Finnair Oyj

Good day, ladies and gentlemen. I'm Erkka Salonen from Finnair Investor Relations, and it's my pleasure to welcome you all to this Finnair's fourth quarter and full year 2024 earnings call. I have here with me our CEO, Mr. Turkkakuusisto, and he is joined by our CFO, Mr. Christian Pulola for the Q&A session. I will now turn this call over to you, Turkk. Please go ahead.

Thank you, Erkka, and a warm welcome also on my behalf. The fourth quarter was a strong ending for the year of normalization for Finnair. Our revenue increased by 7.7% and the comparable operating result more than doubled during the fourth quarter. Also as a positive highlight when it comes to the full year closing, our board has proposed a return of capital of 11 euro cents per share. When we take a bit deeper look into our fourth quarter performance, as already mentioned, the revenue grew by close eight percent and that was a combination of number of passengers increasing by some 9% while the declining trend in the ticket prices started to flatten because what we witnessed during the first quarter the ticket prices declined only by 1.2% and as we recall the previous trend during the 2024 this is a rather significant change. The capacity increase during the fourth quarter was only 3.3. That also contributes to increased load factors that were 76.4, which is some 3.3% higher than in the fourth quarter of 2023. Basically, in all geographies, the load factors developed favorably. Only Europe was somewhat down, but especially the Asian traffic and North Atlantic traffic faced significant load factor increase that positively influenced the financial performance of fourth quarter. The on-time performance declined somewhat, and it was impacted mainly by the difficult weather conditions, which is obviously nothing new in Northern Europe, but at the same time we faced industrial action by our pilot union that influenced the OTP. We did cancel some 300 flights, and of course that has had an impact to our operational performance. When we take a bit deeper look into the P&L of the fourth quarter and also the full year, we can see the revenue growth and as sub-components of the revenue growth, I think that we can again be satisfied with when it comes to this development of our ancillaries that grew by close to 20% during the quarter and accumulated revenue was above 50 million euros and now per passenger the ancillary sales is already above 18 euros per passenger. Also the cargo business continued on a positive trend, close to 10% growth and the total contribution 55 million euros in revenue. When we go below the comparable operating result that doubled from the last year and when we will go towards the bottom line, we need to highlight that the result for the period was influenced by the partial return of the indexation of the obligation of Finner pension fund. This is a non-cash item, but we needed to book it for closing of fourth quarter, but we will continue the discussion with Finnish FSA that how we will treat this going forward. Also, when we compare fourth quarter result for the period versus 2023, it is worth mentioning that the deferred tax assets supported quite a lot the 2023 performance. All in all, the fuel price was pretty much according to the expectations and decreased from the comparison period. And then a few words around the collective labor agreement negotiations. We have multiple CLA processes ongoing, out of which every other process than the SLA are pretty much going according to the plan, but you have already witnessed in our media coverage that the SLA pilot union industrial actions have influenced our day-to-day operations and that has led into cancellation of 800 flights up until now and it has influenced some 100 000 passengers or customers. Of course we aim at finding a sustainable and constructive solution as quickly as possible and we will obviously report when the time is ready for that. Then if I capture or summarize 2024. The capacity increased, including wet leases, by some 7%, which is somewhat below the 10% guidance that was given a year ago, and that is explained by the industrial action and maybe a bit higher aircraft maintenance needs than anticipated 12 months back. Therefore, the revenue increased by 2%, slightly north of 3 billion euros, and the comparable operating result, even though it declined, we landed above 150 million euros, which is a solid number in this operating environment. As a very strong positive highlight, I want to mention the operating cash flow that was close to 630 million euros and a very concrete demonstration of our cash conversion and also investment discipline. Therefore, summarizing all these components and the commitment made in connection with the rights issues 2013, where we intended to start shareholder distributions in 2025 based on the result of 24, and also given the very strong cash position and cash flow from 2024, the Board of Directors proposes return of capital 11 euro cents per share. At the same time during the 24th, we have initiated a strategy process and we will communicate about it in a few months time, but already now maybe some highlights to be shared with you today. I guess and I believe that the core strategy will be more and more focused on customer centricity and especially acknowledging the core customers, the customers that fly most with us because we see further value creation potential among that population and also as a other piece of news for this day we have disclosed that as a part of the strategy process we have now initiated a pre-program or project to evaluate the options when it comes to renewing 1515 narrowbody aircrafts within our fleet. And again, we will communicate more about that when we have more tangible details to be shared. Okay, so this is a new slide that we have included into our deck, but I don't want to repeat myself, but this is a summary of 2024, full fiscal year, and you can see