Finnair Capital Markets Day 2016 Going for Profitable Growth · Finnair Capital Markets Day 2016...
Transcript of Finnair Capital Markets Day 2016 Going for Profitable Growth · Finnair Capital Markets Day 2016...
Finnair Capital Markets Day 2016Going for Profitable Growth
Pekka Vauramo, CEO and President25 May 2016
Juha Järvinenb. 1976, MBA, Chief Commercial Officer as of 1 November 2014. In Finnair’s service since 2012. Mr. Järvinen has extensive experience in managing different services within the airline industry. He served as Managing Director of Finnair Cargo since March 2012, and prior to that he was the Vice President, Ground Handling International at SAS Scandinavian Airlines.
Pekka Vauramob. 1957, M.Sc. (Technology). President and CEO as of 1 June 2013. Mr. Vauramo joined Finnair from Cargotec, a Finnish cargo and load handling company, where he held different management positions between 2007 and 2013, most recently as COO of the MacGregor business area based in Hong Kong. Between 1985 and 2007, Mr. Vauramo worked at Sandvik, a Swedish mining and construction company.
Ville Ihob. 1969, M.Sc. (Technology), SVP Strategy and Resource Management, deputy CEO. In Finnair's service since 1998. Prior to his present position, Mr. Iho was Finnair's COO and previously SVP Resource Management.
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Introducing today’s speakers
© Finnair | Capital Markets Day 2016
Christine Rovellib. 1974, MBA (Analytic Finance, Accounting), VP Financial Analysis and Strategy, in Finnair's service since 2012. Ms. Rovelli has previously worked for international investment banks focusing on strategic advisory of capital market transactions within the aviation and logistics sector.
Mikko Tainiob. 1979, M.Sc. Econ, VP Ground Operations, Interim COO, in Finnair's service since 2005. Mr. Tainio has worked in various management and expert positions at Finnair, most recently as VP, Head of Group Business Control. He has been leading several Finnair group restructuring projects and was managing the group’s 200M€ cost savings program during 2010-2014.
Pekka Vähähyyppäb. 1960, M.Sc. Econ., eMBA, Finnair CFO as of 17 August 2015. Vähähyyppä joined Finnair from Stockmann, where he held different management positions between 2000 and 2015, most recently as CFO. Prior to that, he worked in financial management for example, at Nestlé’s Nordic subsidiaries, OKO-Venture Capital and A-lehdet Oy.
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Introducing today’s speakers
© Finnair | Capital Markets Day 2016
Our agenda for profitable growth
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Topic Speaker time pages
Going for profitable growth CEO Pekka Vauramo 13:00-13:30
Beating the market RASK in selected markets CCO Juha Järvinen 13:30-14:15
Break 14:15-14:30
Finnair's growth drivers: First-rate Fleet, Expanding Network, Smart Partnerships
SVP Strategy and Resource Management, Ville Iho 14:30-15:10
Continuing growth in China VP, Financial Analysis and Strategy, Christine Rovelli 15:10-15:45
Break 15:45-16:00
Expanding the world class airline Interim Head of Operations, Mikko Tainio 16:00-16:30
Driving growth with fleet investments & Building blocks to reach our financial targets CFO Pekka Vähähyyppä 16:30-17:10
Recap and closing remarks CEO Pekka Vauramo 17:10-17:30© Finnair | Capital Markets Day 2016
What have we achieved since 2014 CMD?
In CMD 2014 we shared our mid-term priorities
Our achievements include...
