Post on 30-Jan-2018
© Finnair | Capital Markets Day, 22 May 20141
Welcome to
Finnair Capital Markets Day22 May 2014, Helsinki
Today’s AgendaTopic Presenter Time Pages
Welcome by the Chairman of the Board Klaus Heinemann, Chairman 13:00 -
Delivering on Strategy Pekka Vauramo, CEO 13:20 6-25
Network development and JBA's Greg Kaldahl, SVP Resource Management 14:00 26-54
Break 14:30
Commercial Strategy- Closing the revenue gap Allister Paterson, CCO 15:00 55-65
Cargo’s role in Asian growth Juha Järvinen, Managing Director of Finnair Cargo 15:30 66-76
Break 15:45
Fleet and funding strategy Erno Hildén, CFO 16:00 77-100
Closing remarks Pekka Vauramo, CEO 16:40 -
Cocktails and informal discussion 17:00
© Finnair | Capital Markets Day, 22 May 20142
3 © Finnair | Capital Markets Day, 22 May 2014
The Finnair opportunityOur strategic targets and roadmap to reaching them
Pekka Vauramo, CEO Finnair Capital Markets Day, 22 May 2014
Finnair is a network airline connecting Asia and Europe
© Finnair | Capital Markets Day, 22 May 20144
Over 60 European
and15 long-haul destinations(Summer 2014)
Asia49 %
Europe31 %
Finland4 %
North-Atlantic
5 %
Leisure11 %
2013 ASK split
More than 9 million
passengers and MEUR 2,400 in
revenue in 2013
Fleet of 77 aircraft, of which 44
operated by Finnair.
Financing
Network
Operations
Commercial
5
Cost structure
Major achievements since CMD 2012
© Finnair | Capital Markets Day, 22 May 2014
We have built one of the best operational airlines in the world...By focusing on:
• Structure, size, governance
• Commitment to quality and safety
• Operational processes
• Hub management
• Vendor management
2013 performance
© Finnair | Capital Markets Day, 22 May 20146
European benchmark*
Finnair
Punctuality 84.2% 89.4%
Regularity 98.9% 99.8%
Bags (/1000 pax) 9.6 8.1
Connection reliability 98% 98.8%
Safety 1st-3rd**
* Source: AEA** JACDEC 2013 safety ranking. JACDEC =Jet Airliner Crash Data Evaluation Centre.
...and improved cost efficiency & asset utilizationImproved CASK
0,071 0,070 0,071 0,069
0
0,01
0,02
0,03
0,04
0,05
0,06
0,07
0,08
2010 2011 2012 2013
€ce
nts
CASK ex-fuel Fuel
Higher utilization
0
2
4
6
8
10
12
14
16
2010 2011 2012 2013
Blo
ck h
ours
/d
ayNarrowbody Widebody
7
+7.6%+7.8%
+8.4%
+1.3% +3.6% +0.6%
-4.6% -4.1% -3.3%
+6.0% +14.9% +1.6%
© Finnair | Capital Markets Day, 22 May 2014
101,5
102,0
102,5
103,0
103,5
104,0
104,5
105,0
105,5
0
200 000
400 000
600 000
800 000
1 000 000
1 200 000
1 400 000
1 600 000
1 800 000
1,50
1,70
1,90
2,10
2,30
2,50
2,70
2,90
3,10
3,30
3,50
Volume, shares Close, EUR
Finnair share and bond price development
© Finnair | Capital Markets Day, 22 May 20148
Finnair market cap MEUR 295 (31 Dec 2011)
Finnair market cap MEUR 378 (16 May 2014)
Finnair market cap MEUR 283
(3 Dec 2012)
Finnair share price development 1 Jan 2012-16 May 2014
Finnair Bond price development since 27 Aug 2013
Delivering on strategy for profitable growth
Doubling Asian revenues by 2020 from 2010 level
9
Growing traffic via Helsinki by optimising its strategic location
Creating shareholder value - delivering 6% operational EBIT
© Finnair | Capital Markets Day, 22 May 2014
© Finnair | Capital Markets Day, 22 May 201410
Doubling Asian revenuesby 2020
Doubling Asian revenue – Where are we now?
42% of 2013 passenger revenue from Asian traffic
Asian traffic revenue, MEUR
© Finnair | Capital Markets Day, 22 May 201411
42%
37%
9%
9%3%
Asia EuropeDomestic LeisureNorth Atlantic
CAGR2014–2020
6.96%
* Based on guidance given on 7 May 2014:”Finnair estimates 2014 turnover to be close to 2013 levels.”
