Finnair Oyj

from Finner IR, and it's my pleasure to welcome you all to this Finner second quarter and half year 2021 earnings call. I have here with me Finner CEO, Mr. Topi Manner, and he is joined by the CFO, Mr. Mika Stirkkinen, for the Q&A session. I will now turn this call over to you, Topi, please.

Thank you, Erkka, and good day, everybody. Thank you for joining this quarterly call. The Q2 of Finnair was flavored by continued cost adjustment measures and financing measures. And now travel is opening up across Europe, and there's new legislation that opens the travel also in Finland that came into force on Monday this week. And therefore, we expect that the demand will gradually increase during the fall. So if we look at the Q2 just briefly, during the quarter we prepared for the traffic recovery, we take note of the fact that travel started in some parts of Europe during Q2, most notably in June in Central Europe, in German-speaking Europe, and in the Southern Europe. Finland has chosen a more cautious approach related to travel restrictions, and that is why there is a delay in terms of travel opening in Finland. But now, as stated, the legislation is in place. intra-Schengen border controls will be lifted on the 25th of July for Finland, and that also enables tourism to Finland. So that is a noteworthy development in our case. During the quarter, we brought some aircraft back to Helsinki from storage in more sort of warmer climate in Europe during the winter and spring. we continued crew trainings to gradually get them back from furloughs and to ready the organization for upcoming increase in the traffics. During the quarter, Travel was not really encouraged or permitted in the case of Finland, and that is why we still operated a relatively limited network with only 70 flights per day. The passenger numbers rose a bit from Q1, but of course we're still far from pre-pandemic levels. Customer satisfaction remained high in terms of net promoter score. The score of the quarter was 45. And during the quarter, we also announced an important joint business with Junjiao Air from Shanghai, eastern China. And that was especially a tailored partnership for Helsinki-Shanghai route. This basically signals our long-term commitment to the Chinese market, and we believe that the partnership will improve our long-term foothold of the Chinese market, also improving our distribution capability in China. We continued the development around our offering, bringing more choice, more personalization possibilities for our customers. And as one example, we introduced business light tickets to customers in June. So when we look at the Q2 numbers just briefly, the revenue and the other operating income altogether landed at 120 million euros. More than half of that was still generated by our cargo business, although during the month of June, the passenger income for the first time for quite a while grew above the cargo income. So that's an early indication of the passenger income gradually coming back. The comparable operating result landed at minus 151 million euros. So in accordance with our guidance of the operating loss being of similar magnitude than during the previous quarters, we had one item affecting comparability, a positive 12 million euro item stemming from our pension fund. And with that, the operating result was minus 39 million euros. The net financial income and expenses decreased from previous quarters a bit, especially because the USD rate moved to our favor. And that is why the net result for the period landed at minus 120 million euros. So a little bit less than during the previous quarters. But of course, still a heavy, heavy loss, devastating loss to bear and reflecting the harsh realities of the pandemic. We started the quarter with cash funds of 665 million euros. And of course, given the loss, we're burning some cash in terms of operations. But what is notable in this cash flow statement is that the working capital started to work for our favor, especially because now we have a bit of increase in the bookings and the sales intake is flowing in and therefore the tide is now turned in terms of working capital after six pandemic quarters. During the quarter, we also raised new debt. We refinanced our bond, doubled it to 400 million euros, and on the back of that, our cash funds at the end of the quarter stood at 834 million euros. In addition to that, we have 575 million euros of undrawn credit facilities, 400 of which are are related to the hybrid loan from the government of Finland, which remains undrawn. So with this, the available liquidity amounting to 1.4 billion euros at this point of time, our cash reserves remain strong despite of the prolonged pandemic. On the back of the operating laws, our equity ratio took a hit and now roughly stands at 19%. So still an okay level, but of course we are accumulating quite a bit of debt. So the indebtedness measured with gearing percentage grew to 222%. And this debt obviously needs to be paid back and that therefore we will need structurally better profitability post-pandemic. But as stated, the balance sheet and the cash position remains solid, and that enables us to focus on what is the most important, and that is the customer service, you know, ramping up our operations gradually and also bringing our people back from furloughs. And that is indeed our sole focus at this point of time. I stated we need structurally better profitability going forward and the cost savings program that we have been communicating plays a very important role in that respect. On the right hand side in the graph you can see the history and our track record of increasing these cost savings targets as the pandemic has moved on. And we have been proceeding in this work in a very good way, and we have reached the target of 170 million euros ahead of time. And therefore, we are now increasing the target to 200 million euros, which we will be reaching by the end of the year. And this also winds up the cost savings program. So the separate reporting on this one will cease from now on. But we, of course, will continue our cost savings measures by means of continuous improvement, by means of continuous efficiency work, for example, around digitalization, around optimization, and so forth. It's worthwhile to note that the permanent cost savings of 200 million euros are measured with 2019 volumes. And as you can see on the right hand side of the picture, 75 million euros of these savings are fixed cost savings and 125 million euros, the remainder is related to permanent variable unit cost reductions. And those will be, of course, then based on the volumes that we will be having going forward. But