Completion of cost savings program over target, 217 M€ in total
Significantly increased our ancillary sales
Taken delivery of 5 A350’s as the first airline in Europe
Revised our growth plans and launched new long haul routes
5 © Finnair | Capital Markets Day 2016
Maintaining firm cost control
• Fuel efficiency program• Centralised procurement• Personnel productivity
Further cost savingsderived from operational
improvements
• Markedly improved fuel efficiency with the A350
• Lower unit labour costs• Improved overhead cost absorption
Focus on growth is driving additional
cost benefits
© Finnair | Capital Markets Day 20166
We have defined focus areas to achieve our growth and financial targets
© Finnair | Capital Markets Day 20167
Profitable GrowthFleet & Network growth (ASK)
Financial targets
Commercial excellence
Defend RASK and grow ancillaries
OperationalExcellence
Cost discipline and world class operations
Comparable operating EBIT margin of 6%
Adjusted Gearing <175%ROCE min 7%EBITDAR margin
min 17%
Customer experienceOffer best European business class and secure service delivery
TransformationEmbrace and benefit from the business and digital transformation
People experienceEnsure growth by increasing performance and productivity Market share
Customer satisfaction
Personnel satisfaction
Sustainability
Aligned organisational structure supports accelerated growth
8 © Finnair | Capital Markets Day 2016
We expect to reach our target of doubling Asian traffic already in 2018
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
© Finnair | Capital Markets Day 20169
Accelerated growth: Asian traffic to double from 2010Available Seat Kilometres
There is still room for growth in Nordic skies
The southern route is getting crowded Helsinki’s advantageous geographic location still stands out
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Sustainable competitive advantage based on location:
Tokyo – Hamburg
Direct (no service) 9,014 kmVia Helsinki 9,021 km, minimum connection time 40 minVia Frankfurt 9,805 km, +2.5h flight time, minimum connection time 60 minVia Dubai 12,882 km,+4.5h flight time, minimum connection time 75 min
© Finnair | Capital Markets Day 2016
A350s generate excellent customer ratings and clear profitability improvements Long haul business Long haul economy
© Finnair | Capital Markets Day 201611
8.4
8.0
8.9
8.4
8.1
8.98.7
8.6
9.1
7
7.5
8
8.5
9
Overallsatisfaction
Likelihood to re-use
Value for money
A330 A340 A350
8.0 7.9
8.8
8.07.8
8.78.5
8.1
9.0
6.2
6.7
7.2
7.7
8.2
8.7
9.2
Overallsatisfaction
Likelihood to re-use
Value for money
A330 A340 A350
Limited investment required to support accelerated growth
Long-haul capacity step up in 2017: number of A330s not decreasing
Long haul fleet plan in 2014: net addition of one wide body aircraft
per year
12 © Finnair | Capital Markets Day 2016
0
5
10
15
20
25
2015 2016 2017 2018 2019 2020A330 A340 A350
0
5
10
15
20
25
2015 2016 2017 2018 2019 2020
2014 WB fleet plan Revised WB fleet plan
Num
ber
of a
ircr
aft
Num
ber
of a
ircr
aft
Going for profitable growth
•Modern and efficient fleet•Scale economies in fixed costs•New recruitments reduce unit labour costs
Cost efficiency improvements
•More growth with low CAPEX•We will reach our target of doubling Asian traffic already by 2018
Momentum for accelerated growth
•We have unique levers that enable profitable growth
•Increase in volume drives revenue growth and comparable EBIT improvement
Creating shareholder value
© Finnair | Capital Markets Day 201613
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Beating the market RASK in selected marketsJuha Järvinen, Chief Commercial Officer
© Finnair | Capital Markets Day 2016
How we will defend our RASK
© Finnair | Capital Markets Day 201615
Leveraging competitive advantage in selected markets
Optimising O&D revenue
Launching new revenue streams
Maintaining margins through next generation Cargo
Our building blocks for revenue growthUnique selling points to create RASK premium
© Finnair | Capital Markets Day 201616
Finnair unique selling propositions
Right of existence
Market RASK
IncreasingRASK premium
These strategic focus markets offer greatest competitive advantageConcentrating on 30 cities and their catchment areas globally
© Finnair | Capital Markets Day 201617
Miami
Xi’an
Beijing
Shanghai
Singapore
New York
BangkokPhuket
Chongqing
ChicagoTokyoNagoya
OsakaSeoul
Delhi
Ho Chin Minh City
Hong Kong
Krabi
Fukuoka
Guangzhou
Toronto
Strategic JB MarketsStrategic Focus MarketsStrategic Home Markets
We are ready to develop the Finnair brand internationally
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Commitment to Care,
