Finnair
Second Quarter Result 2012
Mika Vehviläinen 10 August 2012
Content
Market environment
Main events in Q2 2012
Business performance
Restructuring and
cost savings programme
• Outlook
•
•
•
•
• Key figures
2
Finnair Q2 Result, 10 August 2012
Market Environment
• Initial Q2 industry profits positive, but down more than 20%
y-o-y
• Several industry indicators threaten airline performance
• Crude oil prices rebounded in July
• The trend in global passenger traffic growth has lost pace to
2% annualized rate
• Worldwide airline fares continue to show weakness, signs of
softening demand
3
Finnair Q2 Result, 10 August 2012
Restructuring continues in the
industry
• Bankruptcies and restructuring programs
• Consolidation continues
• Legacy carriers are restructuring their loss-making
short haul operations
4
Finnair Q2 Result, 10 August 2012
Strategy implementation
Traffic development:
•
•
Chongqing route opening in May
Good performance in European traffic
Partnership strategy
•
•
•
Catering and Technical services agreements
Plan to outsource EMJ traffic to Flybe
Continued search for solutions to cost challenges in short haul traffic
Smooth travel experience
•
Customer satisfaction continued to improve, the best Nordic Airline
Notable improvement in network efficiency:
•
•
5
Load factor +5.9%
RASK +9.7%
Finnair Q2 Result, 10 August 2012
Restructuring and cost savings program in
track
• Target of 140 M€ annual savings by 2014 and 80 M€ of
cumulative realised savings during 2012
• To improve cost efficiency Finnair will focus on core
business and continues to build a stronger partnership
network around its business
6
Finnair Q2 Result, 10 August 2012
Q2 Business performance
7
Finnair Q2 Result, 10 August 2012
Strong traffic performance in Q2 2012
North America
Europe
Asia
ASK
-2.4%
ASK
-2.3%
ASK
7.5%
RPK
6.2%
RPK
11.9%
RPK
11.6%
PLF
7.2%-p
PLF
10.0%-p
PLF
2.8%-p
Traffic revenue*
10.1%
Traffic revenue*
Leisure traffic
17.8%
Traffic revenue*
Domestic
15.8%
Total traffic
ASK
10.2%
ASK
-18.1%
ASK
2.7%
RPK
13.7%
RPK
3.6%
RPK
11.3%
PLF
2.7%-p
PLF
13.8%-p
PLF
5.9%-p
Traffic revenue*
10.6%
Traffic revenue*
-10.0%
Traffic revenue*
13.7%
Cargo
Asian share 51.1% of the total capacity
ATK
6.8%
RTK
28.6%
OLF
13.2%-p
Traffic revenue
30.1%
* passenger revenue
8
Finnair Q2 Result, 10 August 2012
Traffic structure in Q2 2012
Available seat kilometres, ASK
9%
Passenger revenues
4%
5%
8%
7%
4%
43 %
51 %
31 %
38 %
9
Finnair Q2 Result, 10 August 2012
Turnover* grew by 10.2 % in April-June
2012
€ million
2500
2000
2 257.7
577,4
1500
607,2
1000
539,4
594,4
+10.2%
500
533,7
591,8
2011
2012
* The comparison period was
affected by the tsunami in Japan
and the events of Arabic spring
0
Q1
10
Q2
Q3
Q4
Finnair Q2 Result, 10 August 2012
Operational costs increased at a lower pace
than turnover in Q2 2012
Fuel cost +19.9 % y-o-y*
• The share of fuel cost 27 %
Operational costs
Mill. Eur
2500
2.335.6
2000
613,4
1500
584,2
Mill. Eur
1000
586,1
+5.2%
557,2
1000
555.2
500
500
580,8
621,7
2011
2012
0
0
Q1
Q2
Q3
Q4
146,4
144,3
131,7
132,8
+19.9%
157,9
167,6
2011
Q1
2012
Q2
Q3
Q4
* Hedging taken into account
11
Finnair Q2 Result, 10 August 2012
Cost structure Q2 2012
Operational costs Q2 2012, total of 586.1 Mill. Eur
Fuel
3 %3 %
3%
5%
Staff costs
27 %
5%
Traffic charges
Other costs
6%
Ground handling and catering
Depreciation
9%
Fleet materials and maintenance
19 %
10 %
10 %
Other rental payments
Sales and marketing
Tour operations costs
Lease payment for aircraft
12
Finnair Q2 Result, 10 August 2012
Airline business:
RASK & CASK development Q2 2012
Change, y-o-y, %
-18%
-14%
-10%
-6%
-2%
2%
6%
RASK, unit revenue
10%
0,2 %
Fuel cost
15,7 %
7,4 %
Staff cost
-7,3 %
14,1 %
Traffic charges
Maintenance
3,4 %
Ground handling
Other expenses
13
22%
4,5 %
CASK, excl. Fuel
Catering
18%
9,7 %
CASK, unit cost
Depreciation & lease costs
14%
-0,8 %
-7,0 %
-7,8 %
Finnair Q2 Result, 10 August 2012
Restructuring and cost savings
programme
14
Finnair Q2 Result, 10 August 2012
Targeting permanent cost reduction of €140
million by 2014
• Appr. €10 million reached in 2011
• Targeted savings of €70 million in 2012 well on track
– Unit cost excluding fuel (CASK) is estimated to decrease in H2
Savings timeline
€10
million
2011
15
€60 million
€70million
2012
2013
Finnair Q2 Result, 10 August 2012
Several restructuring measures
