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 second quarter 2025 earnings call. I have here with me our CEO, Mr. Turkka Kuusisto, and he is joined by our CFO, Mr. Christian Pulola, for the Q&A session. I will now turn this call over to you, Turkka. Please, go ahead.

Thank you, Erkka, and a warm welcome also on my behalf. As expected, the second quarter of 2025 was pretty much overshadowed by the industrial action of the Pilot Union and the Finnish Aviation Union, and the consequent industrial actions did have a significant impact on our Q2 result. All in all, Q2 came in with somewhat a modest revenue growth of 2.8%, but more importantly, we need to focus on the comparable operating result that declined to 10 million euros from the 44 of last year. In this figure, we have a negative impact of the direct consequences of the industrial action being 29 million euros. Earlier this year, we reported that Q1 faced 22 million euro of direct impact from the industrial action, and today we have estimated that we need to prepare for a 20 million euro negative impact for the Q3 results. So all in all, we are around the ballpark of 70 million euros of direct impact from the industrial action for the 2025 comparable operating result. Operationally, the industrial actions caused us to cancel some 1300 flights during the quarter that of course influenced our NPS negatively because those customers who were rerouted or rescheduled of course did face disruption and their experience was obviously lower. We intentionally decided to invest to rerouting customer care and also really prioritizing the customer experience of those customers who faced disruptions to pay, you know, to prepare for investing for the future rebounds from the difficult springtime. Having said all this, when we take a broader scale, 94% of the flights were operated as planned, despite of the industrial action, but this 6% translates into 100,000 passengers, so we must not overlook the impact of those disappointed customers. What's now being the positive part, last Sunday around afternoon, we could finally agree the final outstanding agreement between Palta and IAU, so now the all collective labor agreements are being concluded, and we can now stabilize the operation and go back to normal day-to-day business. This slide aims at providing you with a bridge between the financial performance of 2024 and 2025 when it comes to second quarter numbers. As expected for this fiscal year, we anticipated that the landing and navigation and traffic charges will will grow from 2024 as well as the cost of the environmental compliance in form of SAF mandate. Those cost buckets represented some 15 million euro additional cost for the quarter but then when we take the operational result 39 million euros and then we need to deduct the 29 million euros of the direct industrial impact and we are down to 10 million euro. We hope that this gives you a better picture of the comparability between the quarters having this direct industrial action impact being such a vast majority of our profitability delta. On this slide, maybe some additional information. As already mentioned, revenue grew by some 3%. And when we take a bit closer look to the revenue mix, cargo business was flattest year over year given the industrial actions. But then again, the ancillary sales grew by some 11.5%, which is again a concrete piece of evidence that the commercial strategy that we have selected and the product development is going to the right direction and as already mentioned previously, ancillary sales starts to be in line with the revenue generation of the cargo business. On the other operating income line, you see a one-third decline, as we flew fewer and fewer flights for our cooperation partner, and again, that was impacted by the industrial action of the pilot union. And as already mentioned, even though the fuel price decreased from the comparison period, the cost of EU sustainable aviation fuel blending mandate or application increased and added our cost base by some 5 million euros. The most bottom line result for the period is closer to last year's performance, thanks to lower financial expenses and also some other items affecting the comparability. Taking a region or a traffic area point of view, we are especially happy with our performance in Asia. We decided to increase, for example, our weekly frequencies to Japan for this summer season, now flying 25 weekly frequencies, which makes us the biggest carrier between Japan and Europe, and that has been a successful success. capacity increase as we see Asken revenue developing favorably. More flattish development then on the European domestic side, and the delta in the Middle East traffic is explained by the scoped down collaboration that we have with Qatar Airways. Currently, we are only flying from Helsinki to Doha, whereas during the last year, we also flew from Stockholm and Copenhagen to Doha. On the North Atlantic traffic, as we reported in our report today, we saw some softening on the demand side, or growth rate slowing down, so basically the added capacity was not fulfilled with the same rate when it comes to the load factor, and that's something that we will monitor very closely when moving forward. So, during the second quarter, we started to see some softening of the growth rate in the North Atlantic traffic as well as in the yield development. From the balance sheet point of view, the equity ratio declined a little bit because of the negative result and also the shareholder distributions from which the first installment was paid during the second quarter. Gearing on the other hand side decreased a bit thanks to lower interest bearing net debt. And the cash flow point of view, the second quarter wasn't as strong as the first quarter was. We had somewhat lower ticket liability at the end of the quarter versus the first quarter. And also during the second quarter, we decided to invest in the least buyouts of $2. 320 aircrafts and also we did do some loan repayments of our Jolko and ECA agreements. But having said all this, the cash level of the company at the end of the quarter is still very solid and additionally we do have a 200 million euro revolving credit facility at our disposal. When moving forward, of course, the number one priority is now to stabilize the operations after a challenging and difficult first half during which we had multiple disruptions because of the industrial actions and strikes. So, therefore, the number one priority is now to focus on customers and their needs and also winning back the trust and satisfaction to Finnair services. Moving forward, we of course continue to develop the company and organization. And as previously mentioned, towards the end of the year, we will be then discussing the next strategy release of Finnair. During the quarter, we also introduced some new destination in our forthcoming summer season schedule. We will be reopening the classic Toronto route for the summer season of 2026, by having three weekly frequencies, and let's see how that then develops further. There has been quite a lot of debate and discussion related to Finnair's reliability and the potential brand and image damage this industrial action has caused. I would argue that it's too early to tell. Of course, customers have selected alternative carriers, especially during those days when we have stopped ticket selling because we have canceled the flights. But at the same time, for the 15th consecutive year, Finnair was selected as the best airline in the Northern Europe. as well as our cabin crew was also selected best in Northern Europe. That gives us a great foundation to rebuild the trust and have a lot of activities when it comes to securing that customer will come back to Finnair. Of course, it will take some time, but I'm very convinced that together as a one team, we can do it. Then when moving to the outlook and guidance, there is a lot of text on this slide, but the key message being that today we are repeating the ranges that we have provided you with earlier when it comes to the revenue range and also the comparable operating result range, excluding the direct impact from the industrial action. However, based on the current information, today we estimate that the comparable operating result will be closer to the lower end of the given profitability range. And this is because of the weaker than expected demand in North Atlantic, as just previously discussed, and also indirect effects from the industrial action on demand in broader terms, which are very difficult to quantify. In the third chapter, we are also quantifying what has been the already actualized impact from the direct impact of the industrial action in terms of revenue and profitability, and also providing you with a number related to what is our best estimate when it comes to the impact on the third quarter. which then equals profitability-wise to 70 million euros. And then in the final chapter, we are also providing you with a profitability range, including the direct impact of the industrial action until the end of the second quarter, and also based on what we estimate to be during the third quarter. Erkka, these would be my key remarks, and I guess we can open for the Q&A.

