Finnair Plc Press release 27 October 2011 AT 09:31
The first steps taken in the structural change during the profitable third quarter
| Key figures |
| July-Sept 2011 | July-Sept 2010 | Change % |
Jan - Sept 2011 |
Jan - Sept 2010 |
Change % | ||
| Turnover and result | |||||||
| Turnover | EUR million | 607.2 | 551.4 | 10.1 | 1 680.3 | 1 506.4 | 11.5 |
| Operational result, EBIT* | EUR million | 27.6 | 41.9 | -34.1 | -29.3 | 2.0 | |
| Operational result, %of turnover | % | 4.5 | 7.6 | -1.8 | 0.1 | ||
| Operating result, EBIT | EUR million | 10.6 | 50.6 | -79.1 | -57.7 | -8.6 | |
| EBITDAR | EUR million | 75.8 | 86.1 | -12.0 | 113.2 | 138.6 | -18.3 |
| Result before taxes | EUR million | 3.1 | 43.9 | -92.9 | -73.3 | -23.4 | |
| Net result | EUR million | 1.9 | 32.4 | -94.1 | -54.9 | -17.1 | |
| Balance sheet and cash flow | |||||||
| Equity ratio | % | 33.1 | 34.0 | ||||
| Gearing | % | 41.9 | 33.5 | ||||
| Adjusted gearing | % | 101.4 | 90.0 | ||||
| Capital expenditure, CAPEX | EUR million | 121.0 | 12.9 | 182.8 | 156.4 | ||
|
Return on capital employed, ROCE, 12 months rolling |
% | -3.4 | -2.9 | ||||
|
Return on equity, ROE, 12 months rolling |
% | -7.5 | 6.4 | ||||
| Net cash flow from operating activities | EUR million | -5.7 | 46.8 | 46,4 | 48.4 | ||
| Share | |||||||
| Share price at end of quarter | EUR | 2.94 | 4.95 | 2.94 | 4.95 | ||
| Earnings per share | EUR | 0.00 | -0.24 | -0.48 | -0.18 | ||
| Traffic data, unit costs and revenue | |||||||
| Passengers | 1,000 | 2 174 | 1 960 | 11.0 | 6 100 | 5 479 | 11.3 |
| Available seat kilometres, ASK | million | 7 553 | 6 612 | 14.2 | 22 057 | 19 082 | 15.6 |
| Revenue passenger kilometres, RPK | million | 5 849 | 5 194 | 12.6 | 16 305 | 14 781 | 10.3 |
| Passenger load factor, PLF | % | 77.4 | 78.5 | -1.1 | 73.9 | 77.5 | -3.5 |
| Unit revenue per available seat kilometre, RASK | cents/ASK | 6.4 | 6.7 | -4.3 | 6.0 | 6.2 | -3.3 |
| Unit revenue per revenue passenger kilometre, yield | cents/RPK | 7.4 | 7.5 | -1.9 | 7.2 | 7.03 | 2.0 |
| Unit cost per available seat kilometre, CASK | cents/ASK | 6.2 | 6.3 | -1.3 | 6.3 | 6.5 | -2.9 |
| CASK excluding fuel | cents/ASK | 4.5 | 4.6 | -3.5 | 4.6 | 4.9 | -5.9 |
| Available tonne kilometres, ATK | million | 1 196 | 1 020 | 17.3 | 3 420 | 2 848 | 20.1 |
| Revenue tonne kilometres, RTK | million | 769 | 679 | 13.3 | 2 125 | 1 865 | 14.0 |
| Cargo and mail | tonnes | 39 286 | 34 891 | 12.6 | 107 852 | 89 426 | 20.6 |
| Cargo traffic unit revenue per tonne kilometre | cents/RTK | 26.3 | 25.6 | 3.1 | 26.7 | 25.5 | 4.8 |
| Overall load factor | % | 64.4 | 66.6 | 62.1 | 65.5 | -3.3 | |
| Flights | 1 | 19 764 | 19 575 | 1.0 | 60 595 | 56 616 | 7.0 |
| Personnel | |||||||
| Average number of employees | 7 514 | 7 608 | -1.2 |
*Operational result: Operating result (EBIT), excluding non-recurring items, capital gains and changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves
Finnair CEO Mika Vehviläinen on Q3 2011:
We achieved a positive result in the seasonally strong third quarter, with operational profit totalling 27.6 million euros and our balance sheet is still strong. Even though this year has been a difficult one for us, there was still some positive news in the review period. In August, authorities approved Flybe Nordic’s acquisition of Finnish Commuter Airlines. I firmly believe that this associated undertaking has good potential of becoming the leading company in regional aviation in the Nordic countries and the Baltic States. In the future, it will not only increase local travel but also boost passenger streams for our Asian and European feeder traffic. Our corporate sales have also continued its positive development and I am especially pleased that the Asian corporate sales reached almost 50% growth year-on-year.