as stated, very good work has been done on this space, and we are renewing the company to a great extent. The flight operations pretty much remain intact. But when we come to the land side of our operations, when we come to the headquarters looking into IT infrastructure, looking into sales, marketing, distribution, all our supplier contracts, all cost items, we are achieving structural cost savings and we are changing the way of working and we are changing also the identity of the company. Going forward, we will be We will be less hierarchical. We will be more entrepreneurial. And that is definitely also a big, big culture change that will be improving our competitiveness going forward. And yes, the travel is now finally opening. The new entry model that came into force Monday this week in Finland enables all travel to and from Finland. So the fully vaccinated customers and the customers who have had the disease during the past six months and also all passengers under 16 years of age, whether they are vaccinated or not, can come to Finland freely, without tests, without quarantines. And as the penetration of fully vaccinated people increases in Europe, and in Finland now very fast. And come September, I think that majority of the adult population in Europe will be fully vaccinated. Then this will be opening up travel or enabling the travel opening and then return of demand in a very clear fashion. Also, the customers who have had one dose of vaccine can enter Finland without quarantines, but they will need to take a test within 72 to 120 hours after the arrival, and then they are good to go. On the back of this, we discontinued our policy of requiring corona certificates and pretests as a prerequisite of entering our aircraft. And that change has already been completed. So on the back of the travel being opened, we are reintroducing services and we are increasing the number of our flights. So what we have seen during the past weeks is that the bookings are gradually increasing, but we are still well below the pre-pandemic levels. Aurinkomatkat, our packaged travel company, relaunched its operations in early July, and more destinations will be introduced later this summer. It is clear that the Mediterranean destinations are popular in late late summer, although the weather for the past month in Finland has been way too good. I mean, we are currently at above 30 degrees of Celsius, so the Mediterranean climate here up north is not exactly promoting travel as we speak. We do believe that European city destinations will be more popular during late summer or early fall, and also North America will attract travelers during the course of the autumn. Finnish families are clearly on the move during the autumn holiday break, and bookings for those weeks are now flowing in. So during the winter, we plan to operate 70 destinations altogether. But at the same time, it's worthwhile to note that we are observing the demand very, very closely, and we stand ready to increase the number of flights, the number of destinations hand in hand with the demand. We're also gradually reintroducing services, so priority security at the Helsinki airport opens on July 26th, and the Schengen lounge opens on August 25th. And the Nordic kitchen starting onboard our aircraft, that sales concept starting in the beginning of September. Also, the travel experience from customer point of view will be normalizing gradually. And of course, the priority lanes are important for business travelers, and we do expect the business traveling to gradually come back also after the summer break. We are constantly observing the opportunities on the market, and we're also tapping into these opportunities. An example of this is that now we have announced that we are starting non-stop long-haul flights from Stockholm, Ålanda, during the winter season to Thailand, to Bangkok and Phuket, and to Florida, Miami. These flights will employ approximately 270 persons, and the pilots will be Finnair pilots, and the cabin service is provided to us by Airpro. And we see this as something that is strengthening the offering of Finnair in the Swedish market, which has been important for us before the pandemic and will be increasingly important for us after the pandemic. As part of our guidance, we are stating that we expect Asian countries to open up for travel with a delay of some months versus Europe. And this estimation is in alignment with that of IAIDA. We do take note of that the vaccination progress in Asia has been speeding up quite a bit during the past month or one month and a half. Asia was a slow starter in terms of vaccinations, but now the speed has been picking up tremendously. that has a little bit earlier happened in Singapore. China is vaccinating at speed currently. Hong Kong is picking up. And now during the past month, especially Japan is picking up and has now also bypassed South Korea, which has had a little bit difficulties with vaccine supply lately. So this is very important for us, and this is also really good to see. And as stated, this is something that is the enabler for our assessment of Asia countries opening up for travel, especially for fully vaccinated people with a delay of some months vis-à-vis Europe. And just as a reminder, we do expect that the 70% fully vaccinated coverage will be reached in Asia during Q4. And when we look at our capacity to various Asian markets, Japan in 2019 before the pandemic was the biggest market to us in terms of capacity, followed by China. Thailand is also relatively big. And now on the back of the launch of flights from Stockholm to Thailand, Thailand should on relative terms be even bigger. And then you see the numbers for Hong Kong, South Korea and Singapore respectively. In terms of guidance, as stated, we expect that the demand will increase gradually during the fall, as now Finland is also opening travel. And in terms of operating cash flow, we estimate that our operating cash flow will turn positive by the end of the year. And then we reiterate what I just stated in terms of Asia countries opening up with a delay of some months. In terms of EBIT, comparable EBIT guidance, although our revenue will be picking up gradually during this quarter. We also estimate that there will be ramp-up related cost, and therefore the EBIT is likely to be still of similar magnitude than it has been during the previous five quarters. But as stated, the bottom line is that now the travel is opening in Europe. It is opening in Finland, and therefore we see that the demand is gradually coming back during the course of the fall. So thank you. This was it in short, and I think that now we are ready to go for questions.

