Finnair Group Interim Report 1 January – 30 September 2006.
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Transcript of Finnair Group Interim Report 1 January – 30 September 2006.
Finnair GroupInterim Report
1 January – 30 September 2006
Industry faces challenges despite lower oil prices
• Lower oil prices pave the way for better profitability
• Competition remains tough in Nordic countries, but unprofitable routes already cut
• Two airlines have withdrawn from Finnish market
• Strong airlines invest in new aircraft with low fuel consumption
• New security procedures add costs
Weak third quarter
• Demand still strong• Record load factors • Increasing Business Class demand• Fuel expenses up 25 MEUR• Decreasing unit costs• Aviation Services and Leisure Traffic below
targets• FlyNordic´s operating result in profit
Restructuring programme well underway
• Planned restructuring programme to bring 80 MEUR annual cost benefits
• 670 jobs will be cut in 2006-2007• Emphasis on Finnair Technical Services and
support functions• Efficiency measures and flexibility also include
pilots and cabin staff, negotiations underway• Finnair Facilities Management to be outsourced• Owner- and partnership options are being
explored for Northport Oy and its subsidiaries
Operations systematically rationalised, Asian growth requires more personnel
Personnel
7 000
8 000
9 000
10 000
11 000
12 000
1999 2000 2001 2002 2003 2004 2005 Q32006
Personnel on average
Result pressed by fuel and support services
Q3/2006 Q3/2005 Change %
Turnover mill. € 515.4 479.7 7.4
EBITDAR 69.8 71.0 -1.7
EBIT excl. capital gains, fair values changes of derivatives, reorganization expenses, depreciation and rents 22.5 25.7 -12.5
Capital gains 0.1 0.6 -83.3
Fair value changes of derivatives -7.9 5.8 -
Operating profit/loss (EBIT) 14.7 32.1 -54.2 Profit after financial items 13.5 36.2 -62.7
Unit costs fell
* excluding fair value changes of derivatives ATK = Available Tonne Kilometre
Q3/2006 Q1-Q3/2006
Unit costs of flight operations* c/ATK -4,7% +3,6 %
Unit costs of flight operations excl. fuel* c/ATK -10,0% -2,3 %
Personnel expenses c/ATK -12,0% +2,8 %
Fuel costs c/ATK +15,5% +29,3 %
Traffic charges c/ATK -4,7% -1,5 %
Ground handling and catering €/passenger -2,0% -2,3 %
Sales and marketing €/passenger -10,9% -7,8 %
Aircraft lease payments and depreciation c/ATK -7,0% +0,2 %
Other costs c/ATK -10,0% -4,5 %
• 2003: 10.2% of turnover
• 2004: 12.5% of turnover
• 2005: 15.6% of turnover
• 2006: ~20% of turnover at current price level and planned traffic growth
Finnair scheduled traffic has hedged 62% of its fuel purchases for the next six months, thereafter for the following 30 months with a decreasing level. Finnair leisure flights hedged 78% of winter traffic programme’s consumption.
Fuel bill up with almost 80 MEUR
Jet Fuel derivatives still on a high level
Development of average flightand fuel price 2001 - 2006
6,00
7,00
8,00
9,00
10,00
11,00
12,00
2001 2002 2003 2004 2005 2006 Q1-Q3
Ave
rage
price
/ R
PK
200
250
300
350
400
450
500
550
600
€/to
nne
Finnair average priceFuel tonne price
-20
-15
-10
-5
0
5
10
15
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Yield (EUR/ RTK) Unit costs (EUR/ ATK)
Unit costs down 4.7%
Change YoY
%
2004 2005 200620032002
Most modern European fleet
• Average age of European fleet below four years• Boeing MD-80 aircraft retired from parent company
fleet in July• Popular new Embraer 170/190 aircraft increase
flexibility and load factors, decrease costs and are eco-efficient
• A total of ten new Embraer 170 in November, six new Embraer 190 next year, four options
• Eighth wide-body aircraft, Finnair’s first Airbus 340 took flight in July
• Two new Airbus A340 aircraft annually 2007-2008
Harmonised fleet
Embraer 170/190
Long haul- 12-18 aircraft- 250-314 seats
Airbus A340/A350
Mid haul- 29 aircraft- 126-181 seats
Airbus A319/A320/A321
Feeder traffic- 16 aircraft- 76-100 seats
Strong balance sheetEquity ratio and adjusted gearing
%
Group continues to have strong liquidity
Cash flow January-September
CASH FLOW STATEMENT (EUR mill.) 2006 2005
Cash flow from operations 23 123
Investments and sale of assets -149 -57
Cash flow from financing 73 -6
Change in liquid funds -53 60
Liquid funds at the beginning 339 250
Liquid funds at the end 286 310
Asian success continues
• Demand (Jan-Sept) grew 29,2 %, passenger numbers 28,5 %, load factor 1,6 %, cargo 22,4 %
• New route to Delhi opened in October. Next year Kuala Lumpur which is 11th Asian destination.