implemented in 2012 ytd
• Fleet optimisation in European traffic
– discontinuation of 4 A320 series aircraft lease agreements and subleasing 5 E170 aircraft
• Improved route planning and aircraft utilisation
• Memorandum of Understanding with Flybe on European Embraer traffic
• JV analysis to improve the profitability of European Airbus traffic
• Agreement with SR Technics on outsourcing engine and component
services
• Agreement on Catering business with LSG Sky Chefs
• Streamlining support functions
• Numerous other savings measures throughout the company
• Check-in automation in May 2012
16
Finnair Q2 Result, 10 August 2012
Partnership strategy
To improve cost efficiency Finnair will focus on core business
and continues to build a stronger partnership network around
its business
17
Finnair Q2 Result, 10 August 2012
Partnerships an integral part of restoring
profitability
Operation
18
Partner
Status
European
Airbus traffic
Analysis on-going
European
Embraer traffic
MoU
Domestic traffic
October 2011
Engine and
component
maintenance
July 2012
Ground handling
November 2011
Catering
August 2012
Finnair Q2 Result, 10 August 2012
The analysis of opportunities to improve
efficiency of the European Airbus traffic
continues
• A suitable partnership solution could not be found within our
original target schedule
• Radically changing competitive environment, numerous
bankruptcies and challenging market conditions have made it
more difficult to find the right solution
• The company is still committed to identifying any and all means
to significantly reduce the cost level of European traffic and seeks
different alternatives with potential partners and its own labour
groups
19
Finnair Q2 Result, 10 August 2012
Catering agreement with LSG
• Finnair and LSG Sky Chefs Group (LSG) signed a partnership
agreement based on which the operational responsibility for and
decision making power in Finnair Catering will fully transfer to
LSG.
• The agreement is estimated to result in sustainable annual
savings of approximately 9 million euros starting from the third
year of the cooperation.
• According to IFRS, the arrangement is treated as an acquisition
in accounting, and consequently, Finnair will cease to include
Finnair Catering Oy's operations in its consolidated financial
statements from August 1, 2012 onwards. The changes in
reporting will be visible from Q3 2012 onwards and show in full
from Q4 2012 onwards.
20
Finnair Q2 Result, 10 August 2012
Several steps taken for top-line growth and
revenue enhancement
Asia
• New route to Chongqing opened on 9 May
• Corporate sales growth outside Finland 6% y-o-y in Q2 2012
Revenue enhancement
• 9.7% RASK improvement y-o-y in Q2 2012 through improved load
factors and yield enhancement
• Enhanced competitiveness in European traffic
– Several successful marketing campaigns and new attractive price categories
– Web sales growth 27% y-o-y
– New ancillary services
Continued improvement in customer satisfaction, among the best
network carriers: The best Nordic Airline, Skytrax 4 stars
21
Finnair Q2 Result, 10 August 2012
Outlook for 2012
• Finnair estimates that the operational result for the second half of the year, which
is stronger than the first half of the year due to seasonal variations, will reflect
improved profitability compared to the first half of the year.
• The outlook for the world economy is still uncertain, and Finnair will adjust its
passenger traffic capacity with its current structure according to demand, if
necessary. Finnair estimates that this capacity will increase on last year but less
than the 5 per cent level given in the earlier estimate. The growth will mainly
come from Asian traffic, where Finnair increased capacity in May by opening a new
flight route to Chongqing, China.
• Finnair’s fuel costs are estimated to be significantly higher in 2012 compared to
the previous year due to increased capacity and high fuel prices.
• Cost reductions of approximately 80 million euros out of the structural change and
cost reduction programme’s total target of 140 million euros are expected to be
achieved by the end of 2012. The realisation of the cost reductions will mainly take
place during the second half of the year. Finnair estimates that unit cost (CASK)
excluding fuel will decrease year-on-year in the second half of the year.