Europe-Asia travel expected to increase more than 100% by 2020
© Finnair | Capital Markets Day, 22 May 201412
M-East180M
60 million(2010)
130 million(2020E)
SIN90M
China's top 3 hubs300MBKK
90MKUL80M HKG
120M
Passenger flows and hub throughput (Asia and Europe, 2020E)
PAX flows: Europe – Middle East /Asia (pax/yr)
PAX throughput at major international airports (pax/yr) M=million
2010
CAGR+6.3%
2020E
Notes: 1. Pax throughput includes both domestic, international and terminal passengers. Figures
include both inbound and outbound pax calculated on basis of country-region pairs. 2. Data available for Mainland China airports does not disaggregate domestic and
international passengers. 3. PAX throughput Middle East includes Dubai airport (112m); Doha (38m); Abu Dhabi
(26m). China includes Beijing (155m); Guangzhou (88m); Shanghai Pudong (83m)Source: IATA, ATI database, BCG analysis; IATA Country Forecasts; BCG Analysis; World Bank.
China’s second tier cities offer great potential
2010 GDP for urban clustersUSD Billions
357
378
418
469
475
527
527
0 200 400 600
Guangzhou
Austria
Shandong
Belgium
Jingjinji
Switzerland
Shanghai
Urban clusters in China and their hub cities
13
Nanning
Changchun-Harbin
Liao central-south
JingjinjiHuhehaote
Taiyuan Shandong BylandCentral
Guanzhong
Coast West
Hangzhou
ShanghaiNanjingHefei
Yangzi mid-lower
Nanchang
ShenzhenGuangzhou (includes Foshan)
Kunming
ChangzhutanChongqing
Chengdu
Source: Dominic Barton, 2013.© Finnair | Capital Markets Day, 22 May 2014
Joint Business Agreement in Europe-Japan traffic strengthens our position in Japan
0%
5%
10%
15%
20%
25%
30%
35%
Mar
ket
shar
e in
EU
R-J
P v
vTr
affi
c*
© Finnair | Capital Markets Day, 22 May 201414
JAPAN
• After joining the SJB we are now a part of the largest joint business in Europe–Japan vv. traffic
* Source: SRS Q2 2014.
Our strengths in Asia – Europe transfer traffic
© Finnair | Capital Markets Day, 22 May 201415
Strong Nordic brand appeal
One of world's most punctual airlines
Shortest and fastest Asia-Europe route
Early mover in Europe-Asia direct
flights
Helsinki airport hub
On-going long-haul product development
© Finnair | Capital Markets Day, 22 May 201416
Growing traffic via Helsinki
Highly efficient Helsinki hub supports Asia-Europe traffic growth Room for growth in Helsinki-Vantaa...• 3 runways• 35 min minimum connection time• Uncongested airspace
...with 24h rotation benefits to Asia• Sustainable competitive advantage and cost
benefits:– Fastest connections between North-
Eastern Asia and Northern Europe– Very high aircraft utilisation in long-haul
traffic – Less need for additional crew members
due to flight time restrictions– Smaller fuel consumption due to shorter
flight times
© Finnair | Capital Markets Day, 22 May 201417
Cost competitive European feeder network a necessity for Asian traffic growth
European competitive landscape We focus on
• Lowering cost base in short-haul flying– Labour costs– Possible alternative measures
• Continuing Flybe cooperation
• Decision on short haul fleet renewal in the next 18-24 months
18 © Finnair | Capital Markets Day, 22 May 2014
© Finnair | Capital Markets Day, 22 May 201419
Creating shareholder value
Our key mid-term priorities
20
Competitive Cost Structure
Leading Commercial Strategy
Safe, Efficient Operations
CargoNetwork Strategy
FinancingFleet strategy Strategic partnerships
New Digital Finnair
The Building Blocks
The Tools
The Foundation
© Finnair | Capital Markets Day, 22 May 2014
We are well on track in achieving cost savings – flight crew labour costs still under negotiation
© Finnair | Capital Markets Day, 22 May 201421
136Other
Pilots
Cabin
Technical & ground services
23
17
18
8
Phase I: MEUR 140
Phase II: MEUR 60
Total target MEUR 200
4
Other employee groups 17
Phase I realised Phase II remaining targetPhase I additional saving reached Phase II realised
4
Savings reached by 22 May 2014: MEUR 167
We are building the foundation for growth
• Competitive cost structure will be key for profitable growth, therefore cost savings remain in our focus.
• As a vital part of our topline growth, we continue to implement our new Commercial strategy and closing the identified revenue gap.
• First A350s enter our fleet next year, and we are ready to grow our traffic building on our existing strengths.
© Finnair | Capital Markets Day, 22 May 201422
Growth2016
2014Cost
savings
Revenueenhancement A350s
2015
Thank you! Questions?
23 © Finnair | Capital Markets Day, 22 May 2014
© Finnair | Capital Markets Day, 22 May 201424
Finnair Network DevelopmentThe Role of Schedule, Partnerships and Route Development
In Building the Silk Road
Greg Kaldahl, SVP Resource ManagementFinnair Capital Markets Day, 22 May 2014
Silk Road Revisited
In CMD 2012 we shared...
