Finnair 26 October 2012 1 Content Market environment in Q3 - - PDF document

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Finnair

Q3 Result 2012

26 October 2012

Content

Finnair Q3 Result, 26 October 2012 2

• Market environment in Q3
• Business performance and strategy

execution

• Outlook
• Financials

Market Environment

• The global economy remains fragile, slow grow th expected throughout

2012 in most economies. The main dow nside risk of substantial deterioration of the Eurozone remains, w hile economy in China appears to stabilize.

• According to I ATA, airline performance remains challenging;

– Historically airlines have slipped from profit to loss whenever GDP growth has fallen below 2% . – Oil price developments and expectations for the rest of the year have also left IATA’s 2012 forecast unchanged at $110 a barrel, an historically high level. – The modest improvement in 2012 airline industry profits is due to better airline performance, and also due to more robust demand to travel earlier this year. – Consolidation is producing positive results. – Asset utilization in the passenger business is high across many markets. – In past cycles, passenger load factors and aircraft utilization have fallen by this stage, in the face of slowing demand and increasing aircraft deliveries. – In this cycle, airlines have kept both load factors and aircraft utilization high, allowing yields to improve and spread fixed costs more widely. – Weaker cargo market has, however, seen asset utilization fall.

Finnair Q3 Result, 26 October 2012 3

Consolidation continues in the industry

• Alliance landscape is changing

– Qatar to join Oneworld alliance, Middle-Eastern airlines active in partnering with legacy carriers

• Market exits in short haul traffic
• Legacy carriers continue to restructure their

loss-making short haul operations

Finnair Q3 Result, 26 October 2012 4

5

Positive trend in business perform ance strengthens Finnair’s position in the m arket

Strong Q3 performance

• All time high Q3 Turnover and Operational EBI T

– Turnover 650.3 M€ (+ 7.1% ), EBIT 48.9 M€ (+ 77.2% )

• Stable financial position

– Net cash flow from operations 44,5 M€ in July-September – 402.9 M€ short-term cash and cash equivalents (approx. 18% of annual turnover)

• Notable improvements in traffic performance:

– Load factor + 3.9% -p – RASK + 7.8% – Top performance in punctuality, over 90% of flights arrived on time

Finnair Q2 Result, 10 August 2012 6

Turnover grow th continued w hile EBI T* improved by 77.2%

Quarterly turnover, € m illion

7 Finnair Q3 Result, 26 October 2012

Quarterly Operational EBI T, € m illion

• 60
• 40
• 20

20 40 60 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 Q1 Q2 Q3 Q4 100 200 300 400 500 600 700 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 Q1 Q2 Q3 Q4

* Operational result (EBIT), excluding non-recurring items, capital gains and changes in the fair value

• f derivatives and in the value of foreign currency denominated fleet maintenance reserves

Operational EBI T build-up in Q3 2012

8 Finnair Q3 Result, 26 October 2012

2 7 ,6 4 8 ,9 1 1 ,0 5 ,8

• 2 ,4
• 4 ,6
• 6 ,1
• 6 ,2
• 3 5 ,3

4 9 ,2 1 2 ,7 8 ,6

• 1 1 ,4

0,0 20,0 40,0 60,0 80,0 100,0 120,0 140,0

• Milj. Eur

Operational EBI T build-up YTD 2012

Finnair Q3 Result, 26 October 2012 9

• 29,3

38,6

22,7 20,6 11,0

• 21,1
• 18,1
• 1,7
• 96,3

147,7

11,1 11,5

• 19,3
• 50,0

0,0 50,0 100,0 150,0 200,0 250,0

10

Unit revenue improvement continues

Q3 RASK + 7 .8 %

PLF + 3 .9 % -p RPK yield + 2 .3 %

Finnair Q3 Result, 26 October 2012

• Unit revenue per available seat kilom etre ( RASK) up by 7 .8 % in Q3 as both

passenger load factor ( PLF, + 3 .9 % -p) and yield per revenue passenger kilom etre ( RPK yield, + 2 .3 % ) im proved y-o-y

