Finnair Oyj

Hello everybody and welcome to Finnair's Q3 webcast. My name is Sophie Jolly and I'm working as IR here at Finnair. First time for me this time so I'm very happy about that. With me here today is CEO Turkka Kuusisto and Pia Aaltonen-Forsell who will present today and I think that we will take the questions after the presentation. So in normal manner, first Turkka will start and Pia will continue, and after that questions. So without any further comments, please Turkka.

Thank you, Sophie. Very good afternoon and welcome to our Q3 result presentation. In line with the preliminary information that we submitted two weeks ago, we did report a very strong third quarter of 2026. Revenue grew by 14.2 percent and that actually stems from basically from all the traffic areas that we have. I will cover that in a bit in more detail and then of course the double digit growth on top line also resulted in very positive development when it comes to comparable operating result. 84 million euros is well above the compare quarter last year, even though the compare quarter was influenced by the industrial action at the time. But all in all, if we factor back the 80 million euros to the 50.7 million euros that we reported, we can be very satisfied with the profitability development of Finnair during the third quarter. I'm especially happy Pia we discussed this in more detail but the operating cash flow was close to 180 million euros and also given the investment scheme and the fleet renewal programs that we are undergoing this is super important when it comes to financing the fleet investment and also preparing our capacity for the future. Load factors grew on average by 2% across the traffic regions, hitting close to 82%, which is a relatively good number when it comes to the historical performance of Finnair. Then of course something that we also want to discuss with you today in greater detail is the Hedging Strategy and Hedging Policy. We did have 81% locked when it comes to jet fuel price for the third quarter, and we are somewhat north of 70% for the fourth quarter. And the current hedging ratio for the forthcoming fiscal year is 34%, but Pia will cover this in more detail in her section. And then just a reminder that based on the decisions made by AGM, Earlier this year the board of directors decided yesterday that the second installment of the capital repayment will be paid next week on Wednesday. So if we then take a deeper look into the network choices that we have made and the development of the traffic regions that we have. If I start with the Middle East, we still continue to suspend or we have suspended all of our flights to Middle East because of the safety and security situation and this is valid until further notice and maybe just to Once again put it into a context when we started this fiscal year we had planned to allocate three percent of our capacity measured by ASK to the Middle East region so therefore the financial impact of the suspension is rather limited. But then we will take, for instance, Asia first. Very positive development, load factors close to 86%, so the flights have been literally full and also very happy with the yield development when it comes to that region, close to plus 8% when it comes to unit revenue. And then also North Atlantic traffic, even though maybe one could argue that the compare quarter last year was maybe a bit soft, but then given the numbers that we are reporting today, very positive development both revenue and risk wise and also load factors developing positively and also the yield development close to plus 14% in year over year comparison. Also when it comes to Europe, the new destinations that we launched for the summer season, 12 new destinations in Europe also supported the ASK growth and also revenue growth by 15%. So we can be very satisfied with this balanced revenue development and also yield development across these three largest Domestic traffic in Finland is always somewhat seasonal depending on customers' preferences. Shall they travel abroad during their summer holidays or not? Therefore, ASK was somewhat below last year, but at the same time revenue and risk developed favorably. Speaking of customers, we continue to provide improved customer experience to all of our customer groups. July is typically the most challenging when it comes to OTP, especially given the ATC restrictions in Europe, but also this summer season we did face quite a lot. Extraordinary weather conditions in form of thunderstorms for instance in Central Europe so therefore the NPS in July was a bit lower but very happy to report that in August and in September we are back on track and the average NPS for the third quarter was 38 and then again is it a good or bad number based on the benchmark that we have or peer group that we have composed we are trending well above the 33 which is the peer average. And then if we take a deeper look into the core customers of ours, which are in the center of the strategy that we launched a year ago, Finnair frequent flyers are actually trending at 44, which is a very good result in my opinion. Speaking of the strategy, some highlights. We are adding capacity and new connections. We just launched the Melbourne connection from Helsinki via Bangkok. The first flight was flown starting from Sunday night and then plane landed 24 hours later in Melbourne and based on the reports that I have received the turnaround has been successful and the aircraft and the crews are already back at Helsinki or at least returning to Helsinki soon. We are expecting to receive the latest 350 in our fleet during this year, but the operations will be started only at the beginning of 2027. And as previously communicated, we have signed letters of intent when it comes to sourcing second-hand Airbus 20 series aircraft to support the so-called bridge solution when it