Finnair Oyj

Good day, ladies and gentlemen. I'm Erkko Salonen from Finner Investor Relations, and it's my pleasure to welcome you all to this Finner's third quarter 2021 earnings call. I have here with me Finner's CEO, Mr. Topi Manner, and he is joined by the CFO, Mr. Mikko Styrkkinen, for the Q&A session. I will now turn this call over to you, Topi. Please, go ahead.

Thank you, Erkka, and hello, everybody. Welcome to this Q3 earnings call. big thing related to finnair q3 was that the travel restarted especially in europe but while we say that it is important to note that as of today only half of our markets are open effectively European Union as well as UK. Now recently we have been getting good news in terms of long-haul markets also gradually opening. Thailand communicated last week that they will be opening to 46 countries, including Finland and Sweden, from where we are flying to Thailand. And then, as we all know, US will be opening for the fully vaccinated on the 8th of November. And these two openings mark de facto the opening of our long-haul passenger traffic in November. So looking into Q3, it is really worth to note that our operating cash flow turned positive in the Q3 for the first time since the Q4 2019. And this happened on the back of passenger numbers rising especially in Europe, as stated, and then, you know, the forward-looking bookings increasing consistently through the quarter and especially from the start of September onwards. When we look at the pattern of demand currently, we see that it is very much focused on well-known European leisure destinations. So it's very much about leisure traffic. We have seen early steps in the business travel, but so far the business travel is especially focused on Nordics and Northern European destinations. During the quarter, we operated approximately 130 flights per day, still far from the over 300 flights that we used to operate prior to the pandemic. And currently, our flying crews amount to approximately 1,000 employees, so we have been bringing back approximately 500 pilots and cabin crew from furloughs during the course of August and September, and that development certainly will continue during the months to come during the winter. We also introduced during the quarter an affordable COVID testing service, and that partially supported the return of the traffic. We are normalizing our customer experience as we speak. We have been opening lounges. We have been introducing a new in-flight service concept in September, bringing more choice to our customers. We have restarted the in-flight sales that has been on pause during the pandemic and our customer satisfaction still is high and NPS score in Q3 was 44. Skytrax once again selected us as the best airline in Northern Europe. At the same time the ramp up of traffic comes with certain challenges. And for the time being, we are seeing those challenges, especially in the call centers, where the number of calls per passenger is threefold or even fourfold in comparison to what it used to be before the pandemic. And even though we have been adding resources in the call centers, the wait times for customers are not what we want them to be. So this is something that we are addressing. We are on the case, but it will be taking a bit of time before we are back in normal course of business in this aspect of customer service. We have been also working together with Finavia and the health authorities to ensure a smoother entry for the fully vaccinated travelers at Helsinki airport and there's a fast lane for the fully vaccinated and thereby the customer experience on this aspect has greatly improved during the course of the quarter. And entering to Finland is easy. So fully vaccinated people can enter without tests, without quarantines. So it is notably easier than in some other countries in the world. Cargo enjoys an exceptionally strong business environment and this is due to the relatively well-known by now global supply chain disruptions. It was a record quarter for cargo once again and During the quarter we saw the air freight prices edging upwards despite the fact that more passenger flights were added to the global aviation system and thereby the belly cargo capacity also increased on the market. Finnair Cargo has been doing a very good job in terms of being very reliable and precise, fast, flexible in operations and this is playing to our advantage and therefore we have been able to capture the market opportunity that has been out there. We expect that this exceptionally strong demand will continue definitely for Q4 and most likely further into spring and even next summer. the volumes will be there for longer, then there is of course volatility and some uncertainty related to prices and that remains to be seen that how those, how the price is developed during the course of first half of next year in the cargo space. When we look at the Q3 revenue, it landed at approximately 200 million euros, being less than 25% of Q3 levels of 2019. But at the same time, the revenue doubled from what it was in Q3 last year. If you look closely, you can see that our cost efficiency measures are visible in the P&L despite the heavy losses, and we have been proceeding in the realization of our cost savings program according to plan and by the end of the year we have realized 200 million euros of permanent cost savings as we have communicated previously. So the comparable operating result for the quarter landed at minus 109 million euros Of course, a very heavy loss to bear for us at this point of time, but a step forward in terms of recovering from the pandemic if we compare the operating loss to previous pandemic quarters. Our operating cash flow, as stated, turned positive during the quarter for the first time since Q4 2019. And that was especially on the back of a positive sales intake that is visible in the working capital change that turned to positive. So the operating cash flow was 27 million euros positive for the quarter. And on top of that, we did a sizeable sale and leaseback transaction for Airbus 350s, the biggest sale and leaseback transaction in the history of Finnair. And with that, we raised 400 million euros of fresh debt. At the end of the quarter, our cash funds stood at close to 1.2 billion euros. And on top of that, we have the undrawn hybrid loan of 400 million euros, meaning that our cash reserves are strong at this point of time. The reason for us doing the sale and leaseback transaction was twofold. First of all, we got a good deal, the kind of deal that met all the criteria that we had for sale and leaseback transactions. And secondly, with the deal, we wanted to get ready well ahead of time for debt maturing in 2022. So the loan and lease repayments in 2022 will amount to some 600 million euros. And with these cash reserves, With this turn in operating cash flow that we estimate to continue during Q4, we are well prepared to meet those obligations during the course of the next year. So on the back of the heavy losses and on the back of the prolonged pandemic, our equity ratio has been taking a hit and we landed at 14% in terms of equity ratio at the end of the quarter. The key ring has