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 fourth quarter and full year 2024 earnings call. I have here with me our CEO, Mr. Turkkakuusisto, and he is joined by our CFO, Mr. Christian Pulola for the Q&A session. I will now turn this call over to you, Turkk. Please go ahead.

Thank you, Erkka, and a warm welcome also on my behalf. The fourth quarter was a strong ending for the year of normalization for Finnair. Our revenue increased by 7.7% and the comparable operating result more than doubled during the fourth quarter. Also, as a positive highlight when it comes to the full year closing, our board has proposed a return of capital of 11 euro cents per share. When we take a bit deeper look into our fourth quarter performance, as already mentioned, the revenue grew by close 8%, and that was a combination of number of passengers increasing by some 9% while the declining trend in the ticket prices started to flatten because what we witnessed during the first quarter, the ticket prices declined only by 1.2% and as we recall the previous trend during the 2024, this is a rather significant change. The capacity increase during the fourth quarter was only 3.3. That also contributes to increased load factors that were 76.4, which is some 3.3% higher than in the fourth quarter of 2023. Basically in all geographies the load factors developed favorably, only Europe was somewhat down, but especially the Asian traffic and North Atlantic traffic faced significant load factor increase that positively influenced the financial performance of fourth quarter. The on-time performance declined somewhat, and it was impacted mainly by the difficult weather conditions, which is obviously nothing new in Northern Europe, but at the same time, we faced industrial action by our pilot union that influenced the OTP. We did cancel some 300 flights, and of course, that has had an impact to our operational performance. When we take a bit deeper look into the P&L of the fourth quarter and also the full year, we can see the revenue growth and as sub-components of the revenue growth, I think that we can again be satisfied with when it comes to this development of our ancillaries that grew by close to 20 percent during the quarter and accumulated revenue was above 50 million euros and now per passenger the ancillary sales is already above 18 euros per passenger. Also the cargo business continued on a positive trend, close to 10 percent growth and the total contribution 55 million euros in revenue. When we go below the comparable operating result that doubled from the last year and when we will go towards the bottom line, we need to highlight that the result for the period was influenced by the partial return of the indexation of the obligation of Finner pension fund. This is a non-cash item, but we needed to book it for closing of fourth quarter, but we will continue the discussion with Finnish FSA that how we will treat this going forward. Also, when we compare the fourth quarter result for the period versus 2023, it is worth mentioning that the deferred tax assets supported quite a lot of the 2023 performance. All in all, the fuel price was pretty much according to the expectations and decreased from the comparison period. And then a few words around the collective labor agreement negotiations. We have multiple CLA processes ongoing, out of which every other process and the SLA are pretty much going according to the plan. But you have already witnessed in our media coverage that the SLA pilot union industrial actions have influenced our day-to-day operations, and that has led into cancellation of 800 flights up until now, and it has influenced some 100,000 passengers or customers. Of course, we aim at finding a sustainable and constructive solution as quickly as possible, and we will obviously report when the time is ready for that. Then if I capture or summarize 2024. The capacity increased, including wet leases, by some 7%, which is somewhat below the 10% guidance that was given a year ago, and that is explained by the industrial action and maybe a bit higher aircraft maintenance needs than anticipated 12 months back. Therefore, the revenue increased by 2%, slightly north of 3 billion euros, and the comparable operating result, even though it declined, we landed above 150 million euros, which is a solid number in this operating environment. As a very strong positive highlight, I want to mention the operating cash flow that was close to 630 million euros and a very concrete demonstration of our cash conversion and also investment discipline. Therefore, summarizing all these components and the commitment made in connection with the rights issues 2013, where we intended to start shareholder distributions in 2025 based on the result of 24, and also given the very strong cash position and cash flow from 2024, the Board of Directors proposes return of capital 11 euro cents per share. At the same time during the 24 we have initiated a strategy process and we will communicate about it in a few months time but already now maybe some highlights to be shared with you today. I guess and I believe that the core strategy will be more and more focused on customer centricity and especially acknowledging the core customers, the customers that flies most with us because we see further value creation potential among that population. And also as a other piece of news for this day, we have disclosed that as a part of the strategy process, we have now initiated a pre-program or project to evaluate the options when it comes to renewing 1515 narrowbody aircrafts within our fleet. And again, we will communicate more about that when we have more tangible details to be shared. Now we face some technical difficulties. Kindly ask your patience for a while. Okay, so this is a new slide that we have included into our deck, but I don't want to repeat myself, but this is a summary of 2024, full fiscal year, and you can see that except the North