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 second quarter 2024 earnings call. I have here with me our new CEO, Mr. Turka Kuusisto, and he is joined by our CFO, Mr. Christian Pullola, for the Q&A session. I will now turn this call over to you, Turka.

Please, go ahead. Thank you, Erkka. Good afternoon, and a warm welcome to our second quarter's earnings call, also on my behalf. So, my name is Turkka Kuusisto, as mentioned, and I'm the new CEO of Finnair. I've been in the company now soon for three months, and maybe goes without saying that it's very happy to be here today to discuss with you when it comes to our second quarter results. The second quarter was yet another busy and in many ways good quarter for Finnair. The number of passengers increased by 5%, and we in total carried 3 million passengers in our flights during the second quarter. But as the title of our report indicates, that the airline industry and market environment is normalizing after a very strong period of demand, and therefore we faced decreasing unit revenues that consequently led into declining profitability versus the record quarter, second quarter of 2023. As we communicated earlier, we have added capacity into our own network by calling back four of our narrowbody aircrafts that were deployed to a so-called out arrangements with the British Airways and that capacity was deployed to our own network in the end of the first quarter. Therefore, the available seat kilometres increased by 6% during this quarter, and in total by 8% if we also factor in the other wet-lease arrangements that we have. What we didn't see during the quarter was that the revenue increase was not yet visible in the revenue and therefore the revenue increased by 2% in year-on-year comparison. And the vast majority of that growth came from our cargo business and from the successful implementation of our ancillary sales. But at the same time, we faced declining unit revenue and yields by 4% that then led into decreasing comparable EBIT, which landed at close to 44 million euros versus the record quarter 66 a year ago. Our load factors improved somewhat in Asia and Middle Eastern routes, and then on the North Atlantic traffic, we recorded a PLF improvement of close to 7%. At the same time, we especially faced decreasing passenger load factors in our European and domestic traffic, into which we deployed the additional capacity in form of those narrow-body airplanes. The on-time performance was below our targeted level and the long-term traditional levels, and that was mainly explained by a runway renovation at our Helsinki hub, in which one of the runways were under maintenance and construction work from May until midsummer. Also, there were some challenging weather conditions, especially in the late April, when we had some snow blizzards also in the Helsinki area, so therefore the on-time performance was lower than expected. But all in all, the customer satisfaction moved to the right direction, and in terms of NPS, we improved to 39. During the quarter, the strategy implementation continued, and especially now when we see a bit of a changing market environment, our main priority will be in safeguarding our competitiveness and profitability through various continuous improvement actions. The long-term work in terms of improving customer experience continued, and we finalized a 200 million euro investment scheme or project related to widebody fleet cabin renewal during the quarter, and now all our widebodies are being refurbished. Right after the closing of the period, we opened a new Schengen lounge at Helsinki airport that adds a lounge capacity by 100 seats and also is much more modern and comfortable from the passenger journey point of view and the early experiences and feedback related to both cabin renewal and also the new Schengen lounge are rather promising. In terms of strengthening the balance sheet, which has been one of the strategic priorities for the company, second quarter was yet another step to the right direction. Not only we got the first ever long-term credit rating BB Plus for the company, but with Christian and his team, we were successfully issuing an unsecured senior bond of close to 500 million euros. And also with these proceedings, we were capable of downpaying or repaying the pension premium loan in advance and in fully, so that was basically the final instrument, financing instrument from the pandemic times and now it has been done and dusted. Then when we take a bit more detailed view related to our second quarter P&L, we see that the Passenger revenues and travel services revenues were par with the last year, even though the volume increased plus 5% and 2%, respectively. That indicates that the yield environment is softening from the very high levels of 2023. Having said this, we are still facing an elevated level if we take a bit longer historical period into consideration. We can be rather satisfied when it comes to our cargo business. The revenue was up by 9%, and the yield environment, especially from the Asian traffic related to cargo, remained strong and favorable throughout the quarter. And as already said, we can be satisfied when it comes to our ancillary revenues that increased by 34% in year over year, and one could conclude that the selections made in the commercial strategy are gradually paying off. In terms of cost control, operating expenses increased somewhat in line with the added capacity, around 6%. We did have some additional costs related to the runway closure and also the weather conditions, and also the maintenance costs were some €10 million higher than in the comparison period last year. The fuel price decreased somewhat in year-on-year comparison. Moving to the cash flow perspective, this is yet another highlight from the quarter, even though the softening yield environment and other smaller issues that we faced during the quarter, the operative cash flow stayed very strong 173 million euros that gives us confidence that we are doing the right things also in terms of cash flow generation that then further also improves our balance sheet and as already mentioned thanks to the successful senior bond launch together with the operative cash flow we were capable of buying back some of the older loans and also paying this pension premium loan fully in advance. The cash position of the company is aligned with our long-term targets, close to 1 billion euro in cash at the end of the quarter, and in addition to that, we do have this revolving credit facility amounting to 200 million euros also available, so one could conclude that the financing position of the company is relatively strong. That also influenced our gearing ratio that then decreased by some 40% down to 150, and that is also a continuation of the multi-year restoring of the profitability and the balance sheet healthiness that then again makes it easier when it comes to looking into future and the implementation of the strategy. Then some remarks after being a couple of months in the office and getting to know the company, business and the industry. I guess that the most important topic for us is to continuously improve the competitiveness and profitability as the market normalizes. The Finnair team has made right choices and has done a fantastic job in terms of overcoming the crisis that we have seen over the last couple of years, made right decisions in terms of redeploying the fleet and accommodating to the changed route network and the closed Russian airspace. When moving on, we need to continue building our customer satisfaction around safety, reliability, and punctuality. However, I also believe that there are a lot of opportunities when it comes to understanding our customers in greater detail through data and understanding their current needs and future needs and develop our services and customer experience accordingly. And technology obviously offers some opportunities, and those of you who have been reading the news this morning, there are also some risks associated with technology, we can comment that in the Q&A section if needed, but Finnair is not using that technology stack in its own flight operations that has been today widely published or communicated globally. And then finally, personal experience plays a pivotal role in terms of achieving our long term goals and targets. This then brings me to the final slide. We are repeating our guidance that we've been discussing throughout the year, that the global air traffic is expected to continue growing in 2024. However, there are multiple risks associated with the demand and the cost environment in terms of inflation. prolonged high interest rate environment and also the uncertainty related to various geopolitical and international conflicts remains as an uncertainty for the industry. We will reiterate the previous guidance related to capacity increase measured by available seat kilometers, including the wet lease arrangements. And we say that our capacity will increase by approximately 10% during 2024. Per our disclosure policy, we are today also giving the Euro guidance related to our revenue and comparable EBIT. and the range for the revenue aspect of today is 3.0 to 3.2 billion euros, and that again translates into a comparable EBIT range of 110 up to 180 million euros in 2024. We will update this outlook and guidance in connection with the third quarter interim report that will be published in October. With this, I would be ending my short presentation and handing over back to Erkka. Thank you.

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