• Industry complexity and changing demographics
• The strength of Helsinki’s geographic position
• Finnair’s strategy to win in dynamic times
• Our methodology for entering new routes
What Have We Done Since Then
• Opened two new seasonal routes to Xi’an and Hanoi
• Entered joint business arrangements for Atlantic and Japan flying
• Taken delivery of five A321 Sharklets and retired our small B757 fleet– Operating cost advantage from commonality
• Established our baseline long-haul fleet plan– Allows for more/less growth based on market
conditions
© Finnair | Capital Markets Day, 22 May 201425
Today’s Agenda
• Schedule Structure– Helsinki Plan
• Joint Business Agreements– What are they?– What do they mean for Finnair?– How do we get the most from these agreements?
• Route Development– Are there any good markets left?– Where do we go from here?– Will we double Asian revenues by 2020?
26 © Finnair | Capital Markets Day, 22 May 2014
27
Schedule StructureA Passenger Friendly Hub
© Finnair | Capital Markets Day, 22 May 2014
Helsinki offers Finnair a competitive advantage...
28
HEL LHR FRA AMS CDG
Ease of transfer
Uncongested airspace
Runway capacity
Cost competitiveness
Geographic location to Asia
Departure punctuality
© Finnair | Capital Markets Day, 22 May 2014
...but our growth has created some congestionASIA & NORTH AMERICA
EUROPE & DOMESTICEurope double daily flights (incl. double daily+ markets)
Asia afternoon bank
Asia midnight bank
Overnighting DOM flights
0700 1200 2000 24001700
29
Hub congestion
© Finnair | Capital Markets Day, 22 May 2014
Main bank feeder flights spilling
30
Bank PLF% Local pax % Transit pax %
Afternoon bank 78 % 39 % 61 %
8 PM bank 66 % 60 % 40 %
Night bank 67 % 69 % 31 %
No connections 61% X X
Early EUR departures 62% X X
Growth in main bank would require adding feeder capacity
© Finnair | Capital Markets Day, 22 May 2014
Opportunity: four bank structureASIA & NORTH AMERICA
EUROPE & DOMESTICEurope 4 times per day flights (incl. domestic)Asia afternoon bankAsia midnight bank
Overnighting DOM flights
0700 1200 2000 24001700
Asia evening bank and North America midday bank
31Potential to add two new European banks at 12:00 and 20:00
© Finnair | Capital Markets Day, 22 May 2014
Four bank structure would defend our position in Helsinki hub
• In the four bank structure Finnair would utilize a higher share of the HEL airport capacity vs. the two bank structure leaving idle airport capacity available in HEL
32
-300-200-100
0100200300
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Wee
kly
take
off
s an
d la
ndin
gs
HourTwo Banks Four Banks
Departures
© Finnair | Capital Markets Day, 22 May 2014
Arrivals
Four bank structure would enable growth and deliver additional benefits
33
Four Bank Structure
Finavia structural changes would not be required
Unit cost saving potential
Capacity additions would support growth, reduce pressure on feeder congestion and enable even further growth
Potential for improved market presence due to early Europe departure
© Finnair | Capital Markets Day, 22 May 2014
© Finnair | Capital Markets Day, 22 May 201434
Joint Business AgreementsFriends In High Places
Atlantic Joint Business Agreement Offered “On The Job” Experience
• Finnair is 1% of AJB
• New York and Toronto are less than 5% of Finnair total revenue
• AA/BA/IB are willing partners in growing the business
• Deal negotiation & implementation provided roadmap/learnings for more important Joint Business between Europe and Japan
35 © Finnair | Capital Markets Day, 22 May 2014
AJB Accomplishments
• Joint business commenced as scheduled on July 1st 2013
• Implementation was flawless – no adverse customer experiences
• AA/BA/IB now selling AY across Europe/North America
– AY is in hundreds of corporate accounts
• Common Pricing in Europe & North America
– AY has pricing personnel based in London and Dallas
• Governance structure is in place and functioning well
36 © Finnair | Capital Markets Day, 22 May 2014
Finnair North Atlantic TrafficRASK & Load Factor Development
But Is AJB Worth Anything?