• Over 100 flights a month to China• Capacity will grow by 30% in last half of year
Share of Asian traffic growingScheduled traffic passenger and cargo revenues Q1-Q3/2006
Domestic13 %
Europe45 %
Asia37 %
America5 %
Finnair transformingto Europe-Asia traffic
• This year two new aircraft for long haul traffic• Competitive operating terms a necessity • 1-2 new Asian destinations per year, more
frequencies to existing destinations• New feeder lines in European network• Demand remains strong at a higher price level• Market share continues to increase, Finnair’s
Asian sales have, for example, increased by 70% in Sweden
Assesments for future development
• Impact of Flight Attendants´strike on Q4 is 10 MEUR• The 80 MEUR savings of the restructuring
programme mainly felt in 2007, fully evident in 2008• Fleet renewal continues • Flexible capacity => load factors improve• 2006 result expected to be in profit, but clearly
below previous year’s level• Unit costs development on track• Good conditions for a clearly more positive financial
performance next year
Appendices
-50
-40
-30
-20
-10
0
10
20
30
40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
MEUR
2003
Weak quarter Change in EBIT per quarter
(Excluding capital gains, fair value changesof derivatives and reorganization expenses)
2004 20052002 2006
40
50
60
70
80
90
100
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Yield (EUR/ RTK) Unit costs (EUR/ ATK)
Average yield and costs EUR c/RTK & EUR c/ATK
2004 2005 200620032002
Development of Group Business Areas
Excluding capital gains, fair value changes of Derivatives and reorganization expenses
2006 2005
Q3 Q3
MEUR
Scheduled Passenger Traffic 20.3 20.1
Leisure Traffic 8.2 8.5
Aviation Services -4.4 7.9
Travel Services 1.0 1.9
Unallocated items -2.6 -12.7
Total 22.5 25.7
Investments and cash flowfrom operations
0
50
100
150
200
250
2002 2003 2004 2005 Q1-Q3 2006
Operational net cash flow Investments
MEUR
Aircraft operating lease liabilities Flexibility, costs, risk management
0
50
100
150
200
250
300
350
400
450
500
MEUR
2002 2003 2004 2005 Q3 2006
On 30 September all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments byseven, the adjusted gearing on 30 September 2006 would have been108,0%
ROE and ROCE Rolling 12 months
-6
-3
0
3
6
9
12
15
Q1
2002
Q2
2002
Q3
2002
Q4
2002
Q1
2003
Q2
2003
Q3
2003
Q4
2003
Q1
2004
Q2
2004
Q3
2004
Q4
2004
Q1
2005
Q2
2005
Q3
2005
Q4
2005
Q1
2006
Q2
2006
Q3
2006
ROE ROCE
%
Finnair Group Business Units
SCHEDULED PASSENGER TRAFFIC
Finnair Scheduled Passenger Traffic
Finnair Cargo
Aero
FlyNordic
Finnair Aircraft Finance
LEISURE
Finnair Leisure Flights
Suntours Ltd
AVIATION SERVICES
Finnair Technical Services
Northport – ground handling
Finnair Catering
Finncatering
Finnair Facilities Management
TRAVEL SERVICES
Finland Travel Bureau
Area
Estravel
Amadeus Finland
FINNAIR GROUP
Airline structure
• Finnair Scheduled Passenger Traffic• Long-haul traffic • European traffic• Domestic trunk routes
• Finnair Leisure Flights• Mediterranean, Asia, North and South America
• Aero• Feeder traffic operator based in Tallinn, Estonia• The Baltics and Southern Finland
• FlyNordic• Low cost operator based in Stockholm • Scandinavia and elsewhere in Europe
Superiority of product• Direct to 50 international destinations
– No time-consuming transfers at crowded airports
• Best schedules– Morning-evening concept
• Most punctual in Europe with least cancellations
• Top class service in Europe• oneworld – alliance with best quality and
coverage• New aircraft in European traffic
Finnair Financial Targets”Sustainable value creation”
Operating profit (EBIT)
EBIT margin at least 6% => 110-120 mill. € in the coming few years
EBITDAR EBITDAR margin at least 17% => over 300 mill. € in the coming few years
Economic profit To create positive value over pretax WACC of 8%
Pay out ratio Minimum one third of the EPS
Adjusted Gearing Gearing adjusted for aircraft lease liabilities not to exceed 140 %
Finnair’s Financial Targets Description of targets
Operating profit (EBIT)
Turnover + other operating revenues – operating costs
EBITDAR Result before depreciation, aircraft lease payments and capital gains
Economic profit Operating profit EBIT – Weighted Average Cost of Capital
Adjusted Gearing (Interest bearing debt + 7*Aircraft lease payments – liquid funds) / (Equity + minority interests)
Pay out ratio Dividend per share / Earnings per share
www.finnair.com
Finnair Group Investor Relationsemail: [email protected]
tel: +358-9-818 4951fax: +358-9-818 4092