Indeed. Thank you, Turku. So, now would be a convenient time for any questions you may have. Please follow the operator's instructions to present them.

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 Kurt Hoffman from Aviation Week. Please go ahead.

Yes, hi. Thanks for the possibility to talk with you. I wanted to ask you regarding the wet leases you have done with Qantas with the A330s recently. How is it doing now with your A330 fleet? Do you have too many aircrafts of this or which kind of solutions you plan with your formal wet lease strategies? Thank you.

Thank you for the question. We've been operating two routes for Qantas as a wet lease, from Sydney to Singapore and from Sydney to Bangkok. Because of the industrial action, we needed to put the Sydney-Singapore route on hold, but that route will restore early September, and we will continue on wet lease basis until the end of winter season of 26. Thereafter, those wet leases will be turned into dry leases. That's the way forward when it comes to those two aircrafts. As we all know, the payload range of the 330 is not optimal. in the situation where the Russian airspace is closed. Therefore, the wet lease and thereafter the tri-lease solution with Qantas is a feasible one, especially when it comes to these two aircrafts for the time being.

The next question comes from Jocko Tervenen from SEB. Please go ahead.

Yes, good afternoon, gentlemen. Jocko here from SEB. On the U.S. market, and you are noting somewhat weaker demand situation in that area, How fast you are able to react in terms of capacity and possibly cut the capacity if the situation continues to be soft for a longer period of time?

already now we have reacted because of the industrial action again. We needed to narrow down our summer schedule, because we didn't have enough trained pilots, so therefore we already decided to hedge the US traffic schedule, because there we had the biggest growth. Now, we need to monitor extremely carefully that how does the booking behaviour develop after the summer season, because we started to see that people are booking closer to the date of departure, so that's under monitoring, and thereafter we can of course do some adjustments, but at the same time, Given the cancellations that we have had, we also need to keep in mind that we might want to invest when it comes to stability and providing connectivity. So, that's a bit of a multi-dimensional optimisation exercise that we need to do. And also, at the same time, always consider that is it better to fly the flights if and when they are cash flow positive, but that will be a Q3, Q4 optimisation exercise for us.

Okay, thank you. Then perhaps a bit on the same topic you referred to. Have you noticed any kind of a hesitance among the customers to book their flights under uncertainty what the industrial actions have caused here? Have you seen kind of a softening trends in your forward booking curves over the past few months?