MINDSET: Nordic Boutique
Airline
BRAND ATTRIBUTES: Creative, Fresh,
Quality & Inspirational Joy
VALUES:Courage,
Commitment to Care, Simplicity
© Finnair | Capital Markets Day 2016
New drivers for Revenue Management
© Finnair | Capital Markets Day 201619
Revenue Maximization
Inventory
Ancillary
Loyalty
We have outgrown our home markets, and future growth requires origin & destination revenue management
© Finnair | Capital Markets Day 201620
Business Driver
RASK pressure (growth, competition)
Traffic growth, more connecting flows
LCC competition, fenceless fares
Industry trends: RM science, NDC, ancillary
growth
Current system support & stability
O&D RM Motivation
Significant revenue opportunity vs. current
setup
OD level forecast & network optimization
Advanced buy-down prevention
Regain competitiveness, increased future proofing
Decrease risk of an outdated system
LOW YIELD, LEISURE HIGH YIELD, LOYAL-CORPORATE
DIR
ECT
SA
LES
INTE
RM
EDIA
RY
e.g. Nordic Families e.g. Nordic Business
e.g. Asian Vacationers
e.g. Chinese Business
Digitalisation helps us increase average revenue per passenger
DEFEND
INVEST
© Finnair | Capital Markets Day 201621
Digital touch-points will increase our direct sales opportunities
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8.210.2
0
5
10
15
2014 2015
Ancillary revenue per pax, €
We have an attractive ancillary portfolio...
Wi-Fi/wIFE onboard & new ancillary platform
content(10/15-)
New baggage conceptwith Light fare (3/15)
Long-haul economy comfort
seats (12/14-)
Finnair Sky Bistro andPreorder meals
(11/14-)
Finnair mobile app (11/14-)
Lounge pass (8/2014-)
New products
Upgrade products(10/2014)
Finnair Plus point payment
Advanced seat reservations (11/2013)
Technology & distribution
© Finnair | Capital Markets Day 2016
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... And aim to increase ancillary revenue by 46% per passenger
Time to Think booking products
GDS expansionTour operator cooperation
NDC technologyIBE developmentExtended mobile dialogue
Finland Stopover products
Inflight travel services:
Insurances, hotels, cars
Expanded omni-channel
Finnair retail operations
New products
Technology & distribution
10.214.9
0
5
10
15
20
2015 2018 target
Ancillary revenue per pax, €
© Finnair | Capital Markets Day 201624
Digital touchpoints help build customer loyalty....
© Finnair | Capital Markets Day 201625
... And increase share of wallet
© Finnair | Capital Markets Day 201626
X 20AVERAGE REVENUE
X 10,4AVERAGE REVENUE
X 5,8AVERAGE REVENUE
X 1,4 AVERAGE REVENUE
AVERAGE REVENUE
All FINNAIR PASSENGERS
Average revenue ratios as of 2015
We want to capture more of our international customers’ spend…
27 © Finnair | Capital Markets Day 2016
... By offering Finnair branded dynamic packaging
© Finnair | Capital Markets Day 201628
• Motivation based, seamless flow: dream – discover – buy
• Premium access for personalised tier member & flight crew recommendations & holiday planning tools
• Innovative payment & ancillary service options
• Unique Nordic Experience • New earn & burn concept• Exclusive access to benefits• Campaign events
Hassle free, easy to buy Quality, Creative, Fresh & Inspirational joy
Exceptional loyalty benefits
• Smooth transfers and greater flexibility cross the entire oneworld and Finnair partner network.
• Hotels, transfers, excursions & events
Leisure package based on extensive network
We aim to offer the best business class experience
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• Modern A350 and A330 cabin experience• Wi-Fi available on all Airbus fleet
• Best European Business Class product • Signature chef & sommelier• Improved meal concepts
• Best European Business Class service• Unique Nordic Customer Experience• Renewed Finnair Plus concept
Aircraft Interior Inflight Product Customer Service & Dialogue
• Renewed Airbus narrow body experience• Additional seat capacity • Enhanced cabin experience
• Improved meal concepts in economy class• Enhanced inflight elements: e.g. Long haul IFE entertainment, Marimekko for Finnair elements, Cabin section concepts
• Contact center services renewed• Personal proactive digital service
Best EuropeanBusiness Class* © Finnair | Capital Markets Day 2016
*Of European carriers, long haul business
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Cargo is a significant driver for Finnair’s international success
© Finnair | Capital Markets Day 2016
Cargo is a significant driver for Finnair’s international success: Shift away from bulk to speciality is the key margin driver
© Finnair | Capital Markets Day 201631
Cargo contributionFinnair Cargo provides
40% margin contribution to the Finnair Group.