that except the North Atlantic traffic, the revenue growth versus the added capacity was somewhat below the added capacity in Europe, domestic and Middle East and Asia, whereas in North Atlantic, the revenue grew above the added capacity. But as I mentioned, this is the full year summary, and we did see the change in this trend during the fourth quarter, because basically in all of our the revenue started to grow above the added capacity, except in Europe, where we were some 2% behind in RPK terms versus the ASK. But the fourth quarter was a significant change in the trend when it comes to matching the capacity versus the RPK, so therefore that gives us good momentum when going forward. This is just to maybe remind all of us that since 2020, it has been, of course, very difficult for the whole industry and the company, but now for two consecutive years, Finner is back in black ink, and the comparable EBIT is pretty much aligned with the pre-pandemic historical figures, which gives us a solid foundation to continue the development of this company and our new strategy that will be launched during the springtime. As one concrete strategic topic or priority, we have had this balance sheet healthiness topic. And with Christian's lead, we have done a good job in terms of refinancing the company and our balance sheet. And thanks to the cash flow generation and profitability, the various ratios are developing to the right directions. Of course, we need to continue further development when it comes to capital effectiveness and these ratios. And then I want to remind all of us again that all the instruments that were utilized during the crisis time have now been repaid and the company is also, from that point of view, ready for the next chapter. And this is some type of a waterfall diagram demonstrating how the cash position of the company has developed. And as already mentioned, extremely strong operating cash flow, 630 million euros during the fiscal year. And the cash position of the company is pretty much aligned the compare of 2023. And in addition to the 900 million euros of cash funds, we do have this 200 million euro revolving credit facility at our disposal, if and when we see attractive opportunities for tactical aircraft investments, for instance, in terms of buying out the lease agreements. Few words about the strategy. The latest aircraft, 350, landed Helsinki mid-December and supports our growth for 2025 and onwards. The aircraft has been deployed to our Asian traffic, mostly to Japan, and has found its place and supporting our network very positively and constructively. As I already mentioned, we are preparing the partial renewal of our narrowbody aircraft fleet, and it's about the 15 oldest 320 series aircrafts that their average lifetime is already beyond 20 years. But as mentioned, we will communicate more about the details, scope, timing, etc. when we have finalized our calculations. When it comes to refurbishing our existing fleet, the newest cabin operation in Embraer was finalized in October, and seven other aircraft will get or face this cabin refurbishment during this winter season, and in 12 months' time, all 12 aircraft will be refurbished with the new cabin interior. We have also both two aircrafts that have been previously leased during the fourth quarter. And then when it comes to customer engagement and the go-to-market strategies, they are also developing positively. We can see a rather big increase in the website visitor numbers at finnair.com, and also we see more traffic in the Finnair mobile application, and we continue pushing for these modern digital channels to reach out to our customers directly. And as I already mentioned, the current strategy period ends by the end of this year and the updated strategy will be communicated during this spring time. We also did a bit of a self-assessment in connection with the closing of the fiscal year. These were the four targets that we set and communicated in connection with the rights issue in 2023 and three out of four has been achieved and we will continue working towards with the comparable EBIT margin target during 2025. Also today we are changing our disclosure policy. Previously Finnair communicated or provided the profitability guidance or range only in connection with the second quarter earnings call. But now we want to also cater for a more transparent view in the beginning of the fiscal year. But to start from the beginning, we increased our capacity by some 10% from 2024 to 2025. Worth mentioning that the vast majority of this capacity increase comes from the aircrafts that we have called back from the Wettleys operations, for narrowbodies that were utilized by British Airways, and then two 330s that were engaged in our Qatar operation, and only the latest 350 delivery is an investment-based capacity increase for 25. With this capacity increase, we provide you with a revenue range of 3.3 to 3.4 billion euros, that then translates into 100 to 200 million euro comparable operating result range. It's worth mentioning that 2025, we will face additional cost when it comes to sustainable aviation fuel, as discussed earlier, and also the rising navigational landing charges will influence the cost base of 2025, and especially the seasonally weak first quarter. And also, from the point of view of comparing the various different fiscal years, it's worth mentioning that Easter is actually in the second quarter in this calendar year, so that also influences the first quarter performance in 2025. Also worth of mentioning that the given ranges and guidance and outlook doesn't include the impacts of industrial action. And in month of January, our estimate is that the industrial action cost us some 5 million euros. And as usual, we will then update this outlook and guidance in connection with the first quarter interim report. But with this word, I will end my presentation and we will be opening for Q&A.

