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Finnair Group

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

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  1. Finnair Group Interim Report 1 January – 30 June 2007

  2. 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

  3. 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

  4. 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

  5. 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

  6. Result improved as expected

  7. 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

  8. Unit costs decreased more than yieldChange YoY % Yield (EUR/RTK) Unit costs (EUR/ATK) 2006 2005 2007 2003 2004 2002

  9. 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

  10. Business growing, number of staff maintains Personnel Personnel on average

  11. 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

  12. Unit costs decreasing * excluding fair value changes of derivatives ATK = Available Tonne Kilometre

  13. Productivity improved

  14. Higher jet fuel prices

  15. 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.

  16. Liquid funds used for investments Cash flow January-June

  17. Strengthening the capital structure under evaluationEquity ratio and adjusted gearing % Equity ratio Adjusted Gearing

  18. 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

  19. 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

  20. 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

  21. Share of Asian traffic growing Scheduled traffic passenger and cargo revenues H1/2007 Domestic Europe Asia America

  22. 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

  23. 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

  24. 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

  25. 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

  26. Appendices

  27. 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

  28. Average yield and costsEUR c/RTK & EUR c/ATK Yield (EUR/RTK) Unit costs (EUR/ATK) 2007 2006 2003 2005 2004 2002

  29. Segment results Excluding capital gains, fair value changes of Derivatives and reorganization expenses

  30. Investments and cash flowfrom operations MEUR Operational net cash flow Investments

  31. 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%

  32. ROE and ROCERolling 12 months % ROE ROCE

  33. 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

  34. 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%!

  35. 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

  36. 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

  37. www.finnair.com Finnair Group Investor Relations email: investor.relations@finnair.com tel: +358-9-818 4951 fax: +358-9-818 4092

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