Share of passengers by Marketing Carrier on Finnair North Atlantic Traffic
37
72%
74%
76%
78%
80%
82%
84%
86%
3,803,904,004,104,204,304,404,504,604,70
2011 Q4 2012 Q4 2013 Q4
RA
SK
* (
€C
ent)
PLF% RASK
0 %
20 %
40 %
60 %
80 %
100 %
2011 Q4 2012 Q4 2013 Q4
AY AA BA IB
*RASK: Ticket Revenue with YR and Transfer Payments
© Finnair | Capital Markets Day, 22 May 2014
Siberian Joint Business Agreement Will Have Far More Impact
• Finnair is 26% of SJB
• Japan routes are 16% of Finnair total revenue
• SJB is critical to Finnair’s continued success in this region
38 © Finnair | Capital Markets Day, 22 May 2014
SJB Accomplishments
• Finnair has entered the SJB on April 1st
• All regulatory approvals secured
• All agreements with partners signed
• Implementation was flawless – no adverse customer experiences
• Common Pricing in Europe & Japan
• First Steering Committee meeting achieved clarity around governance
39 © Finnair | Capital Markets Day, 22 May 2014
0%
5%
10%
15%
20%
25%
30%
35%
Mar
ket
shar
e in
EU
R-J
P v
vTr
affi
c*• Alignment with Japan Airlines protects Japan POS revenue
• SJB becomes the largest Siberian joint venture– Strongest partners– Best hubs– Most commercial relevance
• Larger presence will support revenue shift from unaligned carriers
40
For Finnair, SJB Is Both Defensive And Offensive
Seats Europe - Japan
* Source: SRS Q2 2014.
© Finnair | Capital Markets Day, 22 May 2014
This Leaves Finnair With...
• 21% of capacity and 18% of revenue operating under joint ventures
• A more stable business– Periodic regional weakness can be offset by revenue sharing
• A platform for growth– Stronger sales presence, rationalized pricing, common agenda among partners supports
new services
41 © Finnair | Capital Markets Day, 22 May 2014
© Finnair | Capital Markets Day, 22 May 201442
Route DevelopmentFriends Can Only Take You So Far
Finnair Has Steadily Grown Its Network in Asia
43
2000
ASK (M) Destinations
2 056 3
© Finnair | Capital Markets Day, 22 May 2014
Finnair Has Steadily Grown Its Network in Asia
44
ASK (M) Destinations
6 176 6
© Finnair | Capital Markets Day, 22 May 2014
2005
Finnair Has Steadily Grown Its Network in Asia
45
2010
ASK (M) Destinations
11 150 9
© Finnair | Capital Markets Day, 22 May 2014
Finnair Has Steadily Grown Its Network in Asia
46
2014
ASK (M) Destinations
15 463 15
© Finnair | Capital Markets Day, 22 May 2014
Are There Any Opportunities Left?
47
Yes!1. China2. Russia3. Additional Pacific Rim Growth4. North America
© Finnair | Capital Markets Day, 22 May 2014
48Source : Wikipedia
China Is Still Largely Untapped
Cities with non-stop service to Europe (S 2014)
China has 35 cities with a population over 2 million people with no non-stop flights to Europe
Cities with no non-stop service to Europe
© Finnair | Capital Markets Day, 22 May 2014
New Russian destinations: Potential to improve Utilization and Support the Bank Structure
49
ScheduleDeparture from HEL
Arrival to HEL
22-23 06-07
© Finnair | Capital Markets Day, 22 May 2014
There Are Still A Number Of Underserved Cities In The Pacific Rim
50 © Finnair | Capital Markets Day, 22 May 2014
51
AJB Provides Opportunities For Profitable North America Operations
© Finnair | Capital Markets Day, 22 May 2014
Fleet Renewal Allows Finnair To Capitalize On These Opportunities...
• A340s are replaced with modern, efficient A350s
• A330s provide flex aircraft to adjust to market demand
• A321s have replaced older, inefficient B757s– Lower trip costs– Similar unit costs to B757s
• Possibilities to expand contract operations– Lower cost European feed
52 © Finnair | Capital Markets Day, 22 May 2014
Bottom Line...
Finnair will grow in order to improve profitability and return on invested capital...
...not simply for the sake of growth!
53 © Finnair | Capital Markets Day, 22 May 2014
Our Schedule, Partnerships and Route Network Are Parts Of An Integrated Plan• We’re examining options to improve
our schedule structure– Relieve congestion in Helsinki– Provide additional choices for customers
• We’ve entered into strategic partnerships– Create stability in the business– Provide platform for growth
• Our route network is healthy– Multiple opportunities for growth– More European flying can be moved to partners– Fleet renewal will support route development– Focus on profitable growth
© Finnair | Capital Markets Day, 22 May 201454
Thank you! Questions?
55 © Finnair | Capital Markets Day, 22 May 2014
© Finnair | Capital Markets Day, 22 May 201456
Commercial Strategy
Closing the Revenue GapChief Commercial Officer Allister PatersonFinnair Capital Markets Day, 22 May 2014
57
Asia Pacific
13.7%
3.8%
23.7%
30.9%
25.9%North
America
Europe
Home market
0.2%
A global industry:• Finnair participates in three global passenger flow markets• Finnair has a minimal effect on total pax market size
© Finnair | Capital Markets Day, 22 May 2014
*FY 2013.