Key marketsSelected strategic focus markets, yield premium in specialized product
segments.
New terminalNew COOL Nordic Cargo Terminal enables state-of-the-art hub logistics and reduces Cargo unit
costs.
Product specializationGrowth of e-commerce trading and specialized
cargo products
Competitive advantage
Quality and fast delivery
Improvements in cost efficient automation increase our share of higher yielding speciality products
© Finnair | Capital Markets Day 201632
Special temperature
areas to support special
cargo products
Warehouse automation to
improve efficiency and quality
How we will defend our RASK
• Finnair aims to beat the market RASK from the strategic focus markets
Leveraging competitive advantage in selected
markets
• Attractive ancillary portfolio in place, aim to increase sales per pax by 46%
•Launching new revenue streams
Direct Business will expand our digital touch-
points
• Next Generation COOL Nordic Cargo Terminal • Focus on higher yielding speciality products
Maintaining margins through next generation
Cargo
© Finnair | Capital Markets Day 201633
Finnair's Growth Drivers: First-rate Fleet, Expanding Network,
Smart Partnerships Ville Iho, SVP Strategy and Resource management
34 © Finnair | Capital Markets Day 2016
Finnair’s natural competitive advantage is in North-East Asia & strategic focus markets
9,3 MillionOD Pax, CAGR
2,7%**
66 Million OD Pax, CAGR 2,9%
42 Million OD Pax, CAGR 4,9%
70 Million OD Pax*, CAGR 4,4%
Strategic JB MarketsStrategic Focus MarketsStrategic Home Markets
Existing destinationLeisure destinationCompetitive area
Fukuoka
GuangzhouMiami
Xi’an
Beijing
Shanghai
Singapore
New York
BangkokPhuket
Chongqing
ChicagoTokyoNagoya
OsakaSeoul
Delhi
Ho Chi Minh City
Hong Kong
Krabi
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OD pax source: DDS Reported + Estimated Passengers, Bi-Directional Total, Travel Period 2015RPK Traffic Growth (2014-2034 CAGR) between Continents Source: Airbus Global Market Forecast 2014-2034
*Excluding Intra-regional Origins/Destinations in Russian Federation**2015 Finland - Europe market included 9 317 274 origin-destination pax with a growth of 2,7% vs. last year (Source: DDS).
Note. This data is aligned with Intra Western-Europe CAGR 2.7% from Airbus GMF 2014-2034**24h rotation estimated with maximum payload & WB average range; 8500 kilometres, use only for planning purposes
Competitive area vs. Middle –East carriers, compared based on distance in great circle kilometres, e.g. BOD-HEL-BKK vs. BOD-DXB-BKK© Finnair | Capital Markets Day 2016
Smart Partnerships - Joint businesses have created market coverage & share in Finnair’s key markets
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SJB market share: 21%
AJB market share: 25.8%
Atlantic Joint Business
Siberian (Europe-Japan)
Joint Business
Strategic JB MarketsStrategic Focus MarketsStrategic Home Markets
© Finnair | Capital Markets Day 2016
A350 drives increased efficiency in the current bank structure
© Finnair | Capital Markets Day 201637
Current fleet plan enables ASK CAGR of 8-10% in 2016-2018
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2014 2015 2016 2017 2018
A330 / A340 A350 Narrow Body fleet - Base Narrow body fleet - Growth© Finnair | Capital Markets Day 201638
Available Seat Kilometres by fleet type 2014-2018
Capacity set to grow with long haul expansionFaster growth in long haul More feeder capacity to accommodate long
haul growth
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Seats, Mill.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Planned growth Base growth plan
Market Growth* Estimated Market Growth
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Planned growth Bear case option
Seats, Mill.