been increasing. It's approximately 280% at this point of time. But then we need to remember that 400 million state hybrid indeed remains undrawn, and that will strengthen and stabilize the balance sheet. And it is foreseeable that we will gradually draw on that hybrid loan in chances during the months to come. The world indeed is opening for the fully vaccinated. Thailand and the United States are opening now in November. Just in time for us to start also the Stockholm-Alanda operations for these two markets. We have now flown the very first flights from Stockholm-Alanda. And that is a noteworthy opening for Finnair in the midst of the pandemic, us moving into a completely new market and taking advantage of changes in the competitive landscape in Stockholm and Landa. We have now opened Bangkok, Phuket and Miami from Stockholm and Landa, and later in November and December we will be opening New York as well as Los Angeles. And these five long-haul destinations basically mean that we are measured with destinations. We are the biggest long haul carrier in Stockholm, Ålanda. So it is a noteworthy development also from the Ålanda perspective and from the Swedish aviation market perspective. We are now ramping up our capacity. We will be, during the course of the winter, flying approximately 65% of our capacity. A strong network in Europe. We are flying to New York, Chicago, Los Angeles and Miami from Helsinki. We are doing daily flights to Tokyo, Seoul, Bangkok and multiple weekly frequencies from Helsinki to Hong Kong, Osaka and Singapore. And we are also ensuring good connections to Finnish Lapland to support the winter tourism. And the outlook for winter tourism in Lapland is encouraging at this point of time. still relatively early in the game, but encouraging as of now. And we suddenly see that Finland as a destination seems to be attractive for travelers post-pandemic. Asia opening will be slow and that will also mean that we estimate that our operating losses will continue during first half of 2022. When we look at Asia market by market, The opening of Thailand is noteworthy, as stated. Also, Singapore opening to some 10 countries with vaccinated travel lanes is noteworthy, although Finland is not part of those markets as of now. But we are in discussions to to be opened later and we understand that Singapore government plans to extend the list of vaccinated travel lanes during the next period. We also have taken note of Australia opening in November for international traffic. In Japan, the vaccination progress has been good lately, and now Japan is on the same levels of fully vaccinated people as many EU countries. and thereby, by definition, they have the prerequisites for opening international travel. The new prime minister has communicated as his political priority the opening of the economy, and we expect that some movement will be happening in this space after the November elections in Japan. China, we estimate, won't be opening for international traffic basically during the first half of 2022. So the opening will be happening from early second half onwards. Hong Kong most likely will be following suit with mainland China. And in South Korea, the situation is somewhat similar to Japan. Good vaccination coverage has been increasing rapidly lately. And internally, they are lifting many of the curbs from beginning of November onwards. And then we have taken note of Singapore opening a vaccinated travel lane with South Korea from 15th of November onwards. And then not being part of the list here is India that is opening for scheduled commercial flights from 15th of November onwards. And on the right hand side of the picture, you have our sort of long haul seeds in 2019 to our long haul markets. And that clearly indicates that Japan by far is the most important of our long haul markets, followed by China. But then United States and Thailand are very important markets to us as well. And those 2019 seeds are, of course, excluding the Arlanda flights that we have just now started. So that enables you to have a view of what is the importance of US and Thailand as markets for us. We have been working on our strategy and we have been doing updates to our strategy. Taking sort of more longer term perspective, we are ready to capture market growth and grow in line with the market. We want to position ourselves as a modern premium airline, bringing choice to our customers, changing retailing and distribution, increasing notably the share of direct distribution, which has already taken place during the course of the pandemic. And it's very visible in our marketing efforts during the past couple of months. Now, during the next couple of months, we will be taking significant steps forward in realizing this modern premium position. One landmark step will be that the new main terminal in Helsinki airport will be opened on 1st of December. by Finavia, the airport operator, and that certainly will be part of the modern premium experience for our customers. And then we are also getting ready to launch early next year the new premium economy cabin and new premium economy travel class, which is a big part of our modern premium positioning. The cost efficiency measures will continue. We aim for continuous improvement, further optimization of our processes, and as stated, moving more toward digital distribution and direct distribution, which in turn will have an improving impact on our distribution costs. And sustainability definitely will be at the core of our strategy. So these are some of the steps that we will be taking with our strategy, giving you a bit of flavor that what is happening on that space. We will come back to this in more detail during the course of the spring. And we will publish also new financial targets once there is more visibility to Asian markets opening and us having a more granular view in terms of what will be the timing of the opening in those markets. So coming back to our outlook and guidance, despite the good business momentum in cargo, despite of us gradually having increasing numbers of passengers and thereby increasing revenue, we see that the Q4 operating loss will be of same magnitude than it was in Q3. The travel restrictions continue to take toll during Q4 and also the fact that we are increasing traffic means that there will be costs associated with that ramp up of capacity. And then suddenly also the increasing price of jet fuel plays a role. And there you need to remember that we are not hedged to the extent that we used to be before the pandemic. And when we look into year 2022, we expect the operating losses, as stated, to continue during the first half. And then during the second half of 22, from July onwards, we expect to be closer to the pre-pandemic operating environment, while we still believe that the capacity measured by ASKs will return to pre-pandemic levels in 2023. So I guess that that is in a nutshell, the Q3 of Finnair. And as stated, it's good to see the traffic being restarted and it's good to see the passenger numbers basically being increasing by the day. Thank you.

Thank you, Toppi. Now would be a convenient time for questions you may have. So please go ahead.