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 second quarter 2025 earnings call. I have here with me our CEO, Mr. Turkka Kuusisto, and he is joined by our CFO, Mr. Christian Pulola, for the Q&A session. I will now turn this call over to you, Turkka. Please, go ahead.

Thank you, Erkka, and a warm welcome also on my behalf. As expected, the second quarter of 2025 was pretty much overshadowed by the industrial action of the Pilot Union and the Finnish Aviation Union, and the consequent industrial actions did have a significant impact on our Q2 result. All in all, Q2 came in with somewhat a modest revenue growth of 2.8%, but more importantly, we need to focus on the comparable operating result that declined to 10 million euros from the 44 of last year. In this figure, we have a negative impact of the direct consequences of the industrial action being 29 million euros. Earlier this year, we reported that Q1 faced 22 million euro of direct impact from the industrial action, and today we have estimated that we need to prepare for a 20 million euro negative impact for the Q3 results. So all in all, we are around the ballpark of 70 million euros of direct impact from the industrial action for the 2025 comparable operating result. Operationally, the industrial actions caused us to cancel some 1300 flights during the quarter that of course influenced our NPS negatively because those customers who were rerouted or rescheduled of course did face disruption and their experience was obviously lower. We intentionally decided to invest to rerouting customer care and also really prioritizing the customer experience of those customers who faced disruptions to pay, you know, to prepare for investing for the future rebounds from the difficult springtime. Having said all this, when we take a broader scale, 94% of the flights were operated as planned, despite of the industrial action, but this 6% translates into 100,000 passengers, so we must not overlook the impact of those disappointed customers. What's now being the positive part, last Sunday around afternoon, we could finally agree the final outstanding agreement between Palta and IAU, so now the all collective labor agreements are being concluded, and we can now stabilize the operation and go back to normal day-to-day business. This slide aims at providing you with a bridge between the financial performance of 2024 and 2025 when it comes to second quarter numbers. As expected for this fiscal year, we anticipated that the landing and navigation and traffic charges will will grow from 2024 as well as the cost of the environmental compliance in form of SAF mandate. Those cost buckets represented some 15 million euro additional cost for the quarter but then when we take the operational result 39 million euros and then we need to deduct the 29 million euros of the direct industrial impact and we are down to 10 million euro. We hope that this gives you a better picture of the comparability between the quarters having this direct industrial action impact being such a vast majority of our profitability delta. On this slide, maybe some additional information. As already mentioned, revenue grew by some 3%. And when we take a bit closer look to the revenue mix, cargo business was flattest year over year given the industrial actions. But then again, the ancillary sales grew by some 11.5%, which is again a concrete piece of evidence that the commercial strategy that we have selected and the product development is going to the right direction and as already mentioned previously, ancillary sales starts to be in line with the revenue generation of the cargo business. On the other operating income line, you see a one-third decline, as we flew fewer and fewer flights for our cooperation partner, and again, that was impacted by the industrial action of the pilot union. And as already mentioned, even though the fuel price decreased from the comparison period, the cost of EU sustainable aviation fuel blending mandate or application increased and added our cost base by some 5 million euros. The most bottom line result for the period is closer to last year's performance, thanks to lower financial expenses and also some other items affecting the comparability. Taking a region or a traffic area point of view, we are especially happy with our performance in Asia. We decided to increase, for example, our weekly frequencies to Japan for this summer season, now flying 25 weekly frequencies, which makes us the biggest carrier between Japan and Europe, and that has been a successful success. capacity increase as we see Asken revenue developing favorably. More flattish development then on the European domestic side, and the delta in the Middle East traffic is explained by the scoped down collaboration that we have with Qatar Airways. Currently, we are only flying from Helsinki to Doha, whereas during the last year, we also flew from Stockholm and Copenhagen to Doha. On the North Atlantic traffic, as we reported in our report today, we saw some softening on the demand side, or growth rate slowing down, so basically the added capacity was not fulfilled with the same rate when it comes to the load factor, and that's something that we will monitor very closely when moving forward. So, during the second quarter, we started to see some softening of the growth rate in the North Atlantic traffic as well as in the yield development. From the balance sheet point of view, the equity ratio declined a little bit because of the negative result and also the shareholder distributions from which the first installment was paid during the second quarter. Gearing on the other hand side decreased a bit thanks to lower interest bearing net debt. And the cash flow point of view, the second quarter wasn't as strong as the first quarter was. We had somewhat lower ticket liability at the end of the quarter versus the first quarter. And also during the second quarter, we decided to invest in the least buyouts of $2. 320 aircrafts and also we did do some loan repayments of our Jolko and ECA agreements. But having said all this, the cash level of the company at the end of the quarter is still very solid and additionally we do have a 200 million euro revolving credit facility at our disposal. When moving forward, of course, the number one priority is now to stabilize the operations after a challenging and difficult first half during which we had multiple disruptions because of the industrial actions and strikes. So, therefore, the number one priority is now to focus on customers and their needs and also winning back the trust and satisfaction to Finnair services. Moving forward, we of course continue to develop the company and organization. And as previously mentioned, towards the end of the year, we will be then discussing the next strategy release of Finnair. During the quarter, we also introduced some new destination in our forthcoming summer season schedule. We will be reopening the classic Toronto route for the summer season of 2026, by having three weekly frequencies, and let's see how that then develops further. There has been quite a lot of debate and discussion related to Finnair's reliability and the potential brand and image damage this industrial action has caused. I would argue that it's too early to tell. Of course, customers have selected alternative carriers, especially during those days when we have stopped ticket selling because we have canceled the flights. But at the same time, for the 15th consecutive year, Finnair was selected as the best airline in the Northern Europe. as well as our cabin crew was also selected best in Northern Europe. That gives us a great foundation to rebuild the trust and have a lot of activities when it comes to securing that customer will come back to Finnair. Of course, it will take some time, but I'm very convinced that together as a one team, we can do it. Then when moving to the outlook and guidance, there is a lot of text on this slide, but the key message being that today we are repeating the ranges that we have provided you with earlier when it comes to the revenue range and also the comparable operating result range, excluding the direct impact from the industrial action. However, based on the current information, today we estimate that the comparable operating result will be closer to the lower end of the given profitability range. And this is because of the weaker than expected demand in North Atlantic, as just previously discussed, and also indirect effects from the industrial action on demand in broader terms, which are very difficult to quantify. In the third chapter, we are also quantifying what has been the already actualized impact from the direct impact of the industrial action in terms of revenue and profitability, and also providing you with a number related to what is our best estimate when it comes to the impact on the third quarter. which then equals profitability-wise to 70 million euros. And then in the final chapter, we are also providing you with a profitability range, including the direct impact of the industrial action until the end of the second quarter, and also based on what we estimate to be during the third quarter. Erkka, these would be my key remarks, and I guess we can open for the Q&A.

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