22
Finnair Q2 Result, 10 August 2012
Q2 Key figures
23
Finnair Q2 Result, 10 August 2012
Key figures Q2
Apr-Jun
2012
Key Figures
Apr-Jun
2011
Change %
Jan-Dec
2011
Turnover and result
Turnover
EUR million
594,4
539,4
10,2
2257,7
Operational result, EBIT
EUR million
14,7
-13,8
> 200 %
-60,9
Operational result, % turnover
%
2,5
-2,6
Operating result, EBIT
EUR million
-18,1
-25,2
28,2
-87,8
EBITDAR
EUR million
64,2
33,8
89,9
139,6
Result before taxes
EUR million
-25,5
-30,2
15,6
-111,5
Net result
EUR million
-19,8
-23
13,9
-87,5
-2,7
Balance sheet and cash flow
Equity ratio
%
32,6
Gearing
%
43,3
Adjusted gearing
%
108,4
Capital expenditure, CAPEX
EUR million
2,9
30,9
-90,6
Return on capital employed, ROCE 12 months rolling %
Return on equity, ROE , 12 months rolling
%
Net cash flow from operating activities
EUR million
203,9
-5,2
-10,9
100,2
94,5
6,0
50,8
Share
24
Share price at end of quarter
EUR
Earnings per share
EUR
2,30
-0,17
-0,20
15,0
-0,75
Finnair Q2 Result, 10 August 2012
Airline business:
RASK & CASK development Q2 2012
Change, y-o-y, %
-18%
-14%
-10%
-6%
-2%
2%
6%
RASK, unit revenue
10%
0,2 %
Fuel cost
15,7 %
7,4 %
Staff cost
-7,3 %
14,1 %
Traffic charges
Maintenance
3,4 %
Ground handling
Other expenses
25
22%
4,5 %
CASK, excl. Fuel
Catering
18%
9,7 %
CASK, unit cost
Depreciation & lease costs
14%
-0,8 %
-7,0 %
-7,8 %
Finnair Q2 Result, 10 August 2012
Change in operational costs Q2 2012
Change, y-o-y, %
Other costs*
-14,9 %
Ground handling and catering
7,0 %
26,1 %
Maintenance
Traffic charges
17,9 %
Leasing and depreciation
4,0 %
3,2 %
Staff
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
*Incl. Leased capacity, sales and marketing, costs of tour operations etc.
26
Finnair Q2 Result, 10 August 2012
Operational EBIT build-up in Q2 2012
(IFRS)
Mill. EUR
70,0
1,3
60,0
5,1
5,3
50,0
9,4
1,2
-3,4
-3,5
-6,5
-8,9
40,0
55,1
30,0
-26,4
20,0
10,0
14,7
0,0
‐10,0
-13,9
‐20,0
27
Finnair Q2 Result, 10 August 2012
Fuel, spot-price development
28
Finnair Q2 Result, 10 August 2012
Fuel cost build-up
Q2 2012 vs. Q2 2011
Mill. EUR
200
6
150
-6
20
6
100
158
132
50
0
Q2/2011
Volume
Price
Currency
Hedging
Deviation
Q2/2012 *)
*Incl. Hedging profit of 18 Mill. EUR *) and
emission trading cost of 2 Mill. EUR
29
Finnair Q2 Result, 10 August 2012
Hedging, 30.6.2012
Hedge ratio H2 2012: 76 %
30
Finnair Q2 Result, 10 August 2012
Key figures H1 2012
Jan-Jun
2012
Key Figures
Jan-Jun
2011
Change %
Jan-Dec
2011
Turnover and result
Turnover
EUR million
1186,2
1073,1
10,5
2257,7
Operational result, EBIT
EUR million
-10,3
-56,9
81,9
-60,9
Operational result, % turnover
%
-0,9
-5,3
Operating result, EBIT
EUR million
-38,3
-68,3
43,9
-87,8
EBITDAR
EUR million
89,1
37,4
138,2
139,6
Result before taxes
EUR million
-51,7
-76,4
32,3
-111,5
Net result
EUR million
-40,2
-56,8
29,2
-87,5
-2,7
Balance sheet and cash flow
Equity ratio
%
29,2
32,9
-3,7 %-p
32,6
Gearing
%
35,5
24
11,5 %-p
43,3
Adjusted gearing
%
107,5
78,7
28,8 %-p
108,4
Capital expenditure, CAPEX
Return on capital employed, ROCE 12 months
rolling
EUR million
10,3
61,8
-83,3
203,9
%
-3,1
-3,4
0,3 %-p
-5,2
Return on equity, ROE , 12 months rolling
%
-7,8
-7,9
0,1 %-p
-10,9
Net cash flow from operating activities
EUR million
92,3
60,6
52,3
50,8
Share price at end of quarter
EUR
1,75
3,57
-51,0
2,30
Earnings per share
EUR
-0,35
-0,48
27,1
-0,75
Share
31
Finnair Q2 Result, 10 August 2012
Thank you!