Our role is to capture Finnair’s portion or ‘Fair Share’ of the total market*
We have identified annual revenue opportunity of MEUR 80
© Finnair | Capital Markets Day, 22 May 201458
• The model compares actual performance to an optimal world in terms of network & schedule quality and relative market performance.
• Takes into account Finnair’s 6th freedom profile and small home market.
= MEUR 80
We focus leveraging core strengths into revenue performance
NetworkCustomer
Loyal home market customer base
Strong Nordic brand appeal
Operational Performance
Highest worldwide safety ranking
One of world's most on-time airlines
oneworld alliance member
Shortest and fastest Asia-Europe route
Well established in European markets
Early mover in Asian secondary cities
Helsinki airport hub
59
Our new Commercial Strategy focuses on delivering revenue from:
Smart Product Investments1
Leveraging Technology - "Digital Finnair"2
Revenue Science Expertise3
© Finnair | Capital Markets Day, 22 May 201460
Smart Product Investments
Signature meals Marimekko amenities Expanded In-flightentertainment
Full flat seats -Route guarantee
Introduced 2013–2014
© Finnair | Capital Markets Day, 22 May 201461
1
62
In the pipeline – coming soon
Consumer choice products Lounge renewals Wireless on-board Airbus 350 XWB
© Finnair | Capital Markets Day, 22 May 2014
Leveraging technology– Digital Finnair
Enhanced Sales Applications• Online flight/ancillary revenues• High utility mobile applications• CRM offers & airline services
Customer Experience Applications• Distributed IFE to personal devices• Enhanced onboard revenues
63 © Finnair | Capital Markets Day, 22 May 2014
2
63
Driving Demand and Optimizing Revenue -Revenue Science Expertise
Improved Revenue Science• Competitive online price positioning• World-Class revenue optimization• World-Class analytics - leverage CRM & Frequent Flyer Program
2
Enhanced Market Demand• Localized sales products/strategies• Leveraging oneworld frequent fliers• Joint Business Agreements
1
64 © Finnair | Capital Markets Day, 22 May 2014
Driving demand: oneworld & JBAs help overcome Finnair’s small home market
oneworld consists of 15 airlines.......which transport 506 million passengers......to 152 countries and 992 destinations
Long haul joint business agreements• Enable growth, decrease risks• Leverage networks & sales strength• Revenues are shared by capacity
65
Atlantic (AJB)
Siberian (SJB)
© Finnair | Capital Markets Day, 22 May 2014
MEUR 80 annual revenue opportunity will be captured
• We will continue to make smart product investments
• Exploiting technology is key to customer proposition & revenue growth
• We are developing world-class revenue expertise to increase demand and optimize revenue
• JVs/JBAs will enable growth and decrease risks
66 © Finnair | Capital Markets Day, 22 May 2014
Thank you! Questions?
67 © Finnair | Capital Markets Day, 22 May 2014
Differentiated cargo strategy – Driving Asian growth
Juha Järvinen, Managing Director, Finnair CargoFinnair Capital Markets Day, 22 May 2014
Driving growth
• What is Cargo’s role in supporting Asian growth?
• How mega trends and macro dynamics support our growth strategy?
• How Cargo’s differentiation strategy and feeder platform balances freight flows and enables growth in higher value freight exports?
69 © Finnair | Capital Markets Day, 22 May 2014
Cargo is a significant revenue generator in Finnair's long haul traffic• Belly Cargo generates 17% of Finnair’s revenue on
intercontinental routes and 11% of Airline business turnover*
• Relative importance will grow as the A350 brings up to 50% more belly cargo capacity by 2020
• Cargo supports our goal to double Asian revenues by 2020
70
Turnover 238 MEUR
(2013)
147,000 Freight tonnes
79 %
11 %12 %
2 %2 % 1 %
Main shipment types
General Cargo PerishableMail Dangerous goodsPharma Other special cargo
© Finnair | Capital Markets Day, 22 May 2014
*Q1 2014.
© Finnair | Capital Markets Day, 22 May 2014
SIN
China's top 3 hubs
CAGR+5.7%
BKK
HAN
HKG
Finnair operates in key freight trade lanes & growth markets in Asia, including West & Central China and Vietnam
• Cargo traffic between Asia and Europe is forecast to grow 5-6% annually
Shipment flows: Europe –Middle East/Asia (RTK’s/yr)
Freight through major international airports (RTK’s/yr)
2010
2020E
Mega trends and macro dynamics support our growth strategy
*Source: IATA
Urban clusters in China and their hub cities
72
Nanning
Changchun-Harbin
Liao central-south
JingjinjiHuhehaote
Taiyuan Shandong BylandCentral
Guanzhong
Coast West
Hangzhou
ShanghaiNanjingHefei
Yangzi mid-lower
Nanchang
ShenzhenGuangzhou (includes Foshan)
Kunming
ChangzhutanChongqing
Chengdu
*Source: IATASource: Dominic Barton, 2013.