Atlantic traffic, the revenue growth versus the added capacity was somewhat below the added capacity in Europe, domestic and Middle East and Asia, whereas in North Atlantic, the revenue grew above the added capacity. But as I mentioned, this is the full year summary, and we did see the change in this trend during the fourth quarter, because basically in all of our the revenue started to grow above the added capacity, except in Europe, where we were some 2% behind in RPK terms versus the ASK. But the fourth quarter was a significant change in the trend when it comes to matching the capacity versus the RPK, so therefore that gives us good momentum when going forward. This is just to maybe remind all of us that since 2020, it has been, of course, very difficult for the whole industry and the company, but now for two consecutive years, Finnair is back in black ink and the comparable EBIT is pretty much aligned with the pre-pandemic historical figures, which gives us a solid foundation to continue the development of this company and our new strategy that will be launched during the springtime. As one concrete strategic topic or priority, we have had this balance sheet healthiness topic. And with Christian's lead, we have done a good job in terms of refinancing the company and our balance sheet. And thanks to the cash flow generation and profitability, the various ratios are developing to the right directions. Of course, we need to continue further development when it comes to capital effectiveness and these ratios. And then I want to remind all of us again that all the instruments that were utilized during the crisis time have now been repaid and the company is also, from that point of view, ready for the next chapter. And this is some type of a waterfall diagram demonstrating how the cash position of the company has developed. And as already mentioned, extremely strong operating cash flow, 630 million euros during the fiscal year. And the cash position of the company is pretty much aligned the compare of 2023. And in addition to the 900 million euros of cash funds, we do have this 200 million euro revolving credit facility at our disposal, if and when we see attractive opportunities for tactical aircraft investments, for instance, in terms of buying out the lease agreements. Few words about the strategy. The latest aircraft, 350, landed Helsinki mid-December and supports our growth for 2025 and onwards. The aircraft has been deployed to our Asian traffic, mostly to Japan, and has found its place and supporting our network very positively and constructively. As I already mentioned we are preparing the partial renewal of our narrowbody aircraft fleet and it's about the 15 oldest 320 series aircrafts that the average lifetime is already beyond 20 years but as mentioned we will communicate more about the details scope timing etc when we when we have finalized our calculations. When it comes to refurbishing our existing fleet, the newest cabin operation in Embraer was finalized in October, and seven other aircraft will get or face this cabin refurbishment during this winter season, and in 12 months' time, all 12 aircraft will be refurbished with the new cabin interior. We have also both two aircrafts that have been previously leased during the fourth quarter. And then when it comes to customer engagement and the go-to-market strategies, they are also developing positively. We can see a rather big increase in the website visitor numbers at finnair.com, and also we see more traffic in the Finnair mobile application, and we continue pushing for these modern digital channels to reach out to our customers directly. And as I already mentioned, the current strategy period ends by the end of this year, and the updated strategy will be communicated during this spring time. We also did a bit of a self-assessment in connection with the closing of the fiscal year. These were the four targets that we set and communicated in connection with the rights issue in 2023. And three out of four has been achieved and we will continue working towards with the comparable EBIT margin target during 2025. Also today we are changing our disclosure policy. Previously Finnair communicated or provided the profitability guidance or range only in connection with the second quarter earnings call. But now we want to also cater for a more transparent view in the beginning of the fiscal year. But to start from the beginning, we increased our capacity by some 10% from 2024 to 2025. Worth mentioning that the vast majority of this capacity increase comes from the aircrafts that we have called back from the Vetlis operations. Four narrowbodies that were utilized by British Airways and then two 330s that were engaged in our Qatar operation and only the latest 350 delivery is an investment-based capacity increase for 25. With this capacity increase, we provide you with a revenue range of 3.3 to 3.4 billion euros, that then translates into 100 to 200 million euro comparable operating result range. It's worth mentioning that 2025, we will face additional cost when it comes to sustainable aviation fuel, as discussed earlier, and also the rising navigational landing charges will influence the cost base of 2025, and especially the seasonally weak first quarter. And also, from the point of view of comparing the various different fiscal years, it's worth mentioning that Easter is actually in the second quarter in this calendar year, so that also influences the first quarter performance in 2025. Also worth of mentioning that the given ranges and guidance and outlook doesn't include the impacts of industrial action. And in month of January, our estimate is that the industrial action cost us some 5 million euros. And as usual, we will then update this outlook and guidance in connection with the first quarter interim report. But with this word, I will end my presentation and we will be opening for Q&A.

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