indeed if you if you have any questions now would be a perfect time so please go ahead thank you ladies and gentlemen if you have a question for the speakers please press zero one on your telephone keypad now if you wish to withdraw your question you may do so by pressing zero two to cancel it will be a brief pause until we have the first question Our first question comes from the line of Jakob Travainen of SEB. Please go ahead. Your line is now open.

Yes, good afternoon, gentlemen. A couple of questions from my side. First on the travel opening up in Asia. Could you a bit more elaborate what is the current situation regarding the travel restrictions in the main Asian countries? i.e. China and Japan. And with your comment regarding a couple of months lag in opening the travel in Asia, do you refer that is the best understanding that you have in terms of the countries to open up their travel policies?

Yes, I mean, currently travel is very restricted, both in China and in Japan. So China follows this policy of one flight per week per country. And we have one weekly flight to Shanghai that is performing, that single flight is performing very well, so very good load factors, good RASC. And if we only would be permitted to fly more, we would be adding capacity in a heartbeat. So there is demand, definitely, to fly to China. But China is vaccinating at speed, as we can see from the numbers, and especially in the bigger cities in Beijing, in Shanghai, the vaccination penetration is really high these days. In Beijing, we are talking about vaccination penetration well above 80%. So that's the positive. At the same time, we do estimate that China will be very cautious in terms of opening up travel. So most likely, China will be at the conservative end of Asian countries going forward. In terms of travel restrictions, you know, the same applies to Japan. Currently, effectively, only the sort of essential travel is being allowed. And you have, for example, seen that the Olympic Games in Tokyo will be organized without any spectators, also including the local spectators. But as stated, we have been discussing with the local authorities, and now when the vaccination is picking up, we do believe that especially the fully vaccinated people, travel for them will be opened with a delay of some months vis-à-vis Europe in many Asian countries. I was visiting South Korea in June and also discussing with local officials and local ministers there and their sort of best estimate at that point of time regarding South Korea was that South Korea would be reaching coverage of 70% with fully vaccinated during the Q4 and therefore somewhere in November plus minus something, they would be sort of enabling travel a bit more. But I don't think that Asia will be opening up with a bang. So when we are speaking about opening travel, we are not speaking about opening travel without any restrictions. I think that there will be a certain amount of cautiousness in this one in the Asian countries, and that is why the opening will be first and foremost focused to fully vaccinated people and then then it remains to be seen whether there would be, for example, testing protocols in addition to that.

