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Finnair Group. Interim Report 1 January – 30 June 2007. Flight travel growing, infrastructure under pressure. European airlines’ performance improved in the early part of the year by an average five per cent, Finnair growth was over 20%

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Finnair group

Finnair Group

Interim Report 1 January – 30 June 2007


Flight travel growing infrastructure under pressure
Flight travel growing, infrastructure under pressure

  • European airlines’ performance improved in the early part of the year by an average five per cent, Finnair growth was over 20%

  • Asian traffic overall grew by less than five per cent, Finnair’s Asian traffic grew 30%

  • European airlines’ growth is now directed towards South America

  • Fuel prices were high and rose slightly

  • The industry is expecting its first profitable year since the beginning of the millennium

  • In the difficult years, system investments have fallen behind growth in traffic


Baggage chaos in europe
Baggage chaos in Europe

  • Increased travel and security measures have delayed baggage at large European airports => also reflected in Finnair’s customer service.

  • Strongly growing Asian traffic creates challenges for the service level of Helsinki-Vantaa Airport => temporary arrangements together with Finavia

  • Preparations made for summer challenges; sharp tightening of security regulations in UK was a surprise

  • Long delays, lots of problems for customers

  • Terminal extension ready in 2009 will raise infrastructure to an excellent standard at Finnair’s home station


Finnair heading in the right direction
Finnair heading in the right direction

  • Strong demand in scheduled traffic continues

  • In addition to Asia, European traffic is also growing

  • Finnair’s market share growing in international traffic departing from Finland

  • Unit revenues on last year’s level

  • Unit costs have fallen due to efficiency measures

  • Profitability of scheduled traffic has improved

  • FlyNordic joined Norwegian Air Shuttle, creating a strong Scandinavian airline


Finnair sold flynordic to norwegian
Finnair sold FlyNordic to Norwegian

  • Deal was signed at the end of June

  • Payment in shares, Finnair’s holding in Norwegian Air Shuttle rose over five per cent

  • Options allow Finnair to increase its ownership up to ten per cent by the end of 2008

  • FlyNordic’s charter traffic revenue divided 50/50 until October 2008

  • Cooperation agreement between Finnair and Norwegian in Asian feeder traffic



Scheduled passenger traffic and technical services improved
Scheduled Passenger Traffic and Technical Services improved

  • Profitability of scheduled traffic has improved

  • Unit revenues have stabilised

  • Unit costs have fallen

  • Finnair Technical Services and FlyNordic have also clearly improved

  • Northport still loss-making

  • Due to tighter competition, average prices for cargo have fallen


Unit costs decreased more than yield change yoy
Unit costs decreased more than yieldChange YoY

%

Yield (EUR/RTK)

Unit costs (EUR/ATK)

2006

2005

2007

2003

2004

2002


Efficiency programme yields concrete results
Efficiency programme yields concrete results

  • Target EUR 80 million, of which half from personnel expenses

  • Targets specified in full

  • Savings weighted towards end of year

  • Profit impact for 2007 over EUR 40 million

  • Full financial impact will begin in 2008

  • Jobs cut by around 600 in 2006-07

  • More than 300 people recruited into Flight Operations Group


Business growing number of staff maintains
Business growing, number of staff maintains

Personnel

Personnel on average


Key efficiency areas
Key efficiency areas

  • Technical Services competitiveness programme

  • Flight personnel agreements

  • Savings from support functions

  • More efficient crew utilisation through network reform

  • Management of irregularity processes

  • Feeder traffic reform

  • Mergers in travel agency network (SMT+Area)

  • Cutting distribution costs


Unit costs decreasing
Unit costs decreasing

* excluding fair value changes of derivatives

ATK = Available Tonne Kilometre




Fuel costs a fifth of turnover
Fuel costs a fifth of turnover

  • 2003: 10.2% of turnover

  • 2004: 12.5% of turnover

  • 2005: 15.6% of turnover

  • 2006: 19.4% of turnover

  • 2007: ~20% of turnover (over 400 mill. euro)

    Finnair scheduled traffic has hedged 66% of its fuel purchases for the next six months, thereafter for the following 24 months with a decreasing level. Finnair leisure flights hedged 60% of summer traffic programme’s consumption.