© Finnair | Capital Markets Day 2016
Unit costs are set to decline
Fleet modernization and aircraft up gauging will decrease CASK
900 new recruitments drive lower labour costs, competitive terms in new CLA’s
© Finnair | Capital Markets Day 201640
CASK without growth or
modernization
201820172016
Fleet modernizationAvg. seat nbr growthAC growth
CASK -8%
* Excluding capital cost**Cabin crew and pilots
0
200
400
600
800
1000
1200
<5 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-
2016 2018H
eadc
ount
, ca
bin
& p
ilots
Average cost**to decrease by 9% by
2018
Profitable incremental growth even with larger than expected decline in unit revenues & limited market access
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Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov
2016 2017 2018
Keep 2 x A330 - Fuelprice 450 USD
Keep 2 x A330 - Fuelprice 450 USD &route revenues -5%
Keep 2 x A330 as WBspare
Wet lease out 1 xA330, 1 x WB spareJa
n
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov
2016 2017 2018
Includes only markets where Finnair currently has accessRequires access to new markets
Target case scenario Bear case scenario
ASA 17
ASA 18
ASA 19
NewS17 S18 S19
W18 W19 W19
© Finnair | Capital Markets Day 2016
EBIT
in
crem
enta
lcu
m
EBIT
in
crem
enta
lcu
m
We can adjust our growth according to market conditions without locking ourselves to outdated assets
All-Airbus wide-body fleet delivers strong economic benefits
Average fleet age vs peer European network carriers
© Finnair | Capital Markets Day 201642
Aircraft Type
7Airbus A319 2
Owned2 Leased
6Airbus A320 4
4Airbus A321 7
3Airbus A330 5
5Airbus A340(3) 0
Airbus A350(4) 2 2
1. Finnair fleet as of 30 March 2016, excluding Embraer fleet operated by Norra2. Owned or finance lease3. Will be phased out between H2 2015 and 2017, being replaced by the A3504. Total orders: 19; 7 by the end of 20165. Reported average fleet age for peers, as of: 31 March 2016 for Finnair and Aer Lingus and Air France-KLM, 9 Nov 2015 for IAG; and 31 January 2016 for SAS
11.8
11.7
11.6
11.1
9.2
0 5 10 15
Lufthansa
SAS
Air France-KLM
IAG
Finnair14.7
avg. age
13.6
9.3
6.4
10.9
0.3
Flexible assets – Fuel efficient, modern fleet in all market conditions Ability to scale down without one-off losses
© Finnair | Capital Markets Day 201643
0
10
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40
50
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2016 2017 2018 2019 2020 2021 2022 2023
Nu
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f A
C
Fleet plan Maximum flexibility
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2016 2017 2018 2019 2020 2021 2022 2023
Nu
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C
Fleet plan Maximum flexibility Lease option
#15
#26
#16
#17
#55#53
Wide body fleet flexibility 2016-2023 Narrow body fleet flexibility 2016-2023
Finnair's growth drivers: First-rate Fleet, Expanding Network, Smart Partnerships
•Modern fleet and streamlined organisation and well functioning network model Foundation in place
•Growth potential in new and current markets, supported by partnershipsMarket opportunities
• Favourable unit cost development with fleet renewal and growth
Scalable resources & assets
• Adaptability to changes in external environmentFlexibility
© Finnair | Capital Markets Day 201644
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Continuing growth in ChinaChristine RovelliVP, Financial Analysis and Strategy
© Finnair | Capital Markets Day 2016
Finnair in China: facts & figures
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Development of Finnair service to China
Shanghai (2003)
Beijing (1988)
Hong Kong (2002)
Chongqing (2012)
Xi’an (2013)
Guangzhou (2005, 2016)
Source: SRS
+20% growth since 2010
© Finnair | Capital Markets Day 2016
Capacity growth since 2010
Increasing demand from secondary cities
Where do people go from Europe?Number of passengers, 2015
Who takes them there?Number of seats Europe-China 2015
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Shanghai28 %
Beijing28 %
Hong Kong28 %
Guangzhou6 %
Wenzhou3 %
Chengdu3 %
Hangzhou1 %Chongqing1 %
Wuhan1 %Nanjing
1 %
Source: DDS
CA 25.2 %
AF-KLM 17.3 %
LHG 15.7 %
CZ 8.6 %
MU 7.8 %
TK 6.5 %
IAG 4.7 %
AY 4.6 %
HU 3.3 %
© Finnair | Capital Markets Day 2016
Capacity growing to meet demand
Top Chinese carriers to Europe2015 seats
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Source: DDS
Top European carriers to China2015 seats
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2011 2012 2013 2014 2015
Seats (m)
LH AF-KLM TK BA AY
