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Finnair Group Interim Report 1 January – 30 June 2006

Finnair Group Interim Report 1 January – 30 June 2006. Sense is slowly returning, even in airline industry. Many airlines still in shaky financial shape Competition remains tough in Nordic countries Two airlines have withdrawn from Finnish market

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Finnair Group Interim Report 1 January – 30 June 2006

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  1. Finnair GroupInterim Report 1 January – 30 June 2006

  2. Sense is slowly returning, even in airline industry • Many airlines still in shaky financial shape • Competition remains tough in Nordic countries • Two airlines have withdrawn from Finnish market • Successful airlines have strong economy, effective strategy and costs in check • Strong airlines invest in new aircraft with low fuel consumption

  3. Quarter of structural change • Finnair’s increasing role in Asia-Europe traffic is reflected in the company structure • One-off adjustment costs of structural change 15.2 MEUR, result clearly under last year’s level • Introduction of new aircraft temporarily weakened productivity in first half of year • Average price of flight tickets decreased • Good development in demand • Record load factors

  4. Personnel cuts agreed • 670 jobs will be cut in 2006-2007 • Emphasis on Finnair Technical Services and support functions • Planned efficiency measures to bring 80 MEUR annual cost benefits • Efficiency measures everywhere in the organisation

  5. Operations systematically rationalised Personnel on average

  6. Structural changeweighed on result Q2/2006 Q2/2005 Change % Turnover mill. € 494.6 469.4 5.4 EBITDAR 68.2 73.5 -7.2 EBIT excl. capital gains, fair values changes of derivatives and reorganization expenses 18.2 30.0 -39.3 Capital gains 1.9 1.8 5.6 Fair value changes of derivatives 0.6 3.5 -82.9 Operating profit/loss (EBIT) 5.5 35.3 -84.4 Profit after financial items 3.3 36.3 -

  7. Fuel bill rose by over 50 MEURin first half of year * excluding fair value changes of derivatives ATK = Available Tonne Kilometre

  8. Fuel costs increasing • 2003: 10.2% of turnover • 2004: 12.5% of turnover • 2005: 15.6% of turnover • 2006: ~20.0% 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 18 months with a decreasing level. Finnair leisure flights hedged 60 % of winter traffic programme’s consumption.

  9. Realized prices and swap prices

  10. Development of average flightand fuel price 2001 - 2006

  11. Unit costs +6.5%,without fuel +1.4%Change YoY 2002 2005 2006 2003 2004 %

  12. Most modern European fleet • Boeing MD-80 aircraft retired from parent company fleet in July • Popular new Embraer 170/190 aircraft increase flexibility, decrease costs and are eco-efficient • A new Embraer joins fleet monthly until end of year, four new aircraft next year (total 16) • Eighth wide-body aircraft, Finnair’s first Airbus 340 took flight in July • New Airbus A340/350 aircraft replace current wide-body fleet

  13. Airbus A319/A320/A321 Mid haul- 29 aircraft- 126-181 seats Harmonised fleet Airbus A340/A350 Long haul- 12-18 aircraft- 250-314 seats Embraer 170/190 Feeder traffic- 16 aircraft- 76-100 seats

  14. Strong balance sheetEquity ratio and adjusted gearing %

  15. Group continues to have strong liquidityCash flow January-June

  16. Asian success continues • Demand (Jan-June) grew 23.3%, passenger numbers 24.4%, load factors 3.3%, cargo 17.2% • New route to Nagoya opened in June and Delhi will be launched in November. 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 • Lie-flat bed seats installed in long-haul business class

  17. Finnair long haul network 2 Tokyo 3 Nagoya 6 7 Osaka New York 7 Beijing 7 Shanghai 4 Guangzhou 5 Hong Kong 7 Bangkok Helsinki Singapore 7 41 flights to Asia per week