comes to fulfilling the capacity gaps that we have to support the strategic growth parallel with the entry into service project when it comes to Embraer E2s that we announced also late March this year. When it comes to operational stability, operational excellence, when we try to kind of analyze the good performance in addition to strong market demand, obviously, the market's capability to pass through the price, elevate the fuel cost price to the ticket prices, we can also be very satisfied with Finner's own operations and own actions. In addition to network management, capacity management, I argue that the operational platform of Finnair is functioning very well as we speak. Regularity of the flights 99%, connection reliability 99% as well, and OTB at our target above 80%. In order to further enhance the customer experience and the digital journey of our customers, if you like, we are launching a new mobile application next week and the objective is to provide the new application to all of our customers by the end of November. Then going into the commercial strategy of ours, again very positive result when it comes to ancillary sales or revenue per passenger, 9% growth and all in all parallel with the passenger volume growth, the ancillary revenue grew by 16.3%, again supporting the commercial strategy and our ambition level towards 2029. Also Finner Plus frequent flyer scheme or program is becoming more popular among the core customers and the total customer population of Finner and 2.6 million active Finner Plus members at the end of the quarter. But maybe with these highlights and kind of setting the scene, I leave it for Pia to discuss the kind of the nuances of the Q3 report.

Thank you so much Turkka and ladies and gentlemen it's of course a pleasure for me to present these strong figures for the quarter although when we look into the future fuel and the volatility and the war in Iran These all still have impact. So let's try to cover those in a few slides. So let me start with just the highlights, really sort of the high-level numbers, just to give that overview of the magnitude of where we are. Starting obviously with the revenue, I think Turkka has already described the various market areas, but I really think that we can see the strength of being a network airline of the long-haul destinations, and the strength not only towards Asia and the Atlantic but also within Europe. I'd say the strength of the market combined with a good performance and also our strategy execution have certainly boosted here the revenue figures. Looking at the result, obviously I looked back in the history books and I did find one quarter three that was a little bit higher and that was back in 2023. But I think this is a very strong performance in a super volatile year, in a year where sort of from the start of the year we've had to tackle the war, the inflation, the impacts on fuel. And most importantly, of course, from our side, fuel has not been a supply issue as such. We have had all the fuel we have needed to fly. But of course, it's been a lot a cost issue. And then, Turkka already boosted a bit the cash flow. I will come back with a few more words on that, but I do think we should put this into the perspective. We have almost 180 million in this quarter. However, we are on a strategic journey where we want to put 2 billion euros into capex by 2029 in cumulative terms. So, hey, it is also clear that to secure that strategic journey, we need the cash flow. And this is a good proof point of that capability. So next, I want to deep dive a little bit into the components of the result. And we've actually brought for you a traditional sort of variance bridge. So here we go, looking a bit at that. And I think it was well worth explaining it in this quarter, because when we compared with the quarter three a year ago, obviously there were still some impacts from industrial actions. So if we would really sort of compare Kind of the true underlying operative performance a year ago. We would start from 69, we ended up at 84 in a year where fuel and the fuel cost pressure has been the big topic. Now, our hedging has protected us, and I'll come back to that separately. So you see here the higher effective fuel price clearly being the cost component that was growing the most. But you also can see that in this quarter we were overcompensating that with higher passenger yields. And I think it's good to understand a bit sort of the direction going forward. Hence, we will discuss also the fuel and the hedging in a few next slides. So I'll stop with that here. Out of the cost items, I want to comment two more. We perhaps haven't discussed it so much this year because of the obvious sort of big topic being the fuel costs. But environmental regulation in Europe No more free emission allowances and treatment. The obligatory sustainable aviation fuel quotas, etc. All of this are also impacting our costs. So we want to be transparent with that. You may recall from last year that we had this approximately 10 million per quarter more cost and it sort of seems to continue here. And my final comment on the cost side relates to staff costs. You see that it has increased year on year. There's a few elements I want to comment relating to that. The first one is that based on our growth strategy as well, we have had some increases in headcount. That's of course sort of a low-digit, one-digit figure in percentages, but we are gearing up to also being able to grow. We've had some inflation, but maybe half of this increase really is in the delta when it comes to various staff incentives, short-term incentives, etc. Because last year we were not in a position sort of very favorable for that, but this year also based on our guidance looks strong. And then a short comment on the more positive, the dark blue bars here. You really see this shift. In Q2, we