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2011 2012 2013 2014 2015
Seats (m)
CA CZ MU HU
64%19%
© Finnair | Capital Markets Day 2016
Demand growth: more than just GDP
GDP growth drives passenger demand… …which tracks an economic development curve
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0%
2%
4%
6%
8%
10%
12%
14%
2010 2011 2012 2013 2014 2015 2016
RPK growth GDP growth
Source: IATA, World Bank, OECD, United Nations Population Division, Airbus Global Market Forecast
USA
ChinaIndiaRussia
UKFinland
Hong Kong
Singapore
JapanSouth Korea
Thailand
00.5
11.5
22.5
33.5
4
0 10,00020,00030,00040,00050,00060,00070,00080,000
Trip
s/ca
pita
2015 GDP/Capita (USD)80,000
$13,000
© Finnair | Capital Markets Day 2016
Demand for air travel in China expected to continue...China’s economy is still growing…
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0% China GDP GrowthWorld GDP growth
…and demand for air travel is expected to continueForecast growth in passenger markets
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Source: Oxford Economics, OECD, IATA monthly statistics
8.9%8.3%
3.8%
2.4%
6.3%
5.0%
2.9% 2.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
India China Russia Brazil
Next 5 years
Next 20 years
© Finnair | Capital Markets Day 2016
...with Europe still a top destination
Preferred international destinations
0%10%20%30%40%50%60%
Forecast inbound tourism from China
020406080
100
Tour
ists
(m
)
2015E2025E
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Source: equity research
© Finnair | Capital Markets Day 2016
Domestic economy impacting traveler behavior…Yuan vs USD Impact on travel plans
26%
29%
30%
52%
0% 20% 40% 60%
Postponetravel
Changedestination
Shorten trip
Spend less
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Source: Bloomberg, equity research add date?
0.1460.1480.15
0.1520.1540.1560.1580.16
0.1620.164
© Finnair | Capital Markets Day 2016
…but international trips still important
Average # of outbound trips in next 12 months
2.6
2.1
0
0.5
1
1.5
2
2.5
3
April 2015 October 2015
Absolute # of outbound trips in next 12 months
33%51%
29%28%
38%21%
0%
20%
40%
60%
80%
100%
120%
April 2015 October 2015
>Three Two One
53
Source: equity research
© Finnair | Capital Markets Day 2016
Asia remains best focus for Finnair
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Growth in passenger journeys by region, 2015-2035
North America:
2,8%
Latin America:
3,8%
EU: 2,1%
Middle East: 4,7%
Africa: 4,5%
Asia-Pacific: 4,6%
Source: IATA, Oxford Economics
© Finnair | Capital Markets Day 2016
Long term growth continues: summary
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China has been, and continues to be, an important market for Finnair
The Chinese market for air travel is growing; so is the competition
Economic events have impacted traveler behavior; propensity to travel still increasing
Finnair believes that China remains the market with the best growth potential, and strategic fit
© Finnair | Capital Markets Day 2016
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Expanding the world class airlineMikko Tainio
© Finnair | Capital Markets Day 2016
Expanding the world class airline
• Finnair today – World class operational quality and leader in sustainability
• Maintaining world class operations in growth phase– Resources geared for growth– Synchronized growth agenda – Helsinki Airport in 2020
© Finnair | Capital Markets Day 201657
World class operational performance today: Finnair’s network model calls for excellent operational reliability
Arrival punctuality in top 5 in 2015* World class performance
• 99% connection reliability –only 1 out of 100 Asia-Europe passengers are rerouted in Helsinki
• 99.6% regularity – only 0.4% of scheduled flights are cancelled
• 99.4% of bags delivered on time – only 6 out of 1000 bags are left behind
80
82
84
86
88
90
92
94
96
*2015 AEA & OAG statistics used as baseline, with selected non-network carriers excluded © Finnair | Capital Markets Day 201658
Sustainability contributes to the bottom line, and decreases risks
Cost efficient use of resources, Managing risks
Leading airline in corporate responsibility
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IEnvAIATA Environmental Assessment Program
EES+ Energy Efficiency System
Risk-based evaluation of aspects and
impacts
Solid target setting based on
environmental and economical impacts
© Finnair | Capital Markets Day 2016
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Gearing up the resources for growth and maintaining world class operations