© Finnair | Capital Markets Day, 22 May 2014
• Fast growing middle class population and consumerism in China drive cargo growth:– High-end consumer goods from Europe/US– Healthcare & Pharmaceuticals– Infrastructure investments
• New administration committed to development of Western & Central regions– Lower production costs will drive re-
location and growth of manufacturing in the Central and Western regions
Directionally balanced freight growth
China forecast to become the second largest freight market by 2017*
Building Cargo platform to leverage growth opportunities
• Central European cargo hub secures enlarged catchment area
• Differentiated product strategy secures balanced cargo flows, minimizes directionality challenge & controls yield development
• New planned Cargo Terminal at Helsinki would improve quality and unit cost effectiveness
73 © Finnair | Capital Markets Day, 22 May 2014
Commercial focus in product portfolio and revenue optimisationProduct Portfolio Design
• Transformation from bulk general cargo carrier into specialized segmented service delivery
• Considerable growth potential in three specific air freight segments– Perishables (Seafood, fresh food)– Healthcare & Pharmaceuticals– E-Commerce trade parcels
• Growing Asian demand for high quality Pharmaceuticals and European fresh food
• Growth of e-commerce trade with fast B2C/B2B deliveries globally
Revenue Optimization & CRM
74
• Growth of global belly capacity will result in excess supply of cargo capacity
• Professional Revenue management and pricing is a necessity to optimize cargo revenues
• Majority of Cargo Sales comes through GSA partners (60-70%)
• Global & Regional key account management and CRM focus increases
© Finnair | Capital Markets Day, 22 May 2014
Growing cargo opportunity in Pharmaceuticals
• Belgium and Germany are driving Pharmaceutical export growth in Europe
• Global sourcing and distribution of Pharmafavours Air Cargo
© Finnair | Capital Markets Day, 22 May 201475
Source: Seabury
Differentiated product strategy balances flows and enables growth in higher value shipments
76
• Differentiated product strategy balances freight flow directionality and enables growth in specialized, higher value freight exports, especially perishables and pharmaceuticals
• Finnair Cargo specializes in niche traffic flows/services forecast to grow during strategy period: European Perishables & Pharmaceuticals
• Brussels was chosen as a new cargo hub due to its geographical potential and fast growth in pharmaceutical export shipments
© Finnair | Capital Markets Day, 22 May 2014
Brussels cargo hub increases revenue by +35%
© Finnair | Capital Markets Day, 22 May 201477
April 2013Start of Brussels cargo hub
October 2013
2014
Target of1 MEUR monthly belly contribution
by 2015
150-200 tonnes weekly to/from BRU cargo hub to Asia
• Total revenue to/from Central Europe +35% after Brussels cargo hub launch
• Currently accounts for more than 20% of Finnair Cargo’s total revenue (approx. 50 MEUR p.a.)
• Finnair is larger than Cathay Pacific, China Airlines & China Eastern Cargo in German exports
• Finnair is now 20th
largest export carrier in Belgium
April 2013-March 2014
Finnair Tonnage
Change, % y-o-y Rank
Belgium 2,529 252 % 20
Germany 10,941 20 % 28
We are set to leverage growth opportunities in Asia• Specialising in high value, growing niche
traffic flows/services • Enhancing revenue optimisation and CRM
capabilities• Increasing cost efficiency through
automation and outsourcing• Investing in feeder growth & infra to support
growing volumes
Supporting Finnair’s goal to double Asian revenues by 2020
78 © Finnair | Capital Markets Day, 22 May 2014
Thank you! Questions?