Thank you, Turku. Now would be a convenient time for any questions you may have. To present them, please follow the operator's instructions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Jonas Ilvenen from EVLI. Please go ahead.

Hi, it's Jonas from EVLI. So, you expect your capacity to grow by about 10% this year, and you aim to focus on North Atlantic routes, but your European asks still grew by some 11% year-on-year in January. So, could you add some color here? Do you expect the European capacity growth to flatten from now on? And like the North Atlantic route, is it like high double-digit growth that you expect there from now on? And is it like these certain rather more exotic locations like Dallas and Mexico instead of the more usual suspects like, say, JFK and these certain popular West Coast destinations?

I wouldn't call Dallas as an exotic destination because it has become an extremely important destination for us because that's the main hub of our One World and AJB partner, American Airlines, which provides us with great connectivity in North and Latin America. and we are actually flying 11 weekly frequencies in the summer season of 25 to Dallas, but also adding some capacity to other destinations in the US. When it comes to the European traffic, we of course continuously monitor the development of various regions, but specifically now these narrowbodies that were wet-leased during the first quarter of 24 to British Airways, are now being flown in our own network in Europe.

What about ticket prices? What is your feeling there from now on? Maybe at least stable, or could you see even certain potential for additional gains in certain areas, like in the Nordic landing routes?

In general, at this stage, I would say that 2024 was a year of normalization, that the ticket prices normalized from the extremely high peak levels of 2023. The decline in the fourth quarter was only 1.2, and we don't expect drastic changes to a direction or another in the near-term future.

I guess on top of that, you can then say that we do still expect that there will be more sustainability costs in the system over the longer term. So in that sense, that trend that we have discussed, that there is a pressure on ticket prices upwards, is still there. But in the foreseeable short term, no drastic change is expected.

All right, that's clear. Maybe my final question related to that cost pressure topic. So do you have anything to add on these certain cost pressures, besides those comments you already gave with your guidance? Do you see any certain areas like salaries or stuff like that?

So maybe just that everybody kind of understands the nature of the cost pressure. So when it comes to landing and navigation fees, The way this works is that there is a fixed cost by the regulator, who kind of provides us these services, and that fixed cost is now unfortunately more shared by us than others, because we are proportionately using the Northern European airspace more than prior to when when the Russian airspace was being closed, and in a way, that's why this pressure is now coming at us, and the type of increases that we see in unit costs are historically super high, and that's why we want to call this out, that this is typically a cost item which has kind of moved in line with inflation, but now we are talking about multiples of that coming through in one year. So that's one thing. Then on the SAF side, you know that there's a 2% mandate now in Europe that brings tens of millions in one year of additional cost to us. And clearly, of course, over time that will need to be worked into the cost level of flying in the industry. When it comes to salary, Time will tell what type of outcomes we get with that. with the unions, but clearly there is, after a period when we have benefited from the savings arrangements that we've had with our staff, there will now be cost pressures to deal with, and to offset that, we'll need to continue to find productivity improvements in our operations to secure cost competitiveness also going forward. Thanks, that's clear. That's all from me.

The next question comes from Pasi Verzenin from Nordea. Please go ahead.

Thanks, this is Pasi from Nordea. And congrats regarding your excellent result today. A couple of questions, and the first one to start with is actually related to this and sanctions to fly over us on air base so in the case all the restrictions will fade away rather soon so do you already have any any plans how to kind of adjust your network in in the case kind of new routes become available and how fast you are able to adjust your network because you might have already kind of connection set to kind of Middle East and North America? And do you have a capacity even to fly over Russia if that becomes available? And then regarding the capacity increase, which is actually quite good, roughly 10% for this year. So by comparing this wet list outsourced and your own operations, what is the profitability or margin effect roughly for this year? these operations, so should we expect that it will have a kind of effect to the operating profit, relative profitability coming from these adjustments?

