargo o traffic conti nued to suffe er from mark ket overcapa acity, but ther re were early y signs of a re ecovery in de emand. Our result fo or the first qu uarter was ve ery weak: Ou ur operationa al result decl ined significa antly and sho owed a loss of indicates cle 34.2 million euros. This early that our r cost-reduct tion program and the mea asures unde r our new commercial strategy aim med at turnov ver growth ar re absolutely y essential. C Continuing w with cost-redu uction measures is s inevitable a and vital for F Finnair’s futu ure. It was a maj jor disappoin ntment that o our negotiatio ons with the Finnish Avia ation Union (I IAU), the Tra ade Union PR RO and the Finn nish Flight A Attendants' As ssociation (S SLSY) under the crisis cla ause include ed in the agre eements concluded i n November r 2013 in line e with the Fin nnish Employ yment and G rowth Pact d did not lead t o any agreement. Negotiations s with the Fin nnish Pilots' Association (SLL) are st ill ongoing. A As Finnair sim mply cannot bear the cur rrent cost str ructure, I hop pe we can st ill reach a m utual agreem ment on how to save cost ts. Having to o rely on unila ateral measu ures is the fin nal and least pleasant alte ernative, and d we hope to o avoid it. The first qua arter also inc cluded some e positives. T The results of f the transatl antic joint bu usiness we b began in July y 2013 have b been very po ositive. It has s also allowe ed us to accu mulate valua able experien nce for the jo oint business s on flights be etween Euro pe and Japa an, which beg gan in April. Our operatio onal quality a also remained d at a high level, and w we made effo orts to improv ve the comfo ort of travel b y launching a a Business C Class seat re enewal and replacing th he last of our Boeing 757 aircraft with new Airbus 321 Sharkle t aircraft. We will cont tinue the ren newal of our s service conc cepts this yea ar while also making prep paring for the e renewal of our long-ha ul fleet starti ng next year r. However, o our future gro owth depend ds significant tly on how we ell we succe ed in achieving g our cost red duction targe et. Only a pro ofitable Finna air can grow .
Outlook for r 2014 rema ains unchan ged The ongoing g uncertain e economic ou tlook in Euro ope and Asia a is contributi ing to weak c consumer de emand in our r main marke ets. Air traffic c is expected to grow mod derately in 20 014. Finnair r, however, w will not be ab ble to benefit from that gr rowth without t progress in its cost savi ings program m and its targ get cost struc cture in place e. Finnair estim mates its turn nover to be c close to the p previous yea ar’s level in 2 014. Fuel co osts are expe ected to rema ain high. The ou utcome of Fi nnair's ongo oing employe ee consultatio ons and cost t-saving nego otiations will have a significant im mpact on fina ancial perfor rmance in 20 014, and ther refore the co mpany will re econsider giv ving guidanc ce for its full-ye ear 2014 fina ancial perform mance after t the savings negotiations have been c concluded. Business E Environmen t Global air tr raffic is curre ently undergo oing a structu ural change, the typical c characteristic cs of which a re market liberalisation n, increasing g competition n, overcapac city, consolida ation, allianc ces and spec cialisation. Eu uropean network car rriers, Finnai r included, co ontinued to i mplement st tructural cha nge and cost st-reduction p programs in t the first quarter of 2014 to im mprove their r competitive ness in the p prevailing tig ht competitiv ve situation. Capacity growth in th he market wa as mostly con nservative. V Various partn nerships have e increased, especially in n internationa al long-haul tra affic. The negativ ve developme ent of the ex xchange rates s of several income curre encies had a a negative eff fect on the developmen nt of passeng ger traffic an d cargo reve enue in the fi rst quarter o f 2014. The w weakness of f the Finnish economy w as reflected in home mar rket demand d, in both bus siness travel and leisure t traffic. Meas ured in seat kilometres, market capa acity between n Helsinki an nd Finnair’s E European de stinations gr rew by appro oximately 4 p per cent in the f first quarter o of 2014. Mar rket capacity between Fin nnair’s Asian and Europe ean destinatio ons grew by some 2 per cent.* Finna air increased its market s hare in Euro opean traffic, while in Asia an traffic ma rket share remained la argely uncha nged from th he compariso on period.* Cargo traffic c continued t to suffer from m overcapaci ity in the first t quarter of 2 2014, which p put average yields in traf ffic between Eu urope, the No ordic region a and Asia und der increased d pressure. H High fuel pric ces and nega ative developmen nts in exchan nge rates wit th respect to cargo opera ations also w eakened the e result for ca argo traffic. However, th here were ea arly signs of a a recovery in n demand in Central Euro ope as well a as Asia, parti cularly in Japan. The price of f the largest individual co ost factor of a airlines, jet fu uel, decrease ed slightly in the first qua arter. The US S dollar is a s ignificant exp pense curren ncy in Finnai r’s operation ns, while the Japanese ye en is a signif ficant income e currency. Th he US dollar r depreciated d slightly aga ainst the euro o in the first q quarter. The substantial d depreciation of the yen, wh ich began in 2013, contin nued in the f first quarter a as a result of f stimulus me easures impl emented by the Bank of Jap pan. Strategy im mplementati on and part tnerships At the begin nning of July 2013, Finna air increased its cooperat ion with fello ow one world alliance mem mbers by joining the t transatlantic joint busines ss founded b by American Airlines, Brit ish Airways a and Iberia. T The cooperat tion has started well and the e first months s of the trans satlantic joint business we ere in line wit th expectatio ons. In Octob ber 2013, the co ompetition a uthorities ap proved the c company’s en ntry into the j joint busines ss establishe ed by Japan Airlines and d British Airw ways for flight ts between J apan and Eu urope. Japan n is one of Fi nnair’s most t important markets, an nd the joint b usiness ente ered into effe ect at the beg ginning of Ap pril 2014. The airlines s participating g in the joint businesses cooperate co ommercially by sharing re revenue and by coordinat ting capacity, flig ght schedule es and fares. The aim of t the participa ting airlines is to improve e the efficien cy of their
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