79 © Finnair | Capital Markets Day, 22 May 2014
80
Fleet and funding strategy
Solid foundation for growth
Erno Hildén, CFOFinnair Capital Markets Day, 22 May 2014
© Finnair | Capital Markets Day, 22 May 2014
© Finnair | Capital Markets Day, 22 May 201481
Fleet and funding strategy
All-Airbus fleet delivers operational efficiency
829 AIRBUS A319Avg. age 12.7 years
10 AIRBUS A321Avg. age 8.0 years
8 AIRBUS A330Avg. age 4.4 years
7 AIRBUS A340Avg. age 11.2 years
10 AIRBUS A320Avg. age 11.6 years
29 narrowbodies
Ow
ned
/ F
inan
ce le
ased
15 widebodies
© Finnair | Capital Markets Day, 22 May 2014
Airbus 350 XWB anchors long-haul growth plans
Finnair is the first European carrier to receive next generation Airbus 350 XWB’s• A340 replacements with superior cost performance• Capacity growth also for congested Asian airports
Competitive advantage:• 20% more capacity: approximately 40 additional seats with lower trip cost• Estimated seat cost advantage up to -30% compared to Airbus 340*• Improved revenue position with superior product• 11 orders and 8 options
83 © Finnair | Capital Markets Day, 22 May 2014
*Airbus estimate
A350: Lower costs, more passengers
84
Operational cash out expenses per seat, per year / normalized traffic
Estimated aggregate annual cash seat cost savings of c. 10MEUR per aircraft
© Finnair | Capital Markets Day, 22 May 2014
*Airbus estimate
Business cabin convertibility adds flexibility
Front Business compartment Flex compartment
85
Convertibility allows +/- 10% capacity adjustment
© Finnair | Capital Markets Day, 22 May 2014
Current order book facilitates growth
86
Long-haul fleet plan
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
0
5
10
15
20
25
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Wid
ebo
dy
AS
Ks
(mill
ion
s)
Nu
mb
er o
f ai
rcra
ft
13
15 15 15 15 1516
1718
19 20
© Finnair | Capital Markets Day, 22 May 2014
Short-haul fleet plan: under review
• The optimal solutions for the Finnair European feeder network are driven by:– Finnair network characteristics and bank structure– Finnair’s cost position in European traffic– Use of partners
• Finnair’s A320 fleet is approaching mid-life– Synergies from combining short and long haul operations with single type rating requirement– Future short-haul capacity decision to be made during next 18-24 months– Further investment in short haul capacity requires competitive cost position
• Flybe already operating 1/3 of Finnair network flights– FlyBe operating Embraer regional jets and ATR turboprops
© Finnair | Capital Markets Day, 22 May 201487
Finnair funding strategy: liquidity, flexibility
Positive operational cash flow• Ability to produce positive operational cash flow
even through the most challenging years in the industry*
Strong credit with additional debt capacity
• The current low indebtedness facilitates higher leverage potential by utilizing new aircraft as collateral
• Current asset base mostly unencumbered
Maintaining high liquidity through the cycle
• Target cash-to-sales 15-20%• 5-year senior bond with competitive margin• Undrawn 180 MEUR revolving credit facility• Commercial paper program provides additional
liquidity, if needed
Hedging strategy and funding diversification
• Duration diversification to minimize short and mid-term volatility of jet fuel and F/X
• Diversified funding base to secure availability and low cost of funding
88
*2009 has been the only exception since 1997
© Finnair | Capital Markets Day, 22 May 2014
0
200
400
600
800
1000
1200
1400
1600
2014 Q2‐Q4 2015 2016 2017 2018
New aircraft investments require capital11 Airbus 350 XWBs on firm order*
Aircraft investments and loan repayments 2014 – 2018, MEUR
Cumulative outflow2014 – 2018, MEUR
89
Committed financing of ~MEUR 300 by Q4/15
0
50
100
150
200
250
300
350
400
450
2014 Q2‐Q4 2015 2016 2017 2018
Aircraft investments (incl PDP)Loan repayments
*Finnair also has options for an additional 8 A350s© Finnair | Capital Markets Day, 22 May 2014
Funding plans optimize cost of capital
• Finnair’s current aircraft financing portfolio• Secured financing• Earlier generation ECA covered finances• Aircraft operating leases• Japanese operating leases with call option (JOLCO)
• The targeted future financing mix • Secured financing (loans and finance leases)• Japanese operating leases with call option (JOLCO)• Aircraft operating leases
• Strong appetite to overweight the on-balance-sheet option for the A350XWBs because;
• Very attractive purchase price for the A350s• Strong debt capacity enables further leverage• New generation of long haul aircraft with strong residual value outlook
© Finnair | Capital Markets Day, 22 May 201490
Strong financial position supports business development and future investmentsStrong cash positionMEUR
-150
0
150
300
450
600
2010 2011 2012 2013 Q1_2014
Net cash flow from operationsInvestments, grossShort term cash and cash equivalents
Strong balance sheet%
91
0
20
40
60
80
100
120
2010 2011 2012 2013 Q1_2014
Equity ratio Gearing Adjusted gearing
© Finnair | Capital Markets Day, 22 May 2014
Finnair indebtedness among the lowest in the sector
92
Adjusted gearing on selected European carriersFY 2013 – Finnair accounting principles
*) Includes IAS19 restatement & Preference Share Issue
0%
100%
200%
300%
400%
500%
600%
Norwegian AF-KLM SAS*) IAG AY Lufthansa
© Finnair | Capital Markets Day, 22 May 2014
Additional debt capacity from owned fleet
93
Total Fleet: 77 aircraft*
*Aircraft owned or leased by Finnair**As of March 31, 2014
49% unencumbered
51% leased & encumbered
Total book value: €1bln, of which 65% unencumbered**
© Finnair | Capital Markets Day, 22 May 2014
Recent fleet transactions well-received
• Sale and leasebacks of three Airbus 330 aircraft and one A321 Sharklet aircraft completed during Q1/2014– Sale and leaseback of the fourth A330 aircraft to be completed in Q2 2014
• In addition, Finnair agreed on the sale and leaseback of two A350 aircraft in Q1 2014• Sale and leaseback agreement for the fifth A321 Sharklet aircraft completed in Q2, all five
financed with SLBs• MoU on the sale of three E170 aircraft announced in Q2, expected closing in H2/2014
– Divestment of non-core assets to continue
• The financial arrangements of A330 and A350 aircraft relate to Finnair’s long-haul fleet renewal program• Total value of A330 and A350 arrangements 430 MEUR
• In Q1, a loan of 107 MEUR from the European Investment Bank was repaid
© Finnair | Capital Markets Day, 22 May 201494
© Finnair | Capital Markets Day, 22 May 201495
Closing the revenue and cost gaps –Reaching 6% operational EBIT
Unit costs down by 14.1% since end of 2010...