Thanks. If I start with the Russian airspace question, I guess everybody's guess is as good as ours, and we don't want to speculate around the potential reopening of Russian airspace. The current strategy of the company and also the design criteria for the next strategy release is such that the aerospace remains closed. In a positive scenario, if it reopened, maybe at some stage it will, but no one knows when, we will then of course plan accordingly. When it comes to the capacity increase, if the airspace was opened, it's actually almost doable with the existing fleet, because we can then revert back to the 24 hours rotations in those routes, especially when it comes to the A350 destinations.

And maybe just still to add on that one, that of course, in the current environment, this is not a question of the airspace being closed and then potentially being open. We live in a world where one also needs to plan that it might be closed again, even if it would be open at some point of time. So in that sense, planning from one extreme to another is really not possible here. One needs to plan actions that works in both scenarios. And that's what we are doing as as Turkka also said. I think when it comes to capacity increases for this year, the only thing I'll highlight there is that this is mainly coming from us getting the new three 50 in and flying that as much as possible plus then us further utilizing the fleet that we have even more and that's really kind of so this is not investment driven except for the one new 350. Then when it comes to profitability of the different operations that we have you know, we feel good about the profitability level that we've been able to negotiate for the different activities, and in that sense, you know, the shift from one to another is not going to be that big of a driver for our profitability. In a way, the drivers will be elsewhere, you know, how well we are able to kind of meet the demand of what customers want to do, and how do we kind of produce the type of results that we were able to produce in Q4.

Okay, I hear you. But just to follow up, so when looking at the more detail, I guess the 1,350 actually brings 2-3% capacity increase. So is it truly so that you can squeeze out 6-7% from the underlying fleet to actually report 10% capacity growth on all bases.

Yeah, maybe we need to check our math, but I would have contributed a larger percentage to the additional 350 that we get in, given how much we plan to fly that. And then, as Turkka said, there is also an element here where we now fly more of the capacity ourselves and less for others, which also brings then efficiency in terms of how much we can produce from an ASK point of view. And then as said, we did have some maintenance related activities this year that brought the theoretical capacity down. And of course, we hope that we will be able to avoid such things during this year, and because of that, get closer to the theoretical possibility of the current fleet. So that's where the 10% is coming from.

Yes, okay, I see. I understand that one. Thanks, that was all at least for now from my part. Thanks.

Thanks, Pasi.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Mateo Salcedo Lopez from AutoBHF. Please go ahead.

Yes, thanks for taking my question. I have to, if I may. The first one is on the staff requirements that you're passing post for this year. Could you tell us what was the percentage you have already blended into your fuel? And then I'm trying to look at your EBIT guidance for 2025. I know it's quite early, but I'm trying to understand what will be the upside for, I mean, to get to the 200 million. And I guess you're saying that your strategy is not counting on the reopening of the Russian airspace. trying to see what will be this positive impact that could lead you to the 200 million and I guess the 100 million will be the worst case scenario assuming no improvement whatsoever in 2025 against 2024 and with all the impacts from the staff and profitability that you mentioned previously, if that's correct, thanks.

Maybe your first question. The SAF level in 2024 was not material. It was increasing towards the end of the year, when we launched a voluntary option into our booking flow, but nothing material. Now, of course, for European flights, we need to blend 2% of SAF. So that's the SAF question. Then in a way, if you look at what could lead us to get to the upper end of our guidance range, clearly, even if we are well hedged on fuel, a lower fuel price would bring still benefits to the year. Also, strong demand would fill our planes and now of course those incremental passengers will be very profitable passengers and if there would be such upside that would then also translate into an environment where actually ticket prices would be higher and not, you know, flattish as we said earlier, then that would of course also help from a profitability point of view. So those are the things that would get us to the 200, which would then be, you know, to the 6% target that we set for ourselves.

Okay, thanks.

It seems that there are no further questions, so we shall conclude the call. Many thanks for your excellent questions and joining the event. We wish you a nice day. Thank you.

Thank you very much.