Okay, excellent. Thanks, very helpful. Still on the Asian recovery and perhaps looking towards 2022, have you analyzed how much the European airlines have got their wide-body capacity And will the Asian roads see less capacity in relative terms compared to North America when the recovery starts?

I think that that depends a bit on the opening. So if we take the long-term perspective on the capacity, I mean, really long-term perspective, like 10-year perspective, we see that also European airlines have been reducing their wide-body capacity, and especially the growth of the wide-body capacity will be will be clearly moderated from what it used to be before the pandemic. So there are estimations of the white-body capacity increase for the next 10 years being around the ballpark of 1.5% Gagar. So that would be an indication of a more healthy capacity picture in the long haul part of the business, medium to long term. But when we now look at the short term, Our estimation would be that US and the Atlantic will be opened up for all kinds of travel during the sort of late summer. And most likely that will be meaning that airlines will be deploying capacity to North America. We will be doing some of that. An example is that when we are starting flights from Stockholm and Landa, we are flying also to Florida, and that is a capacity addition to North America. When it comes to Asia, I think that there is a gap in terms of how much airlines can can add capacity to Asia. And that gap obviously is the sort of market limitations related to Russian overflight rights and aviation rights from the Asian countries, as well as the slots from the Asian airports. So that is the stopgap related to the capacity increases.

Okay, thanks. One more kind of technical question. I recall in Q1, you stated that the cash flow should turn positive a month or two before the EBITDA turns positive. Is this still kind of a valid assumption going forward?

You remember it right. And that's the ballpark, how it goes. Yeah. Okay.

Excellent. That's all from my side. Thanks.

Thank you.

Our next question comes from the line of Pasi Vaisanan of Nordea. Please go ahead. Your line is now open.

Great, thanks. This is Pasi from Nordea. Indeed, well, by starting with your guidance, I mean, I was looking at the guidance and you are saying that Finnair will be cash flow positive late 21. So I guess this is only a run rate for the cash flow when looking at, let's say, December. Or are you truly cash flow positive even for the full quarter, fourth quarter? And what kind of traveling volumes this kind of would require when you actually turn to cash positive, let's say something 45, 50 or 55% from ordinary. And secondly, Could you actually please give some examples from your savings program? I see that 125 million is actually stated here as a permanent savings in variable costs, but I would assume that we don't actually know yet are these cost savings permanent because the volumes are not yet back. So what would be the biggest risk factors for this savings program? And maybe lastly, the third one, what's the amount of pre-bookings currently for the third quarter and fourth quarter compared to the ordinary level? Let's say, for example, looking at year 19 on a seasonal basis.

Thanks. Okay, Mika here. So on the operating cash flow, so as you As you can see from one of the slides, now the working capital started improving. And that's the big driver there in our guidance, that the forward booking starts to come in and actually they are issued tickets when our customers pay us in cash. And as I stated earlier to Jaakko, so it's a bit earlier when the cash flow turns positive. So cash flow turns positive a bit earlier than EBITDA turns positive, but that's a function of the booking curve. And our booking curve assumption is really conservative, i.e. we assume rather late bookings before the departure month. And it doesn't require large volumes or large revenues compared to the 2019 revenues. So, not 50% is needed in order for us to turn to cash positive. But as I said, there are a couple of assumptions, and the shape of the booking curve is one of those. Then the next question was on savings.

On the savings program. As stated, we have been running this savings program now for more than a year since spring 2020, and it's a very established where you're working very rigid follow-up with very strict discipline in terms of the definitions of what is permanent and what is not. So the fixed cost savings in this one are clear, but the variable unit cost savings, the permanent variable unit cost savings are also clear in the sense that They will materialize hand in hand with the volume. Let me take an example. Ground handling is something where our costs will be dependent on volumes. a number of individual parameters are impacting that, numbers of passengers, numbers of flights, and so on and so forth. So now when we have been putting in place a new ground handling setup for us, moving from Swissport to Aviator and Airpro, we know that the unit costs are decreasing and we can see them materializing the savings on unit cost level already with the current volumes that we are running with. And then it will be a function of volume of those unit cost savings materializing. So therefore, Therefore, the same logic is being applied in the savings program. And therefore, when we are saying that these savings will be permanent, they will be permanent. And the thing to note there is that the 200 million figure is calculated with 2019 volumes. and therefore the actual savings that will be materializing during full year of 22 and full year of 23 and onwards will be dependent on the volumes that we are seeing on those years. So therefore, The answer to your risk question would be that we don't see risk in terms of how these things are being calculated, but you need to be really mindful of the volume dependency with the variable unit cost savings.