So I think, first of all, it's good to understand that the industrial actions kind of changed in nature when we went from the pilot industrial actions to the ground actions. And particularly now during the latter ones, as Turkka said, we took action to optimize for the customer journeys. So once there was a strike threat, we stopped selling tickets for those dates. We also allowed people to make changes to their travel schedules, which meant that they They chose other dates, and in that sense, consumed capacity that we could have sold to other customers without doing this. And clearly, the uncertainty has driven some of our customers to use other means of transportation, and we do estimate that competition has benefited from the uncertainty. So, yes, we do see that there has been, you know, indirect impacts above and beyond the now estimated 70 million. And now we are in a position to actually fight back against that, because now our operations are back into normal schedules, we don't have the uncertainty, and, you know, we are gaining the trust back from our customers. And that's also one element why it is, you know, somewhat more difficult to estimate what will happen during the second half now when we are, you know, fighting on all cylinders as we speak.

Okay, I understand very well. Good, that's all from my side. Thank you.

The next question comes from Jonas Ilvenen from Evli. Please go ahead.

Hi, it's Jonas from Evli. If I may come back to this disappointing North Atlantic demand question. Was it driven more by American travellers or Finnish travellers?

I think it's fair to say that it's driven by the capacity growth that we allocated to this market at the beginning of the year. The world of course looks now quite different to what it looked like then. We had just seen a very strong 24 when it comes to the Atlantic business, and because of that, we put some of the available growth that we had to that market. And we've seen a weaker market overall, and because of that, we haven't gotten fully paid for our capacity increases. Then there are, you know, particular dynamics, which kind of talks for, that it's, you know, more driven by Europe, and then now lately, especially the weakening of the dollar is also having impact to, you know, US consumers' ability to pay for their travels coming to Europe.

Okay, that's clear. And so North Atlantic demand has been disappointing so far. But meanwhile, you're still seeing your Asian capacity and demand grow. And your capacity in Europe is not maybe growing that much, but your passenger load factors are still improving. And I think European ticket prices were also increasing. relatively strong this time around and when you think about this this as a whole i mean europe and asia are so much bigger for you than the north atlantic so i was just wondering um i mean your your guidance for h2 is seems a bit cautious so is it more driven by all these different kinds of cost considerations versus the versus the revenue side

I think it's also fair, as I said, that, you know, given where we now sit, you know, three days into having gotten a CLA deal with all of our employees, it is difficult yet to kind of assess, you know, how the indirect impacts of the industrial actions have impacted us and in a way how we can respond to that during the second half. It is fair to say, and you're correct, that when it comes to the Asian business, it has been, you know, solid. You know, same is true maybe also on the European side. And then, as Turkka said, some of our... wide-body capacity is just such that it cannot be deployed to benefit from the strong Asian market because of the payload constraints. And as a result of that, we did make the decision, you know, early in the year to put additional capacity to the Atlantic. And we are now monitoring that as we speak and, you know, we'll make the appropriate decisions when needed.

Thanks, that's clear. And maybe a couple of other questions related to your different cost items. So in general, I think your costs were pretty much in line as I would have expected. And you have flagged these capacity rents before, but they still increased maybe quite a lot more than I would have expected, like 42% year on year. So this is the level that we should expect going forward.

So I think some of that increase was actually driven by, you know, the cost of the industrial action. So particularly during the pilot actions, we had to secure some capacity to be able to operate our schedule, and because of that, we do now have, you know, somewhat more kind of in capacity at our usage. So, still, I think as Turkka said during the media presentation today, our primary needs of serving our customers is our own, as well as then the Norra operations.

Okay. And what about this sustainable aviation fuel cost pump that you have been talking about? I think it hasn't been really that visible in your fuel costs so far. I mean, I don't know how exactly I should model it, but would you expect that I could really see it come through more visibly starting, let's say, during H2? Or is it more like next year?

I think it will come through gradually over the years when the percentage of SAF mandate kind of increases, because now we are talking about, you know, having to blend 2% on EU flights. And so in a way, out of our total capacity, it's not 2% of everything that we fly. But yes, it is still a number which is getting closer to kind of 10 million a quarter, rather than a smaller number, and because of that, we have been highlighting this, because if we look at the the major cost increases during this year. You know, the 2% SAF mandate is one, and then the higher landing and navigation charges, particularly in Northern Europe, is another one. The latter one being somewhat larger on a quarterly basis. Okay, thanks. That's all from me.

The next question comes from Kurt Hoffman from Aviation Week. Please go ahead.

Thank you to have the possibility again to talk to you. The latest industrial actions you had, do these have an impact on your decision for the future narrowbody fleet? And maybe you have an update on this.

The industrial action of the first half of 2025 is in a way an isolated event when it comes to the future investments. We are in the process of running a diligent fleet campaign and project to really model that what type of aircrafts and with what quantity would support our future network strategy. So, I wouldn't connect the industrial actions and the fleet renewal project. The project is running as we speak, and most likely towards the end of the year, we have something concrete to be also shared externally.