Customer satisfaction has further improved and the American Travel + Leisure magazine ranked Finnair among the top 12 airlines in the world when it comes to quality of service. The efforts devoted to the development of our customer service identity during the past year are beginning to bear fruit, for which our personnel deserves special thanks.
The Singapore route, launched in May, has been well received, and we can be pleased with the first few months of this new route. We have reviewed our route network with a critical eye and made route-specific changes to our winter season flight selection. We will continue the assessment of our network in order to maximise its efficiency.
Nevertheless, we cannot be satisfied with the third quarter results, especially because - as we have stated before - that the last quarter of the year will not be profitable. Therefore, the structural change and cost saving measures that we announced in August are absolutely necessary. We have systematically gone through all of our cost items and assessed the areas where we could cut costs without jeopardizing the future of our business. We have already begun taking measures in areas where it is possible to make savings quickly. For more extensive savings, we will discuss with employee representatives and analyse various alternative ways of carrying out the structural changes required to achieve these savings.
We estimate that we will achieve this year a smallish part of our target of reducing annual costs by 140 million euros, while the most substantial progress will take place in 2012, with some measures still to be taken in 2013. In September, we announced our plan to cut costs both in the company’s support functions as well as in marketing and distribution. At the same time, we also initiated appropriate employee consultations. In addition, we have announced that we are investigating partnership opportunities in Catering and Technical Services and conducting negotiations with Swissport about the transfer of baggage and apron services at the Helsinki-Vantaa airport to them. We will certainly be able to provide more information about these and other plans as investigations and planning proceed.
Changes are needed also because of the current uncertainty in the global economy. After the European holiday season, business travel has not taken off in line with our earlier expectations, and in cargo traffic, the load factor has declined due to overcapacity in the industry. In addition there are some indications that the global economy has also started to have an impact on the Asian demand. Travel Services suffered from overcapacity in the industry, and consequently the Aurinkomatkat-Suntours continued to report a heavy loss. In addition, the price of oil has remained at an exceptionally high level despite the weakened economic outlook. Traditionally the price of oil has decreased as the economic outlook weakens. Accordingly, we updated our outlook for the second half of the year in early October to be more pessimistic.
The state of global economy will shake the competitive positions in the industry as well as the viability of airlines in an unprecedented manner. Therefore, it is clear that we must implement the measures to improve our profitability as soon as possible.
We are committed to making structural changes and developing Finnair to make it even stronger as it faces future competitive challenges.
Business environment and development of Finnair’s flight operations
In the third quarter, growth in turnover slowed down due to increasing uncertainty in the global economy. Year-on-year, Finnair’s turnover increased by 55.8 million euros to 607.2 million euros. Revenue from Asian traffic grew by 22.6% year-on-year. Despite the economic slowdown, the price of fuel has remained high, which has weakened the profitability. The increasing macroeconomic uncertainty can be seen in the weaker than anticipated development of business travel pre-bookings. Also the profitability of Finnair’s cargo traffic declined due to a decline in load factors and cargo demand, and Aurinkomatkat-Suntours, Finnair's tour operator subsidiary, continued to suffer from overcapacity in the industry. On October 6, 2011 Finnair updated its outlook for the second half of 2011 and estimated that it will not reach profitability in the second half of the year, contrary to its earlier expectations.
Finnair’s profitability declined and its operational result was 27.6 million euros, compared with 41.9 million euros in the corresponding period of the previous year. Due to improvements in operational efficiency, operating costs excluding fuel were in line with expectations, at 439.9 million euros (397.2). Unit costs, excluding fuel, fell by 3.5% compared with the previous year. Fuel hedging gains were 21 million euros in July–September. According to the Finnair hedging policy, the degree of hedging in October–December is 79%.
Progress in the cost saving and structural change programme
The cost saving and structural change programme, announced in connection with the second-quarter interim report in August 2011, has proceeded as planned. The programme encompasses all functions of the company, and key areas in focus are organisation, fleet, IT, crew, maintenance, sales and distribution and airport operations costs.
The company’s plan to streamline its administration and increase the efficiency of its marketing and distribution activities was announced August 29, 2011, and employee consultations have been initiated in Finance, HR, IT and marketing organizations of the airline business. The estimated workforce reduction need in these functions is approximately 155 positions in aggregate. In addition, Finnair aims to significantly improve the cost efficiency of its IT, procurement, distribution and marketing activities and decrease their spending.
Finnair has started negotiations to transfer baggage and apron services to Swissport, a Swiss company specializing in these operations. Furthermore, the company aims to renegotiate aircraft leasing agreements which are about to expire align them with the current leasing market situation. The company is also evaluating the optimum size of its fleet in European air traffic. The company is currently analysing different alternatives to find a cost-efficient solution for component and engine maintenance services and investigating possible partnering opportunities in Catering. In addition, Finnair has initiated numerous smaller saving measures throughout the company.