  18. Sustainable competitive edge based on geography Most preferred choice for passengers needing at least one stop-over. Examples: Stockholm Gothenburg Oslo Hamburg Dusseldorf Berlin Stuttgart Edinburgh TallinnKrakow Asia HEL Riga Vilnius Budapest Warsaw Prague Barcelona Madrid Milan ZurichVenice CPH LON PAR FRA

  19. Finnair favored in reservation systems AN1A09SEP ARNPVG (=Stockholm-Shanghai) ** AMADEUS AVAILABILITY - AN ** PVG PU DONG.CN 1 AY 892 J9 C9 D9 RL UL Y5 B4 /ARN 2 HEL 2 1425 1620 E0/320 AY 057 J9 C9 D9 I9 RL UL Y9 /HEL 2 PVG 1700 0650+1E0/M11 10:25 2 SK 415 C9 D9 J9 Y9 S9 B9 M9 /ARN 5 CPH 3 1320 1430 E0/321 SK 997 A2 C9 D9 J9 Y9 S9 B9 /CPH 3 PVG 1515 0735+1 0/343 12:15 3 KL1110 J0 C0 Z0 S0 B0 M0 K0 ARN 5 AMS 1300 1505 E0.737 KL895 C4 D4 W4 Y9 T4 K4 H4 AMS PVG 1720 0845+1 0.74M 13:45 4 CA 912 C4 D4 Y4 B4 H4 K4 L4 ARN 5 PEK 1750 0800+1 0.767 MU 583 C4 Y4 V4 Q4 PEK PVG 1140+1 1335+1 0.320 13:45 => total travel time defines the order of alternatives

  20. Share of Asian traffic growing Scheduled traffic passenger and cargo revenues Q1-Q2/2006

  21. Finnair significant playerin Europe-Asia traffic • Two new destinations in long-haul network this year and recruitment of pilots and cabin crew • Size of long-haul fleet will grow to meet demand for Asian traffic • 1-2 new Asian destinations per year, more frequencies to existing destinations • New feeder lines in European network • Demand remains strong at good price level • Market share continues to increase, Finnair’s Asian sales have increased by 60% in Sweden

  22. Assesments for future development • Passenger and cargo demand continues to grow • Competition remains tight • Flexible capacity => load factors improve • Focus on traffic expansion in Asia • 2006 result still expected to be profitable, but below previous year’s level • High load factors and strong booking situation give basis for improved price level • Better productivity with structural change • Good conditions for improving profitability in future

  23. Appendices

  24. Slow quarter as predictedChange in EBIT per quarter(Excluding capital gains, fair value changesof derivatives and reorganization expenses) MEUR 2002 2003 2004 2005 2006

  25. Average yield and costs EUR c/RTK & EUR c/ATK 2005 2006 2002 2004 2003

  26. Development of Group Business Areas

  27. Investments and cash flowfrom operations MEUR

  28. Aircraft operating lease liabilities have grown in line with strategyFlexibility, costs, risk management 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 2006 would have been 92,6%

  29. ROE and ROCE Rolling 12 months %

  30. Finnair Group Business Units FINNAIR GROUP SCHEDULED PASSENGER TRAFFIC Finnair Scheduled Passenger Traffic Finnair Cargo Aero FlyNordic Finnair Aircraft Finance LEISURE Finnair Leisure Flights Suntours Ltd TRAVEL SERVICES Finland Travel Bureau Area Estravel Amadeus Finland AVIATION SERVICES Finnair Technical Services Northport – ground handling Finnair Catering Finncatering Finnair Facilities Management

  31. 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

  32. 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

  33. Finnair Financial Targets”Sustainable value creation” EBIT margin at least 6% => 110-120 mill. € in the coming few years Operating profit (EBIT) EBITDAR margin at least 17% => over 300 mill. € in the coming few years EBITDAR Economic profit To create positive value over pretax WACC of 8% Adjusted Gearing Gearing adjusted for aircraft lease liabilities not to exceed 140 % Pay out ratio Minimum one third of the EPS

  34. Finnair’s Financial TargetsDescription of targets

  35. 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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