Strong traffic performance in Q3 2012

North Am erica ASK 1 ,3 % RPK 1 ,9 % PLF 0 ,5 % -p Traffic revenue* 8 ,1 % Leisure traffic ASK 2 3 ,6 % RPK 2 9 ,9 % PLF 4 ,5 % -p Traffic revenue* 2 4 ,2 % Europe ASK

• 0 ,5 %

RPK 9 ,2 % PLF 6 ,9 % -p Traffic revenue* 1 2 ,2 % Total traffic ASK 3 ,4 % RPK 8 ,6 % PLF 3 ,9 % -p Traffic revenue* 1 1 ,0 % Asia ASK 4 ,3 % RPK 6 ,4 % PLF 1 ,6 % -p Traffic revenue* 1 1 ,4 % Dom estic ASK

• 9 ,5 %

RPK 2 ,6 % PLF 7 ,4 % -p Traffic revenue*

• 9 ,4 %

Cargo ATK

• 4 1 ,7 %

RTK

• 2 6 ,3 %

OLF 1 7 ,0 % -p Traffic revenue

• 3 0 ,3 %

Asian share 5 2 .3 % of the total capacity

* passenger revenue

11 Finnair Q3 Result, 26 October 2012

5 1 % 3 2 % 5 % 5 % 7 %

Asia Europe Dom estic North Atlatic Charter

Passenger revenue split

12

Strategy im plem entation yielding results

Finnair has strong presence in Asian key economies, weekly frequencies*

Finnair Q3 Result, 26 October 2012 13

27 50 34 24 29 Finnair Lufthansa Air France KLM IAG

China Japan Republic of Korea

6 13 7 7 Finnair Lufthansa Air France KLM 24 28 21 16 Finnair Lufthansa Air France KLM 7 12 7 7 Finnair Lufthansa Air France KLM

Singapore

• * Finnair is the 3 rd largest carrier in its destinations, estimated market share of 5.9% .
• Market size of 20 million transfer passengers annually, globally one of the fastest growing traffic areas.
• Traffic between Europe and China forecasted to triple during the next 30 years.

Targeted savings of 80 M€ already achieved,

90 M€ by the end of the year

Finnair Q3 Result, 26 October 2012 14

Savings progress to target Total target 1 4 0 M€

1 5 5 % 3 8 % 1 4 8 % 1 0 9 % 1 0 5 % 1 0 2 % 4 3 % 2 6 % 62% 57% 74%

0% 20% 40% 60% 80% 100% 120% 140% 160%

Fuel Ground handling Catering Sales and distributi… Leasing Other costs Personnel Maintenan ce 2 5 % 2 4 % 1 4 % 1 0 % 9 % 8 % 8 % 2 % Maintenance Personnel Other costs Leasing Sales and distribution Catering Ground handling Fuel Fleet

New 60 M€ savings program launched

• Despite the good advancement of the structural change and

cost reduction program as a whole, the company has not progressed as planned in all its savings categories

– Finnair still has a long way to go to reach its long-term target

• perating profit margin of 6 per cent

– In the face of high fuel prices, intensifying competition and significant fleet investments in the coming years, the company must achieve a marked improvement in profitability.

• New cost reduction program published with the aim of

achieving a permanent reduction in costs of a further 60 million euros by the end of 2014

Finnair Q3 Result, 26 October 2012 15

Achievem ents so far

• Fleet optimisation in European traffic: 11.5 M€ savings

– discontinuation of 4 A320 series aircraft lease agreements and subleasing 5 E170 aircraft – Fleet leasing contracts renegotiated and renewed

• I mproved route planning and aircraft utilisation

– Low performing routes discontinued, average aircraft utilisation up by over an hour a day to

9 hours

• Partnerships in non-core areas for improved cost efficiency
• Support functions streamlined
• Centralized procurement in place

– cost savings so far 16 M€

• Faster check-in w ith automation

Operation Partner Status

European Airbus traffic Analysis on-going European Embraer traffic Oct 2012 Domestic traffic Oct 2011 Catering Aug 2012 Engine and component maintenance Jul 2012 Ground handling Nov 2011