5,07
4,36
-4,0%
-3,9%
-2,0%-1,5% -1,2% -1,2% -1,1% -0,6% -0,6% -0,1% 0,0%
2,4% -14,1%
4,04,24,44,64,85,05,25,45,65,86,0
* Includes purchased traffic from Flybe
96
Bridge to Q1 2014 CASK€ cents / ASK
© Finnair | Capital Markets Day, 22 May 2014
...across most cost categories
97
RASK & CASK DevelopmentAirline business, % change 2013 vs 2010
-9,4-11,5
-17,9-17,1
-3,8-20,7
-8,429,6
-12,5-2,1
0,3
Other ExpCatering
Ground HdlgMx
Traffic ChargesDepr. & Lease Exp
Staff CostsFuel
CASK (ex-fuel)CASKRASK
© Finnair | Capital Markets Day, 22 May 2014%
Asian traffic forecast to grow with wide body fleet
0
5 000
10 000
15 000
20 000
25 000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Far East Asia trafficMillions of ASKs
98 © Finnair | Capital Markets Day, 22 May 2014
...as are revenues from Asian traffic,targeting doubling the revenue from 2010
99
Total revenues from Asia trafficMEUR
0
500
1 000
1 500
2 000
2 500
2010 2011 2012 2013 2014* E 2015 2016 2017 2018 2019 2020
© Finnair | Capital Markets Day, 22 May 2014
* Based on guidance given on 7 May 2014:”Finnair estimates 2014 turnover to be close to 2013 level.”
6% EBIT margin target well within reach-4
,0 %
-2,5
%
0,0
%
0,0
%
0,0
%
0,0
%
-0,1
%
-0,5
%
0,3
%
0,3
%
0,3
%
0,3
%
2,0
% 1,0
%
1,0
%
1,0
%
1,0
%
1,0
%
-0,1
%
-3,0
%
-3,5
%
-3,5
%
-3,0
%
-4,0
%
2015 2016 2017 2018 2019 2020
Total CASK Change CASK ex-fuel change FEA RASK change Other RASK change
Improvement in RASK and CASK, 2015-2020
EBIT margin 4,0% 6,0% 6,0% 6,0% 6,1% 6,1%
© Finnair | Capital Markets Day, 22 May 2014100
Summary and conclusions – fleet and funding• Finnair is targeting doubling its Asian revenues by 2020 and is gearing up with the A350XWB
investment program with 11 firm orders and options for 8 additional aircraft to provide the necessary growth
• Finnair is among the least-levered airlines in Europe, with additional debt capacity provided by a strong balance sheet, an attractively-priced orderbook for the A350XWBs, and the cash generated by our strong position in Asia-Europe traffic
– Nonetheless, the majority of the A350XWBs are planned to be taken on balance sheet
• Solutions for European feeder network to be decided based on:
– Bank structure
– Relative cost position of the European platform
– Partnerships© Finnair | Capital Markets Day, 22 May 2014101
Summary and conclusions – Profitability
• Our renewed commercial strategy aims to close the fair share revenue gap of MEUR 80
• Finnair is well-positioned with its Asian strategy and already established in all the most important markets
• Finnair will enjoy a competitive advantage from being the first European carrier to take delivery of the A350
• Our cost savings programme is one of the most ambitious in the sector and we remain committed to deliver the targeted results by end of 2014
• The financial target on 6% operational EBIT is unchanged and reachable by successful implementation of our strategy
© Finnair | Capital Markets Day, 22 May 2014102
Thank you! Questions?
103 © Finnair | Capital Markets Day, 22 May 2014
Finnair is committed to delivering on strategy• Competitive cost structure and cost
savings
• Topline growth & closing the identified revenue gap
• A350s entry into service
• Growth by building on our existing strengths
© Finnair | Capital Markets Day, 22 May 2014104
Growth2016
2014Cost
savings
Revenueenhancement A350s
2015