spoke a lot about our planes being really full and the situation, especially geared towards Asia, really higher load factors. You see that that has continued, but at the same time, it's really the yield that has also supported in this quarter. Another way to look at this is to compare the revenues per available seat kilometers and then also the cost. So I'll do that still quickly in the next slide. And also based on our strategy, this is a measurement that we've said we will follow up. And I think for two reasons. First of all, when we look at the revenues per available seat kilometers, we have important elements within our strategy. For example, the ancillary sales, you know, the choice that we are offering to our customers. And that should help us to grow this figure over time. At the same time obviously we've had a strong market and you see that revenues per available seat kilometers have increased by more than 12 percent. has increased more than the costs, but the costs have also increased by 9%. And that's obviously on the back of the fuel situation and the other items that I have just commented. So most importantly, of course, here is that we keep sort of a clear sort of benefit for the revenue growing more. And in this quarter, I think we were well succeeding with that. I still want to pick on one thing from the cost that Turkka did actually mention, but I do think it's so important. And it is that we were operationally, we had a good quality of operations in the third quarter. And when we managed to do that, it also helps to stabilize the cost situation. So obviously we should think about these sort of from the context of the full Finnair system. Now on to a few comments about our fuel. The first picture may be familiar to you, as I'm sure that these are topics we are all following, but we still wanted to build into one graph the situation for the crude oil, so really sort of Brent. This is dollars per barrel. Then we built in the diesel, because diesel is also an important refined product, and we all see that through the headlines all the time right now. And then on the top here you see the development in the sort of brownish color for the jet fuel. And you see how that has been the tightest market and really sort of the most constrained situation. Also really leading to elevated prices compared with sort of historical levels here. And I think this context is good to understand. We saw during the summer when there was this short window where peace seemed maybe a little bit making progress, that there was a pretty rapid drop in the Brent prices, the crude oil prices. Now the refined products will also still need to digest any supply chain issues, any damage that may have been caused in the war that maybe is not so transparent right now. So there might always be delays. However, we have of course seen also in the summer the drop and now we see the elevated prices again. So on the back of this information, we should also consider what is our hedging position and sort of how we look at the situation going forward. And I would never dare to say that there is a perfect crystal ball that would tell us what will the price of jet fuel be for next year. And I think we need to take into account a number of considerations when we think about the impact for Finner. But one important one obviously is hedging. And therefore, if you look at this still for Q4, even for Q1, you can see that our hedging ratios are fairly on a good level. And we've also brought you the detail of kind of what are the prices that we have locked in with these hedges. So you also see that those are on historically even I would say pretty reasonable prices. Now the challenge obviously being that in a market that is so volatile and with so high prices, How do you then lock in low prices again? Well, that is fairly difficult. So we are at the moment sort of, we have touched the lower limit of our hedging policy. We are a little bit below in some quarters. And I think the direction going forward is that we would be looking for that right market opportunity to grow again the hedging levels. More towards sort of being on a somewhat higher level now next year is at 34%. But we also need to find sort of the right momentum for that. And I think we have a good understanding of what we want to do. and the direction is clear, but the situation right now at the market is very volatile. So this is of course something that will impact a lot our thinking, our planning and the way how we need to consider the agility for next year, the cost levels for next year, et cetera. But 34% is the hedged amount for next year as we speak. Then my final slide. And with a balance sheet, I want to say a few words about the future. So the first one is unflown ticket liability. You can see and observe the strength of the market and the demand for Finnair's flight in the fact that the unflown ticket liability is up 22% compared with a year ago. And I think for a Q3 end, which still seasonally is much lower than compared with what we had at the end of June, this is a strong number. And I think that speaks to kind of the market strength at least for one quarter going forward and even into the winter season and into next year. Then for our future, Turkka has spoken about the investments. Our thinking for this year is that we will spend 444 million for CAPEX. Well, we spent a bit north of 200 million so far. But as Turkka also said, we are still expecting one more Airbus 350 to be delivered this year and then to be taken into use to be flying next year. So I think that plan is pretty solid that we have right now. And our balance sheet is strong. Our leverage is currently at 0.6 times. So it means that we are well prepared for the investments ahead of us in the next years. So Turkka, I think this is a good time to hand over to you to talk a little bit about the fleet still.