Okay, great. Thanks. I hear you. But there was some kind of a broken line picking up So probably I didn't hear everything, but the savings part was pretty okay. And related to pre-bookings, the amount of pre-bookings for the third and fourth quarter compared to the 19 was the level on that one.

We are not disclosing specific numbers on the bookings, but what we have been seeing now is that there has been a small increase in the bookings, a small increase in the number of passengers, and what you will really need to remember is that Basically, during this week, we are now open for business because the new entry law came into force on Monday this week. And then we are also restarting our marketing campaigns, basically, during the course of yesterday and today. So now... travel is being opened, travel is being enabled, and therefore we are working extensively to get the bookings. And we do see that the demand will gradually increase during the course of the fall. And I guess, Mikko, you can talk about the pattern of the bookings coming in for the fall and for the Christmas as well.

Yeah. When you look at July, August, September, so those curves are all ahead of the June curve. So at the equivalent number of days prior to month, and we are ahead of June. But at the same time, one needs to remember that the level is not there where we would love it to be. And then November has never been a kind of a stellar travel month for anyone. But then December looks promising in a sense that it's already almost at the June level. But it's early days for Q4. Q3 seems to now be after two weeks, after we finalized our forecast, being in line with that, or well, at least in line. So that's where we are. But what can be said is that when the vaccination speed increases or level of vaccinations increase, and when you look at what happened elsewhere in the world. So we are confident that the bookings will start flowing in.

And then of course, at the restart of the traffic, we will be quite dependent on the Finnish part of our customer base. Pre-pandemic, Finns were something like 40% of the passengers in Finnair. But as stated, now when we are ramping things up, the Finnish part of the clientele will be important. In the case of Finland, Finland has been following the UK approach in terms of vaccination. So the interval between the first and second dose has been longer than in many other countries. European countries. And that means that while the first dose penetration in Finland among adults is very high, it's above 75% at this point of time, the fully vaccinated penetration among Finnish adults is approximately 30% at this point of time. But it will be increasing relatively fast now during the upcoming weeks, especially during the course of August toward the end of September, when the sort of full Finnish adult population will be fully vaccinated. And I think that this phenomenon also will be speeding up the demand in terms of travel.

Yeah, great, thanks. I still have one question, but I can jump to the in the case station, kind of still kind of more questions coming from online.

Thank you. Our next question comes from the line of Ashal Kumar from HSBC. Please go ahead. Your line is now open.

Yeah, hi. So first of all, going back to Asia, so you said some demand has started picking up even from Japan, from China, from Korea. But I mean, I think on the last call also you said that, say, for example, Japan, the vaccination rate is very low. And even now also, I mean, only I think less than 20% of people have been vaccinated. for the first dose and less than 10% for the second dose. So, I mean, so how, I mean, what sort of demand you're seeing as you just said that demand is picking up? So, I mean, if the people have not been vaccinated, what what uh what tells you that there has been some demand and you know how so how do you share how do you see the shape up of the of the demand especially in asia um which is of course the key market for you um and while i'm on asia um also wanted to understand um um so what uh How do you see your partnership with Junjiao Airlines will strengthen your positioning within Asia? And on Asia itself, do you see some capacity cuts in Asia? I mean, can you really switch some of your capacity from Asia to elsewhere in case the demand turns out to be very slow?