© Finnair | Capital Markets Day 2016
© Finnair | Capital Markets Day 201661
Aircraft
We have a detailed plan to gear up our resources for growth
Human resources
Facilities Partners Helsinki Airport
Resource flexibility is key in potential growth plan adjustments
Synchronised 2020 growth plans with HEL Airport - Smooth transfers for our focus markets
TOP 10 Airports in the world, and 2nd in Europe
Best airport in Northern Europe
Helsinki Airport is one of the most competitively priced airports for transfer passengers
© Finnair | Capital Markets Day 201662
Process improvements ensure reliability and customer experience during construction period
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Dealing with gate capacity
• Enhance gate use through improved ground operations
• prioritisation of connecting flights
Ground operations efficiency
• Renewed agreement with Swissport improving quality
Steering airport
processes and partners
• Joint Hub control with all airport operators
Border and Security
resources and processes
improvement• New Express
Connection • Increased staffing
agreed
Runway & taxiway capacity
enhancements• Runway
performance project
• Faster A350• Flight prioritisation
Construction project follow
up
• Continuous follow up through various co-operation bodies
• Common focus on enhancing customer experience
Improving bus transport
experience
• Added and improved bus capacity
• New busing concept
• Improved bus terminal facilities
The minimum connection time for transfer passengers will remain at world class 40 minutes© Finnair | Capital Markets Day 2016
Expanding the world class airline
•Finnair is one of the most operationally reliable and sustainable airlines in the world
World class operational quality and leader in
sustainability
•We aim to keep our reliability high even through the growth phase
•We have the scalable, cost efficient resources that are required for accelerated growth
Detailed plan to gear up for growth
•The Helsinki airport is an asset to Finnair•Airport expansion and process development is synchronised with Finnair’s growth plans
Growing the hub without disruption
© Finnair | Capital Markets Day 201664
Driving growth with fleet investments & building blocks to reach our financial targetsCFO Pekka Vähähyyppä
65 © Finnair | Capital Markets Day 2016
Today’s agenda
• Driving growth with fleet investments– Update on funding progress– Diversified financing options manage leverage
• Building blocks to reach our financial targets– Where will the planned growth take Finnair? – What impact will it have on the financial statements?
66 © Finnair | Capital Markets Day 2016
67
Driving growth with fleet investments
© Finnair | Capital Markets Day 2016
0
5
10
15
20
25
30
35
40
2015 2016 2017 2018 2019 2020
A319 A320 A321
4%
7%1% 1%
0
5
10
15
20
25
2015 2016 2017 2018 2019 2020
A330 A330 flex A340 A350
8%
15%
5%
11%
Capacity increases by new aircraft and upgaugingLong-haul capacity to grow with A350 deliveries
Larger aircraft, additional seats in short-haul
68 © Finnair | Capital Markets Day 2016
Capacity growth( seats per year, %)
Funding secured for first 8 A350sOver one billion euros of secured financing since Q3/2015
69Net investments Signed SLB’s &
divestments
Net confirmed investments 368 M€
© Finnair | Capital Markets Day 2016
A350 funding
Year Delivery SLB JOLCO Cash/debt
2015 3 2 1
2016 4 1 2 1
2017 4 1 3
2018 1 1
Financing mix preserves flexibility while managing leverageStrong balance sheet, negative net debt Diversified financing options available
© Finnair | Capital Markets Day 201670
-60
-40
-20
0
20
40
60
80
2015 Q1 2016
Equity ratio Gearing Adjusted gearing
• Senior bond market• Hybrid bond market• A350 JOLCOs• Other aircraft debt financing• A350 Sale and leasebacks
• New A321 narrow body aircraft will be leased
32.5
-35.1
70.7
Finnair has one of the lowest leverage ratios in the industry
Median:3,7x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
10.0x
Norwegian Aeroflot Emirates SAS Air China Air France Lufthansa IAG Finnair easyJet Ryanair
© Finnair | Capital Markets Day 201671
Net lease-adjusted debt / EBITDAR (31/12/15)
Calculated using entire company reported numbers. Adjusted for leases @ 7x aircraft rental expenseCurrencies converted into Euros at LTM average exchange rates for the period. Carriers LTM as of December 31, 2015 except forEmirates (March 2015). Source: Company financial statementsHybrid bond calculated as debt for AY and SK
72
Building blocks to reach our financial targets
© Finnair | Capital Markets Day 2016
What was said earlier today...