According to preliminary estimates, the largest cost savings will be achieved in personnel and maintenance costs, each of these amounting to approximately 25% of the total savings target. The share of sales and distribution costs is approximately 15% of the total savings target and that of IT, fleet and ground handling costs combined approximately 30%.
Finnair estimates that approximately 10 million euros of its aim of reducing annual costs by 140 million euros by 2014 will already be achieved during this year. Implementation of cost savings that require structural changes are expected to take place mainly in 2012 and the overall target is expected to be achieved by the end of 2013.
Outlook for the second half of 2011
On October 6, 2011 Finnair updated its outlook for the second half of 2011 and estimated that it will not reach profitability in the second half of the year. The company’s earlier expectation was that the second half of the year would be profitable.
The current estimate is that the operational result of the second half of the year will be slightly negative. However, it is expected that the result for the second half of 2011 will be better than that of the first half of the year.
The company reiterates its estimate that the operational result for 2011 will be negative. Finnair’s turnover is expected to grow by more than 10% for the entire year 2011.
Financial Result, July 1–September 30, 2011
In July–September 2011, Finnair Group’s turnover was 607.2 million euros, increasing 10.1% year-on-year.. The Group’s operational result, i.e. EBIT, excluding non-recurring items, capital gains and changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves was 27.6 million euros (41.9). The result before taxes was 3.1 million euros (43.9) and the net result for the period was 1.9 million euros (32.4).
Changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves impaired the reported result for the third quarter by 15.3 million euros. The impact of this item in the corresponding period of the previous year was positive by 8.4 million euros.
The exchange rate fluctuation of the US dollar in relation to the euro did not affect the operational result significantly in the third quarter. At the end of September, the degree of hedging for a dollar basket over the following 12 months was 72%.
In the third quarter, euro-denominated operating costs were 584.2 (513.9) million euros. Fuel costs, including price and currency hedging, rose by 23.7% and were 144.3 million euros. The company’s personnel costs were 110.5 million euros (107.0). Other rental payments were 36.2 million euros (20.9). This includes the rental payments for capacity bought from other airlines, which share has grown significantly due to increased use of leased capacity.
Financial Result, January 1–September 30, 2011
In January–September 2011, the Finnair Group’s turnover was 1 680.3 million euros (1 506.4 million euros in the corresponding period of 2010). The Group’s operational result, i.e. EBIT, excluding non-recurring items, capital gains and changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves was a loss of 29.3 million euros (2.0 profit). The result before taxes was a loss of 73.3 million euros (23.4 loss)) and the net result for the period was -54.9 million euros (-17.1).
Changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves impaired the reported result for the first nine months of the year by 7.0 million euros. The impact of this item was -12 million euros year-on-year.
In the review period, euro-denominated operating costs were 1 722.2 (1 520.8) million euros. Fuel costs, including price and currency hedging, rose by 25.7% and were 408.8 million euros (325.1). The company’s personnel costs were 337.7 million euros (324.8). Other rental payments totaled to 96.6 million euros (61). This includes the rental payments for capacity bought from other airlines, which share has grown significantly due to increased use of leased capacity.
Net cash flow from operating activities in January-September 2011 was 46.4 million euros (48.4).
Return on capital employed for the last 12 months was 3.4% (-2.9) and return on equity was -7.5% (6.4).
Disclosure procedure
Finnair Plc. follows the disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority and hereby publishes its Interim Report for January-September 2011 enclosed to this stock exchange release. Finnair’s Interim Report for January-September 2011 is attached to this release in pdf format and is also available on the company’s website at www.finnairgroup.com.
FINNAIR PLC
Board of Directors
Media briefing
Finnair will have its media briefing at 11:00 a.m. and analyst briefing at 12:30 p.m. at the World Trade Centre, Helsinki-Vantaa Airport, Lentäjäntie 3, on October 27, 2011.
Finnair Plc
Communications
Arja Suominen
Senior Vice President, Communications and Corporate Responsibility
For further information, please contact:
Chief Financial Officer
Erno Hildén
telephone +358 9 818 8550
erno.hilden@finnair.com
Senior Vice President, Communications and Corporate Responsibility
Arja Suominen
telephone +358 9 818 4028
arja.suominen@finnair.com, comms@finnair.com
Investor Relations Officer
Kati Kaksonen
Financial Communications and Investor Relations
telephone +358 9 818 2780
kati.kaksonen@finnair.com, investor.relations@finnair.com
The consolidated financial statements for 2011 will be published on February 9, 2012. The annual general meeting of Finnair Plc. is planned to be held on 28 March 2012. The notice to convene the annual general meeting is given later on by the Board of Directors.
Financial reporting in 2012:
The interim report for January 1–March 31, 2012 will be published on April 27, 2012.
The interim report for January 1–June 30, 2012 will be published on August 10, 2012.
The interim report for January 1–September 30, 2012 will be published on October 26, 2012.
