Finnair Oyj

Good day, ladies and gentlemen. I'm Erkka Salonen from Finner Investor Relations, and it's my pleasure to welcome you all to this Finner's fourth quarter and full year 2022 earnings call. I have here with me Finner's CEO, Mr. Topi Manner, and he is joined by the CFO, Mr. Christian Pullola, for the Q&A session. I will now turn this call over to you, Topi. Please, go ahead.

Thank you Erkka and good day everybody. Welcome to this Q4 earnings call. So the main headline for us today is that our comparable EBIT was positive for the second consecutive quarter and the work to restore our profitability continues. When we look at the Q4, the comparable operating profit landed at plus 18 million euros, and also the net result was positive for the first time in three years. The dollar moved to our favor, namely euro strengthened, and that was visible in the net result that landed at plus 53 million euros. During the quarter we carried 2.5 million passengers. We operated 71% of our 2019 capacity as our own flights, as our own revenue service. And then when we add the wet leases, and we have currently two Airbus 350s wet leased to Lufthansa Group, then the capacity would be corresponding to 79% of the 2019 capacity. We are making significant progress in terms of improving sales and optimizing revenues and that produced the desired results. Our RASC unit revenues increased with 25% when we compare with Q4 2019. The loads improved in all traffic categories and one of the highlights for the quarter was that we started the cooperation agreement with Qatar Airways now having daily operations from Helsinki, Copenhagen and Stockholm to Doha and these routes have started with the right foot and they are basically meeting and even a bit exceeding the targets that we have been setting for these routes. Fuel price is still exceptionally high, and this curve basically speaks for itself. So, when we look at the end-year levels, we are still, in terms of Euro price, we are higher than we have ever been since 2005, even though, you know, from the highest levels back in spring and in June, the fuel price has been coming down somewhat. The customer satisfaction for the full year remained on a good level. Our NPS score was 40 with some monthly volatility. We received quite many acknowledgments and rewards during the year. For example, APEX, Airline Passenger Experience Association, rated us as a five-star airline. And we are currently going through a cap in renewal. as we speak, 12 long-haul aircraft with the new cappings. And we received a number of awards related to that. Best capping innovation was one of them. Best new business class for our new air lounge business class seat was another one. And then generally a design innovation award for the business class. So when we look at what we have been doing with the long-haul cabins and how we have been further developing and investing into digital solutions both in terms of sales and self-service for our customers and when we take the new Helsinki airport the brand new well-functioning Helsinki airport into the equation we can say that the customer experience has taken a notable step forward during the during the past year and when we add to that the reliability that we have demonstrated we have been one of the most reliable airlines in Europe since summer in terms of on-time performance and the overall good service that we are receiving good feedback from our customers during the flights and also at the airport, then all that sums up to the kind of customer experience that is visible in the score of 40. So our crew has been taking good care of our customers during the roller coaster year of 22. When we look at the P&L in a bit more detailed fashion, we see that the revenue landed at 687 million euros, EBITDA 99 million euros, and then the comparable EBIT was 18 million euros. Operating results with items affecting comparability 38, and as stated, given the dollar weakening then the result for the period was 53 million euros and with that we can say that as a company we are turning a page right now so we are leaving the acute crisis of three years behind, and we are moving into a new phase that will be all about nurturing Finnair back to full health again. The operating environment certainly has still many, many uncertainties, but there's a little bit more predictability, more stability in our operating environment and therefore our sole focus is to bring the company first back to profitability on full year basis and then to realize our strategy targets and the key target there being that we will reach pre-pandemic profitability 5% EBIT level from mid-24 onwards. The cash developed positively during the quarter in a sense that our operating cash flow was 30 million euros positive. After investments and loan and release payments, other items, we landed at a bit more than 1.5 billion euros of cash. And when we compare that to the revenue of last year, our cash to sales ratio is 65%. So that ratio is strong and that is the way we want it to be going forward as stated when we are entering into new phase, implementing our strategy and nurturing Finnair back to full health again. During the quarter we extended the pension premium loan up until May 25 and there's an adjusted repayment schedule now with 100 million euros biannual repayments and then a final final payment of 200 million euros in May 2025. Looking at the balance sheet, it is of course visible that we are weakened by the pandemic, so the pandemic toll clearly impacts the numbers, but it's good to know that now the ratios are turning to a better direction, equity being roughly 10% with a step forward on that respect, and then similar step toward the right direction in terms of The currency exchange helped definitely also in this aspect. Looking at the travel restrictions, I mean, of course, a lot has happened during the quarter. China, of course, the most notable development in this space. China ended up opening clearly earlier and more suddenly than we and probably many others expected. And that is something to note. A positive development certainly for us, but we expect that The demand that eventually will be sizable, even huge from to and from China will materialize with a bit of a time lag. So first, China will need to sort out the passport and visa issues before the travel can really get started to and from Europe. And we are currently observing the development of the demand closely. We have two weekly flights to Shanghai, but we stand ready to increase the number of flights, the number of frequencies during the summer. first and foremost to Shanghai, and then we plan to reopen Beijing during the summer. But what is the exact timing and what are the exact frequencies and the capacity that we will be allocating to the Chinese market will be dependent on how we see demand unfolding. We are also adding some flights to other Asian destinations. We resume flights to Osaka during the summer seasons with three weekly frequencies. And in addition to our daily flights to Haneda, we are now introducing new frequencies to Tokyo Narita Airport, as well as to Hong Kong and Delhi. So, Then an update in terms of how we are progressing with the strategy implementation and how that work will continue. So one of the key focus areas for our strategy was a geographically more balanced network and related to that an optimized fleet. So what we have done is that now we have effectively