© Finnair | Capital Markets Day 201673
Why accelerate growth plans?Estimated ASK growth; CAGR 8-10 %
2015 Cost base 2,230 M€, ASK 31,800 million
74
Fuel; 600
Variable; 1030
Aircraft; 200
Fixed; 400
© Finnair | Capital Markets Day 2016
Growth reduces overhead, unit costs
Fixed costs ~18% of cost base
0.00
0.50
1.00
1.50
0
10,000
20,000
30,000
40,000
50,000
2015 ASK31800
What IF ASK40000
ASK millions FIXED CASK c
-20.5%
Fleet investments support unit cost improvement and higher productivity
Airbus A350 XWB: Lower costs, more passengers**
• Fuel consumption decrease up to 25%
• Other operational cost decrease in mature operations up to 15%
• Estimated aggregate annual seat cost savings of c. 7-8 MEUR per aircraft
• 10-15% more capacity, ~30 seats per aircraft
**Compared with A340 aircraft, operational cash out expenses per seat, per year / normalized traffic
75
Fleet modernization and aircraft up gauging will decrease CASK*
CASK without growth or
modernization
201820172016
Fleet modernizationAvg. seat nbr growthAC growth
CASK -8%
2015 CASK
© Finnair | Capital Markets Day 2016* Excluding capital cost
Reduction in average seniority lowers labour unit costs
Flying personnel unit costs set to decline Reduction in average seniority
• Approximately 900 recruitments by 2018, of which 600 cabin crew
• Average flying personnel cost to decrease by 9%
• What IF 2015: CASK decrease of 14% with 9% decrease in average pay and increasing share of new employees
7676 © Finnair | Capital Markets Day 2016
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0102030405060708090
100
2015 Average staffcost
What IF 9 % lowercost and more new
recruits
Staff cost/person CASK, c
-14%
Increasing capacity, holding overhead steady reduces overhead unit costs
Cost base development
77 © Finnair | Capital Markets Day 2016
• Growth reduces fixed unit costs
• New recruitments reduce the average cost of flying personnel
• A350 significantly more economical to operate than A340
• New WB and NB aircraft increase the aircraft costs accordingly
• Investments in customer experience
• Investments in digitalization
Key growth components
• ASK growth 8-10 % CAGR
• Finnair will beat the declining market ticket RASK in strategic focus markets
• Ancillary revenue per pax will grow to 15 €; positive revenue impact ~50 M€ with 2015 pax levels
• New Cargo terminal will boost cargo revenue and efficiency
• Suntours will continue positive development
Summary – Solid structure for profit improvement
•1 billion euros of secured funding since Q3 2015•Solid balance sheet support the coming investments
Strong financial base for growth
•Ticket revenue will beat market RASK•Ancillary revenue contribution to grow significantly
Revenue growth
•Modern and efficient fleet•Scale economics in fixed costs•New recruitments reduce unit labour costs
Growth lowers unit costs
© Finnair | Capital Markets Day 201678
Finnair is committed to delivering onprofitable growth strategy
•Modern and efficient fleet•Scale economics in fixed costs•New recruitments reduce unit labour costs
Cost efficiency improvements
•More growth with low CAPEX•We will reach our target of doubling Asian traffic already by 2018
Momentum for Accelerated growth
•We have unique levers that enable profitable growth
•Increase in volume drives revenue growth and comparable EBIT improvement
Creating shareholder value
© Finnair | Capital Markets Day 201679
© Finnair | Capital Markets Day 201680
Thank you