So in terms of the Asian demand, to be very clear, I mean, the demand that we see from Asia right now is very, very little, given that travel is so restricted. I was more referring to the individual weekly flight between Helsinki and Shanghai. The only one that we have, I mean, that very small capacity, but that capacity is selling well. And those flights are relatively full with good prices. But as stated, given the fact that Chinese authorities have this policy of one flight per week per one country, the capacity is very small. In Japan, on the other hand, given the travel restrictions, only the essential travel being allowed, then the load factors to Japan are low, and those flights are to a significant extent boosted by the cargo demand. But at the same time, we see now that the Asian countries are vaccinating at speed. So if you look at the vaccine penetration increases that they have per one day or per one week, they are making good, good progress and faster progress than Europe is making currently. clearly faster progress than, for example, the United States is doing, because the United States has more or less stalled recently. So that, in our view, increases the likelihood that Asian countries will have reached adequate vaccine penetration in terms of fully vaccinated people by the end of the year. And on the back of that, we do estimate that there will be a delay of some months in terms of travel opening to Asia vis-a-vis Europe. And as stated, that is also in alignment with the estimation of IADA. And then the Junjiao, so that joint business, I mean, the logic of the joint business is to effectively form an express service between Helsinki and Shanghai. Before the pandemic, we had a one daily service between Helsinki and Shanghai. Junjiao had one daily service between Helsinki and Shanghai as well. So the ambition over the longer term for the partners would be to go for four daily flights between Helsinki and Shanghai. I stated there's no specific timeline attached to that. But that joint business, on one hand, should promote our possibilities of getting aviation rights in partnership with Junjiao. And on the other hand, it improves our distribution capability in China and it improves Junjiao's distribution capability in Europe. And then of course, we are offering a better service to our customers.

All right. And how do you expect, I mean, in case the demand turns out to be slow, what sort of flexibility would you have to switch some capacity out of Asia and deploying it somewhere else?

Sorry, I missed that. So I think that the example of us introducing the flights from Stockholm, Orlando to Miami and to Thailand is a good one in this respect. So we are utilizing the opportunities that we see on the market. Norwegian used to have wide body operations to Thailand, for example, from Alanda, and now they have stopped the wide body operation altogether. So there's there's an opening on the market and we are going for that opening. And at the same time, we are deploying capacity to Miami and additional capacity to Thailand in waiting for the Asian market to open during the winter season. So these types of opportunities would be something that we want to capture and then we keep our eyes open for similar opportunities that might arise in the near future.

Right. On the operations out of Stockholm, so basically, of course, you're using your operating the services which Norwegian used to operate. But now, of course, first of all, what sort of demands are you seeing? I mean, you must have got some indication as to, you know, in terms of how the advance booking are taking shape and what sort of demand are you seeing on these routes? Secondly, of course, if there are demands, then of course you are in Scandinavian Airlines base. So don't you expect a competitive reaction from Scandinavian Airlines on these routes?

Yes, I mean, the demand that we are seeing is a point to point leisure demand from Stockholm, Arlanda to Bangkok, Phuket and Miami. And this is how we have also selected the destinations. So whereas in Helsinki hub, we operate a network model, the Stockholm Arlanda operating model is a point to point leisure, long haul leisure model. Therefore, there is a difference in the logic. And when it comes to the competitive situation in all of the hubs across Europe, No matter whether we are speaking about Stockholm or Frankfurt or Amsterdam or Helsinki, all of the hubs, the competition landscape is evolving as we speak when different airlines position themselves for the post-pandemic. What we have been doing is that we have been structurally changing the company to be more competitive going forward. And that is something that is closely correlated with our savings package of 200 million euros of permanent cost savings. we feel that we have a good product we have good customer service good brand and and and capabilities that will attract customers and and then therefore therefore we are willing to take this step to stockholm right

okay um finally on the on the leverage side i mean um so giving has increased substantially um so I mean, so what sort of expectation do you have and how you want to address this? I mean, can we really expect some kind of balance sheet restructuring? So how do you want to address this increasing leverage? Because anyway, I mean, as you rightly said, you know, that you don't expect the demand to come back and you're expecting Q3 and then Q4 levels probably, you know. especially Q3 and at the similar kind of process. So what is the expectation in terms of your caring? What levels are you going to be more comfortable at and how are you going to address this, please?

No, I think that, as stated, when you look at our equity ratio currently, and when you look at our carrying percentage currently, what you will need to remember is that we have the 400 million euro hybrid loan in our disposal, and that hybrid loan remains undrawn at this present time in full. So that is, of course, something that we can utilize going forward. And that is the main tool for us to make sure that our balance sheet and the balance sheet structure stays in a solid shape going forward.