Liquid funds used for investments
Liquid funds used for investments

Cash flow January-June


Strengthening the capital structure under evaluation equity ratio and adjusted gearing
Strengthening the capital structure under evaluationEquity ratio and adjusted gearing

%

Equity ratio

Adjusted Gearing


Expansion to asia continues
Expansion to Asia continues

  • Demand grew during Jan-Jul07 by 30.5%, passenger numbers 24.6%, cargo 18.9%

  • Passenger load factor 77,7%

  • Indian traffic quadrupled in June, new destination Mumbai

  • 59 flights a week to Asia

  • Non-stop flights to 10 destinations, six out of which daily

  • Growth in different markets in Asia diversifies risk

  • Capacity will grow by over 30% this year

  • Seoul in South Korea as new destination in 2008


Most rapid growth in asian traffic
Most rapid growth in Asian traffic

China

2001:

3 flights/week

2007:

22 flights/week

Japan

2001:

2 flights/week

2007:

15 flights/week

India

2006:

3 flights/week

2007:

12 flights/week

Aasian fleet increased from two to nine in six years


Long haul network summer 2007
Long-haul network – summer 2007

Tokyo 4

Nagoya 4

7 New York

Osaka 7

Beijing 7

Shanghai 7

Guangzhou 4

Hong Kong 7

Helsinki

Bangkok 7

Delhi 7

Mumbai 5


Share of asian traffic growing
Share of Asian traffic growing

Scheduled traffic passenger and cargo revenues H1/2007

Domestic

Europe

Asia

America


New planes enable future growth
New planes enable future growth

  • In 2007-14

    • A330/A340 fleet of maximum 15 planes in total

  • In 2014-16

    • A350 fleet of maximum 15 planes in total


Most modern european fleet
Most modern European fleet

  • Average age of European fleet four years

  • 29 Airbus A320 family aircraft

  • A total of ten smaller (E170) and four larger (E190) Embraer in fleet, six larger aircraft coming 2007-09

  • New aircraft increase flexibility and improve load factors, decrease costs and are eco-efficient


One world energized
oneworld energized

  • oneworld a high quality and only profitable alliance. Three new members as of April 1st

    • Japan Airlines, largest in Asia and the Pacific region

    • Royal Jordanian, complementing our network in growing Middle-East market

    • Hungary´s Malev will serve as partner in Central Europe


Future outlook
Future outlook

  • High degree of hedging and dollar exchange rate will stabilise fuel costs in latter part of year

  • Renewal of the wide-bodied fleet has begun

  • New route openings will put pressure on traffic load factors and price levels

  • Unit costs still decreasing

  • Restructuring proceeding

  • Six out of seven of the Finnair Group’s agreements with labour unions are due to expire in September

  • The operational result for the full year is expected to exceed 70 million euros



Profitability development
Profitability development

Change in EBIT per quarter (Excluding capital gains, fair value

changes of derivatives and reorganization expenses)

MEUR

2002

2003

2004

2005

2006

2007


Average yield and costs eur c rtk eur c atk
Average yield and costsEUR c/RTK & EUR c/ATK

Yield (EUR/RTK)

Unit costs (EUR/ATK)

2007

2006

2003

2005

2004

2002


Segment results
Segment results

Excluding capital gains, fair value changes of

Derivatives and reorganization expenses


Investments and cash flow from operations
Investments and cash flowfrom operations

MEUR

Operational net cash flow

Investments


Aircraft operating lease liabilities
Aircraft operating lease liabilities

Flexibility, costs, risk management

MEUR

On 30 June all leases were operating leases. If capitalised using

the common method of multiplying annual aircraft lease payments by

seven, the adjusted gearing on 30 June 2007 would have been

114,6%


Roe and roce rolling 12 months
ROE and ROCERolling 12 months

%

ROE

ROCE


Emissions trading for air traffic
Emissions trading for air traffic

  • EU air traffic accounts for only 0.5% of all CO2 emissions in the world

  • Finnair in favour of emissions trading principles

  • EU proposal sets airlines at somewhat unequal footings depending on route network structure

  • Should be global

  • Competitively neutral

  • Investments already made in new technology should be taken into account

  • Open emissions trading


Customers can make environmental choices when flying
Customers can make environmental choices when flying

  • Choose an airline with a modern fleet

  • Fly in the right direction all the way, without unnecessary stopovers. Shorter flight routes result in less emissions

  • Avoid large, congested airports

    By making these choices, fuel consumption and emissions can drop by at best 30%!


Finnair financial targets
Finnair Financial Targets

”Sustainable value creation”

EBIT margin at least 6% => over 120 mill. € in the coming few years

Operating profit (EBIT)

EBITDAR margin at least 17% => over 350 mill. € in the coming few years

EBITDAR

To create positive value over pretax WACC of 8,5%

Economic profit

Gearing adjusted for aircraft lease liabilities not to exceed 140 %

Adjusted Gearing

Minimum one third of the EPS

Pay out ratio


Finnair s financial targets description of targets
Finnair’s Financial Targets Description of targets

Operating profit (EBIT)

Turnover + other operating revenues – operating costs

Result before depreciation, aircraft lease payments and capital gains

EBITDAR

Economic profit

Operating profit EBIT – Weighted Average Cost of Capital

Interest bearing debt + 7*Aircraft lease payments – liquid funds) / (Equity + minority interests)

Adjusted Gearing

Pay out ratio

Dividend per share / Earnings per share


Www finnair com

www.finnair.com

Finnair Group Investor Relations

email: [email protected]

tel: +358-9-818 4951

fax: +358-9-818 4092


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