Thank you. And if I may add, as you have now much longer routes to the Far East and you're flying many times to Japan, Do you evaluate on a daily basis regarding when fuel prices increases? Do you evaluate on a daily basis which route makes economical sense? Or is there, let's say, a fuel price target when you have to say, no, this is with longer flying times and high fuel costs, we cannot operate some routes? And I forgot the number, how many weekly flights you have now to Japan?

we have 25 weekly frequencies. When it comes to, let's say, flying to Tokyo, for instance, the decision when it comes to should you select a northern route or a southern route, that's a multi-parameter optimisation decision related to direction of the wind, other traffic flows, security issues and such, so it's not only an economical decision, but also customer convenience, connecting flights, etc. But those are very operational decisions that are being on a daily basis in our operations.

All right. Thank you very much.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Pozzi Verzenin from Nordia. Please go ahead.

Great, thanks. This is Pozzi from Nordia. I have three questions to start with. and firstly regarding your guidance so you're guiding a roughly five percent capacity growth for this year but your revenue growth guidance is actually five to eight percent and then we're looking at the kind of the risk which is actually declining so How come these net sales to be growing more than capacity growth, when the risk is declining? So, is there something we don't understand, or how this guidance should be read?

Yes, I'm not sure about your math. I can't kind of validate that on the spot. But, you know, as we say in the guidance, we repeated the... the ranges that we had earlier. At the same time, we also say that we, at the moment, think that we're going to operate at the lower end of those ranges. And then, clearly, when it comes to revenue, there are a couple of headwinds. One which is coming from the industrial actions, so we'll have a 100 million headwind from the industrial actions to the guidance provided. And in addition to that, the weaker dollar is also creating a meaningful headwind. So, I think those are the things that you'll need to take into account. And then, of course, it's a mixed question. We are kind of benefiting at the moment from... the Asian market being, relatively speaking, stronger than, you know, some of the other markets where we see our capacity growing. So, that is also kind of adding to the equation.

Okay, I see. So, the first take was that you are guiding the growth for unit revenues, because if the capacity growth is five and unit revenue growth flat, then the sales growth is also five or even above, but now the risk is declining.

Your conclusion, not mine.

Okay, yeah. Well, secondly, I mean, Are all of these CO2-right related costs inside the fuel cost line or item? Or is there any other kind of role you include these CO2-right emission costs?

I think they are all included on the fuel cost line.

Yeah, I see. And maybe lastly, regarding your investment programme, which is under consideration, Can you actually even wait for seven to eight years to get the new narrow-body planes? So is it even an option for you to get the Airbus planes on your fleet, or do you need to kind of look at other options instead of new Airbus planes?

That's a very good question. First and foremost, we need to understand that, kind of, do an unconstrained modeling that what would be an optimal aircraft type and size and then quantity to support the network that we currently have and foresee to have. And there are different options without going into specific details. Different manufacturers have different lead times. We do of course recognize that some of the aircraft types are being, the delivery times are extremely long, but there is availability for different aircrafts already 2027 and onwards. So there are also different types of different procurement mechanisms as well. But first and foremost, we need to understand that what type of an aircraft fits our future purposes.

Because of course, in addition to what Turkka said, you can also then fill the kind of the blanks with some temporary options if needed. So it's not either or, it can be, you know, both.

Okay. Yeah, I understand. But that was all from my side. Thanks.

The next question comes from Mateo Salcedo Lopez from OdoBHF. Please go ahead.

Yes, thanks for taking my question. I have two, if I may. The first one is on CapEx. You have had that increase this year because you bought two leases. Are you expecting to do something similar in H2 or should we consider that you're done with, let's say, the fleet growth for this year? And then on your CLA agreements, I've seen that the last one will end in 1.5 years. Just wanted to know if you have any agreement that is actually ending or concluding in 2026 that they might risk of another strike next year. Thanks.

If I may start with the CLA question, which is a very valid one. We don't have any CLAs expiring during 2026. The pilot union CLA, the cabin CLA and some upper officials were two plus one year deals, so they are earliest expiring 2027, most likely 2028. The resolution that was concluded with the Finnish Aviation Union last Sunday, the deal will expire mid-January 2027. But on that note, we will of course continue to discuss the kind of the open issues and items as quickly as possible, so we don't foresee such a difficult negotiation round early 2027. So, in a way, we have now secured the industrial piece for the foreseeable future.

And I think on the CAPEX, so, you know, we have bought back, you know, some of the least planes, primarily to increase the operational kind of flexibility and also, you know, drive lower cost overall. It's fair to say that the majority of the deals are most likely behind us, but, you know, if a good deal comes true, then, you know, we'll assess them, you know, one by one, but the majority of the the older fleet is now owned by ourselves, and it clearly provides us with operational flexibility and ability to optimize cost in a very different way than when part of it was leased.

Thanks.

As it seems that there are no further questions, we can conclude the call. Many thanks for the excellent questions and joining our event. We wish you a great day.

Thank you so much and have a nice summer. Thank you.