But then how would you reduce the gearing errors? I mean, your gearing is already at 232%. So are you... I mean, of course, the 400 million you have undrawn facility, but that's... I mean, of course, that is sort of a liquidity with you, but that's not going to solve your purpose in terms of reducing your gearing levels, right?

I mean... You need to remember that hybrid is treated as equity. and has more favorable terms in many sense than the senior debt. So, now I need to speak very, very theoretically here, but should you stop paying coupons of a hybrid, that wouldn't be a default. That's highly theoretical, but just as a reminder to you.

Okay, perfect. Thank you so much, and good luck.

Thank you. Our next question comes from the line of Hans Ignis of Winner Weiss. Please go ahead. Your line is now open.

Good afternoon. Thank you for taking my questions. I would like to follow up your interesting move with the new long-haul base at Stockholm Arlanda. Can you give some more flavor on what traffic rights are Finnair utilizing, applying to Thailand and United States from Sweden? Can Finnair to some extent or fully utilize your rights on the Sibir corridor on flights to Asia from Sweden?

Yeah, I mean, US and Miami is an open skies market. So I think that the rights are in order in that sense. And then when it comes to Thailand, I think that we will be having the aviation rights in order. And when it comes to Russian overflight rights, you know, the Russian overflight rights are fixed So before the pandemic, with that capacity at the time, we had all the necessary overflight rights and then some reserve for growth as well. And now when we are having clearly less flights to Asia, we have an excess of Russian overflight rights currently.

So that means, as you spoke a couple of minutes ago, that you are looking for new markets to cater for lack of demand. For instance, you could look at a base in Copenhagen or you could look at a base at Oslo. And you will then be able to use, for instance, your access...

rights on the severe corridor from those countries right no you cannot call that far because the the russian overflight rights are country specific so uh so so uh so so uh therefore therefore they are they are granted granted per country so uh coming back to your question and uh you know, possible speculation related to other hubs than Stockholm, Arlanda. We don't have any other plans at this present time, but we, as stated, we keep our eyes open for other opportunities that might present themselves in the market.

Okay. And finally, At the Stockholm base, can we expect Finnair to have a long-term perspective with this new operation?

Sorry, there was a little bit of an interruption on the line.

So can you expect Finnair to have... Can we expect Finnair to have a long-term perspective with the new Stockholm-Alanda long-haul base?

Yes. When we are now introducing this, we are sort of testing the market for the next winter season. As stated, we have capacity and we can deploy the capacity in waiting for the Asian markets to open. At the same time, Swedish market is very important for us. It was very important before the pandemic, and we think that it will be increasingly important post-pandemic. So with these flights, we are testing the Swedish market. We are testing the sort of commercial viability of that model, and we will be making longer-term decisions on the back of that.

Okay, thank you very much for your replies and have a nice day.

Thank you, thank you very much.

Our next question comes from the line of Pasi Vaisanon of Nordea. Please go ahead, your line is now open.

Great, thanks. This is Pasi from Nordea. And lastly, looking again at this Stockholm opening, I mean, would it be so that you cannot use actually the same 24 hours rotation model in Stockholm than you already are using in Helsinki. So in that sense, you wouldn't have the same strengths and efficiencies gained in Stockholm than on Helsinki currently. if you are actually going to introduce this kind of model to let's say for example for for oslo should we actually expect a lower profitability for these new openings then going forward thanks

Yeah, I mean, as they did, it's a different business model. It's a point-to-point long-haul leisure model that we are operating from our lander. And therefore, also the rotations, both the aircraft rotation and the crew rotation is different. And you would be right that there are not the efficiency of the 24-hour rotation is not of similar magnitude in the Arlanda operation.

Okay, that's clear. That was all from my side. Thanks.

Thank you. Our next question comes from the line of Andrew Lubenberg of HSBC. Please go ahead. The line is now open.

Oh, hi there. I was just keen to see what your reaction is to the announcement of the EU Green Deal. Obviously, there's been quite strong outpourings from IATA and A4E. But what's your perspective on the prospects of the kerosene tax and the timing of ETS in particular, and what timeline or what prospects do you see for them being implemented? Thank you.