Partnerships an integral part of restoring profitability

17 Finnair Q3 Result, 26 October 2012

Flybe cooperation brings cost benefits

• Contract Flying for Finnair:

– Finnair purchases 100% of seat capacity in Flybe-operated ATR-72 and Embraer 190 aircraft – Finnair network planning, pricing, revenue management, marketing and commercial risk – Flybe on board product on ATR aircraft – 10 international and 5 domestic routes

• Contract flying effects on the P&L

– A proportion of staff costs and fleet maintenance reserves will shift to ”other rental payments” inside the P&L – No changes in fuel, traffic charges, ground handling, catering and maintenance cost book entries – No decreasing effect on the top line

18 Finnair Q3 Result, 26 October 2012

Flybe Nordic already the 4th largest operator in the Nordic and Baltic Countries*

• Leading regional carrier in the

Nordic and Baltic Countries

– Turnover of 102 million euros in 2011 – Approx. one million passengers during the first year – Over 600 employees in Finland in October 2012 – Number of employees has doubled during the first year of operations, growth continues – 34 aircraft

Finnair osavuosikatsaus, 26.10.2012 19

* Measured in the number of flights

Distinct products for different traffic areas

Finnair Q3 Result, 26 October 2012 20

LONG HAUL Asia & North Am erica SHORT HAUL Feeder traffic, European m ajor routes JV and/ or tactical partnerships possible Feeder traffic, European niche routes Embraer contract flying / * REGI ONAL TRAFFI C Dom estic and som e Nordic routes ATR contract flying / *

* Finnair owns 40% of Flybe Nordic

Fleet renew al is key for successful strategy implementation

Finnair Q3 Result, 26 October 2012 21

• Fleet investm ents reduce unit costs and im prove

fuel efficiency

• More capacity and lower seat cost with next generation aircraft
• Airbus 3 5 0 XW B from H2 2 0 1 5
• Up to 1 8 % m ore capacity: from 270 seats to 310-320 seats
• Estimated seat cost -3 0 % compared to Airbus 340
• I m proved revenue position with superior product
• 11 orders and 8 options

Outlook for 2012

Guidance on 26 October 2012:

• Finnair estimates that the operational result for the second half of the year, which is stronger

than the first half of the year due to seasonal variations, will reflect improved profitability compared to the first half of the year, leading to a profitable operational result for the full year 2012.

• The outlook for the world economy is still uncertain, and Finnair will adjust its passenger traffic

capacity with its current structure according to demand. Finnair estimates that this capacity will increase on last year but less than 5 per cent. The growth will mainly come from Asian traffic, where Finnair increased capacity in May by opening a new flight route to Chongqing, China.

• Finnair’s fuel costs are still estimated to be significantly higher in 2012 compared to the

previous year due to increased capacity and high fuel prices.

• Cost reductions of approximately 90 million euros out of the structural change and cost

reduction program’s total target of 140 million euros are expected to be achieved by the end of

• 2012. Finnair estimates that unit cost (CASK) excluding fuel will decrease year-on-year in the

second half of the year.

22 Finnair Q3 Result, 26 October 2012

Coming Soon...

Finnair osavuosikatsaus, 26.10.2012 23

Financials

24

Key figures Q3

Key Figures Jul-Sep 2 0 1 2 Jul-Sep 2 0 1 1 Change % FY 2 0 1 1

Turnover and result Turnover EUR m illion 6 5 0 ,3 6 0 7 ,2 7 ,1 2 2 5 7 ,7 Operational result, EBI T EUR m illion 4 8 ,9 2 7 ,6 7 7 ,2

• 6 0 ,9

Operational result, % turnover % 7,5 4,5

• 2,7

Operating result, EBIT EUR million 71,1 10,6 > 200 %

• 87,8

EBITDAR EUR million 97,8 75,8 29,0 139,6 Result before taxes EUR million 67,3 3,1 > 200 %