executed on the more balanced network and we are happy to report that we see strong demand on the new routes related to the new network. I already covered the situation with Doha from Helsinki, Stockholm and Copenhagen. We see also encouraging demand for our Dallas route in the US and the same goes for Mumbai route in India. And the connecting flows between India and US are also interesting flows that we want to tap into. And clearly with the Delhi-Mumbai routes and with our increased offering in US, we are able to tap into those flows. Related to US, the extended network and clearly the stronger distribution power by way of our one world partners, American Airlines and Alaskan Airlines selling and distributing our tickets is a significant factor. The point of commencement US is very important for for the US routes in terms of sales, and that was very visible last summer, but certainly has continued also during the winter season. As stated, the cooperation with Qatar Airways is important to us and has started out well. In terms of fleet, what we are doing currently is that we are optimizing our aircraft lease agreements we are discussing about extending lease durations and on the back of that we are negotiating new lease rates realizing cost savings in the process The wet leases increased the utilization of our fleet currently, and the wet lease operations will continue during the summer seasons. We have now recently signed a new wet lease agreement with British Airways. We will be wet leasing four Airbus 320s to them starting end of March for next 12 months. So flying the wet lease operations for British Airways during the summer season as well as during the winter season. I think that probably the most significant progress we have been making in the area of strengthening the unit revenues. So unit revenues have increased with 25%, as I stated. There are many individual activities that go into that number. We have been, as one of the first airlines in the world, we have been taking this new revenue management module by Amadeus into use, dynamic and continuous pricing and the value added that we are getting to our revenue management performance seems actually very promising at this point of time. And now we are rolling it out to basically full utilization, namely the application area for this revenue management tool is all other than Edifact, all other distribution than the ones using Edifact technology. The distribution efforts we have been seeing during the past couple of years, a remarkable shift in the share of our direct channels, that including Finnair.com, the mobile app, call centers, and also our package travel arm Aurinko Matkat. So the share of direct distribution is 65% at this point of time as opposite to close to 40% in 2019. And this in turn enables us to boost revenues by being smarter and more relevant for customers in terms of selling ancillaries. And then as the share of the GDS distribution is decreasing, we are able to cut middlemen and thereby decrease the costs as well. When we continue down this lane, we will be increasingly investing on and progressing in terms of NDC usage. And there we are already relatively advanced, and we will continue with that agenda. Finnair.com during 22 had a total sales of 800 million euros. When we look forward, The share of that will certainly continue to increase. We will be passing one billion euros during the course of this year. And we are managing the Finnair.com as a true e-commerce platform, and our capabilities on that front have already improved significantly, and we hope to see further revenue upside coming out of this in the months and years to come. On the back of that, on the back of the whole distribution and sales, digital sales improvement, we have been able to increase the ancillary revenue per passenger with 13% during last year, when we compared to the baseline of 2019. In terms of reducing unit revenue costs, perhaps the single biggest item has been the negotiations with our various employee groups around savings agreements. And at this point of time, we are happy to report that we now have either a savings agreement or a negotiation result with all of our key personnel groups. So we have a finalized savings agreement with pilots, with our office employees, with people from tech ops and with significant parts of ground handling and ground services. And with our cabin crew, we have a negotiation result that was finalized just very, very recently. And now the negotiation result is going to final decision making for both parties, namely on the company side, but also on the union side. And we expect this to be confirmed in the coming days. As you would know, we have been previously streamlining our support functions, also reducing number of employees in the headquarter and support functions. We carried out that during the course of the fall. And yet again, Like we did during the pandemic, we are renegotiating with all of our suppliers and aiming to find cost savings. And that is the work that is currently ongoing and also delivering results. So, tangible progress also on the unit cost side. In terms of sustainability, progress is more incremental of nature. Recently, we joined SAF purchase agreements with One World Partners. Now, starting from this quarter, we are increasing gradually the usage of SAF. And when we have been needing to say goodbye to employees, like with the headquarter and support functions, we have been investing in re-employment programs with very good results. So that basically brings me to the guidance part of it. And when we look forward, we estimate that during the course of this year, we will be flying an average capacity between 80 to 85 percent. And how it will unfold will be impacted by the development that we generally see on the market, but also especially on the Chinese routes. And then potential red leases, i.e. leases of aircraft and crew to other airlines. We estimate that the strong demand environment for travel that we are currently seeing will continue in the short term, and that will be supporting our unit revenues in the short term, like it did with the second half of last year. But certainly, The general economic uncertainties are out there, and those are weakening the visibility of travel demand when we continue to the second half of this year. With the fading impacts of the pandemic, now China being open, we expect that the normal seasonality will return to our business. And with the normal seasonality, we also will see or would see a typically negative EBIT during the first quarter. And then the summer months are the peak season for travel, as you well know. We have all the uncertainties still out there. Unfortunately, no end in sight for the war in Ukraine and thereby for the Russian airspace closure. We are adapting to that. And we estimate, summing all of this up, that our revenue will significantly increase on year-on-year basis, especially because Q1 and part of Q2 were weak last year. But at the same time, we estimate that the revenue won't yet reach the level of 2019 on full year basis. We will come back with further updates during Q1. So I think that that covers the presentation and the introduction, and now we would be ready to go for the questions part of it.

Thank you. Thank you, Topi. So as Topi mentioned, now would be a convenient time for any questions you may have. To present them, please follow the operator's instructions.