Yeah, I mean, first of all, We haven't had the chance. I mean, the Fit for 55 package came yesterday and it's a very, very extensive package. So we haven't had the chance to really go deep through all the implications. So we will need to get back to some of your questions in more granular fashion going forward. But I can say some high-level comments on this one. I think that the level playing field between European Airlines and And the airlines from the rest of the world is a real issue in this one and something that we would need to be mindful of. And this might put the European airlines in a disadvantaged position vis-à-vis Chinese airlines or U.S. airlines or Middle Eastern airlines. carriers so that that that needs to needs to be stated in terms of EU ETS you know reducing the free allowances with that speed that is indicated in the package is challenging for the industry, especially in the absurdly challenged financial situation where the industry finds itself in currently. So that needs to be kept in mind. As we all know, there are no profitability buffers with airlines from which these additional costs, in theory, could be taken out of. So whatever additional costs there will be will need to flow directly into prices. So that's one aspect. Then in terms of sustainable aviation fuels, I think that the mandate of 5% is reasonable and something we think that should be applied in all of the member states. For example, in Finland, There has been a talk of biofuel mandates where the percentages have been far above the 5% that is now being discussed on EU level. So there I think that it would be very, very important for each of the member states to stick to the European line in this respect. Related to sustainable aviation fuels, it's also positive that not only the biofuels, but also the hydrogen-based electric fuels are basically included in the mandates. So I stated some early high-level reflections at this point of time. On a more detailed fashion, we can come back to the discussion a little later.

Thanks. That's really... Fair and interesting. Can I just ask another couple of quick questions? One is around, you know, the Stockholm mini base that's using outsourced cabin crew. Are you confident that that won't create any tension within your labor relations at the moment? And then just the second one is, and I've got a feeling I've asked this before, but obviously you guys have a very strong position with Russian overflight rights. but the political tensions between Russia and the West are getting worse. So are you confident that your overflight rights can be safeguarded and indeed that the Russians will willingly allow you to exchange them for flights from Finland to flights from Sweden? Thanks.

Yeah, I mean, when it comes to the Russian overflight rights, we have a long-standing relationship in this one. I mean, the government of Finland has the relationship with the government of Russia, and we as an airline have the relationship with the needed authorities in Russia. And our track record with the overflight rights is... Good. So, I mean, the geopolitical tensions that you are referring to, of course, are a consideration, but we are confident related to the status of the overflight rights. And that statement also applies to the foreseeable future. And then, sorry, now I missed the second part of the first part of your question.

It was just about the labor relations issues of using outsourced crew in Stockhampton.

So the reason why we have been forming this contract with Airpro as a service provider for this completely new business, which also means that we are not outsourcing anything existent. We are forming a new service contract for a new business from a new base. The reason for that one is that we discussed with our unions and we formed an agreement with our pilots that they will be flying these flights, and that will be the case now. With respect to the cabin crew, Our own union and our own union representatives were willing to make an agreement with Finnair to enable Finnair cabin crew to fly these flights. But unfortunately, the Central Union basically did not back that deal. And therefore, the solution with Airpro as an external service provider was the only one available for us in order to carry out these flights. And that is why I think that there is understanding among Finnair employees and among Finnair unions that why this is being done. And Airpro will need to recruit the crew from somewhere. And we are enabling our furloughed crew to seek for these or to apply for these jobs at Airpro. which would be meaning that then they would be going into a fixed term contract with Airpro, flying with Finnair from Arlanda to these destinations. And when the fixed term contract would end, then they would be coming back to their normal jobs with their existing jobs, with their existing terms and conditions back to Finnair. And this understanding is something that we think will mitigate the tensions in this.

Brilliant. Thank you. And as Atul said, good luck.

Thank you. Thank you, Andrew.

Thank you.

We currently have no further questions. I will hand back to the speakers for any further remarks.

Yes. Thank you for the active conversation and many excellent questions. Unfortunately, the line was cut for 20 seconds or so during Mika's question or Mika's answer, but hopefully you got something out of this. So thanks for joining and we wish you a great day.

Thank you for joining and enjoy the summer. Thank you. Okay, bye-bye.