• 111,5

Net result EUR million 50,8 1,9 > 200 %

• 87,5

Capital expenditure, CAPEX EUR million 7,4 121

• 93,9

203,9 Net cash flow from operating activities EUR m illion 4 4 ,5

• 1 ,2

> 2 0 0 % 5 0 ,8 Share Share price at end of quarter EUR 2,07 2,94

• 29,6

2,30 Earnings per share EUR 0,43 0,00

• 0,75

25 Finnair Q3 Result, 26 October 2012

Airline business: RASK & CASK development Q3 2012

7 ,8 % 6 ,1 %

• 1 ,1 %

2 4 ,6 %

• 1 ,4 %
• 9 ,6 %

9 ,5 % 3 ,4 %

• 6 ,4 %
• 1 0 ,6 %

1 ,5 %

• 1 5 %
• 1 1 %
• 7 %
• 3 %

1 % 5 % 9 % 1 3 % 1 7 % 2 1 % 2 5 % RASK, unit revenue CASK, unit cost CASK, excl. Fuel Fuel cost Personnel Depreciation & leasing Traffic charges Maintenance Ground handling Catering Other costs

Change, y-o-y, %

26 Finnair Q3 Result, 26 October 2012

• Unit revenue per available seat kilom etre ( RASK) up by 7 .8 %
• Unit cost per per available seat kilom etre excluding fuel ( CASK, excl. fuel)

dow n by 1 .1 %

Fuel costs continued to climb in Q3 2012

Operational costs

580,8 621,7 557,2 586,1 584,2 603,5 613,4 500 1000 1500 2000 2500 2 0 1 1 2 0 1 2 Q1 Q2 Q3 Q4

• Mill. Eur

132,8 167,6 131,7 157,9 144,3 179,6 146,4 500 1000 2 0 1 1 2 0 1 2 Q1 Q2 Q3 Q4

• Mill. Eur

2 .3 3 5 .6 5 5 5 .2

+ 3 .3 % + 2 4 .5 %

* Hedging taken into account

Fuel cost + 2 4 .5 % y-o-y*

• The share of fuel costs 30%

27 Finnair Q3 Result, 26 October 2012

Fuel and personnel biggest cost items in

Operational costs Q3 2012, total of 603.5 Mill. Eur

Finnair Q3 Result, 26 October 2012 28

Change, y-o-y, %

2 9 ,8 % 1 6 ,2 % 1 0 ,3 % 1 0 ,2 % 8 ,9 % 6 ,1 % 5 ,4 % 4 ,6 % 3 ,1 % 2 ,8 % 2 ,7 %

Fuel Personnel Ground handling and catering Traffic charges Other costs Maintenance Depreciation Other rental payments Sales and marketing Tour operations Aircraft leasing

• 7,4 %
• 39,6 %
• 13,4 %
• 23,8 %

6,5 % 14,2 %

• 6,3 %

11,0 % 22,6 %

• 11,5 %

24,5 % 3,3 %

• 40%
• 20%

0% 20% 40% Aircraft leasing Tour operations Sales and marketing Other rental payments Depreciation Maintenance Other costs Traffic charges Ground handling and catering Personnel Fuel Total

Fuel, spot-price development

29 Finnair Q3 Result, 26 October 2012

Hedging successful at 7 M€ profit

30 Finnair Q3 Result, 26 October 2012

Fuel cost build up LTM

1 4 4 * 1 8 0 * * 10

• 10

21 15 50 100 150 200 Q3 / 2 0 1 1 Volum e Price Currency Hedging Deviation Q3 / 2 0 1 2

• Mill. EUR

* Incl. Hedging profit of 22 Mill. EUR * * * Incl. Hedging profit of 7 Mill. EUR * ) and emission trading cost of 0,8 Mill. EUR

Rolling hedging policy

Hedging positions, 3 0 Septem ber 2 0 1 2 Hedge ratio H1 2 0 1 3 : 6 9 %

31 Finnair Q3 Result, 26 October 2012

• Finnair hedges jet fuel

positions 24 months ahead within the limits defined in the hedging policy

• Finnair is 74% hedged for

the next six months

• The company protects itself

against the risks of currency, interest rate and jet fuel positions by using different derivative instruments, such as forward contracts, swaps and options